<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
Commission file number 1-8594
PRESIDENTIAL REALTY CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 13-1954619
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 South Broadway, White Plains, New York 10605
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code 914-948-1300
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------- ----------------
<S> <C>
Class A Common Stock American Stock Exchange
Class B Common Stock American Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
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 the
filing requirements for at least the past 90 days. Yes __x__ No ______
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $18,940,000 at March 6, 2000.
The number of shares outstanding of each of the registrant's classes of
common stock on March 6, 2000 was 478,940 shares of Class A common and 3,214,279
shares of Class B common.
Documents Incorporated by Reference: The Company's definitive Proxy
Statement for its Annual Meeting of Shareholders to be held on June 14, 2000,
which Proxy Statement will be filed with the Securities and Exchange Commission
pursuant to Regulation 14A, is incorporated by reference into Part III of this
Form 10-K.
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PRESIDENTIAL REALTY CORPORATION
INDEX
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<CAPTION>
<S> <C>
FACING PAGE 1
INDEX 2
PART I
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data 22
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 24
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 38
Item 8. Financial Statements and Supplementary Data 38
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 38
PART III
Item 10. Directors and Executive Officers of the
Registrant 38
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial
Owners and Management 38
Item 13. Certain Relationships and Related
Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 39
Table of Contents to Consolidated Financial Statements 44
</TABLE>
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<PAGE> 3
ITEM 1. BUSINESS
(a) General
Presidential Realty Corporation is a Delaware corporation organized in 1983 to
succeed to the business of a company of the same name which was organized in
1961 to succeed to the business of a closely held real estate business founded
in 1911. The terms "Presidential" or the "Company" refer to the present
Presidential Realty Corporation or its predecessor company of the same name and
to any subsidiaries. Since 1982 the Company has elected to be treated as a real
estate investment trust ("REIT") for Federal and State income tax purposes. See
Qualification as a REIT.
The Company operates in a single business segment, investments in real estate
related assets.
The Company's principal assets fall into the following three general categories:
(i) The largest portion of the Company's assets are equity interests in
fourteen rental properties and one parcel of land. These properties
have an historical cost of $35,647,633, less accumulated depreciation
of $8,231,480, resulting in a net carrying value of $27,416,153. See
Properties below.
(ii) A substantial portion of the Company's assets consists of notes
receivable, which are reflected on the Company's Consolidated Balance
Sheet at December 31, 1999 as "Mortgage portfolio: sold properties,
accrual". The $28,481,797 aggregate principal amount of these notes
have been reduced by $1,837,722 of discounts (which reflect either the
difference between the stated interest rates on the notes and the
market interest rates at the time the notes were accepted or discounts
received on the purchase of notes) and $11,320,373 of gains on sales
which have been deferred. See Notes 1-E and 1-F of Notes to
Consolidated Financial Statements. Accordingly, the net carrying value
of the Company's "Mortgage portfolio: sold properties" was $15,323,702
at December 31, 1999.
All of the loans included in this category of assets were in good
standing at December 31, 1999.
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<PAGE> 4
While notes reflected under "Mortgage portfolio: sold properties,
accrual" consist primarily of notes received from sales of real
properties previously owned by the Company, this category of assets
also includes notes in the aggregate principal amount of $1,091,023
which relate to sold cooperative apartments, the majority of which were
either acquired by the Company in connection with the settlement
agreement executed in November, 1991 (the "Settlement Agreement") with
Ivy Properties, Ltd. and its affiliates (collectively "Ivy") or
obtained as a result of sales of cooperative apartments which the
Company received pursuant to the Settlement Agreement. See Relationship
with Ivy Properties, Ltd. below.
(iii) A smaller portion of the Company's assets consists of notes
receivable in the aggregate principal amount of $1,574,028 from loans
made to Ivy in connection with the conversion of apartment buildings to
cooperative ownership or the sales in 1981 and 1984 by the Company to
Ivy of two apartment projects. These loans are reflected on the
Company's Consolidated Balance Sheet at December 31, 1999 as "Mortgage
portfolio: related parties, accrual". The principal amounts of these
notes have been reduced by discounts and valuation reserves of $132,073
and deferred gains of $908,343 and, accordingly, these notes have a net
carrying value at December 31, 1999 of $533,612. Management believes
that it holds sufficient collateral to protect its interests in all of
the outstanding loans to Ivy to the extent of the net carrying value of
these loans. At December 31, 1999, all of the loans due from related
parties were in good standing. See Relationship with Ivy Properties,
Ltd., and Notes 2 and 18 of Notes to Consolidated Financial Statements.
Under the Internal Revenue Code of 1986, as amended (the "Code"), a REIT which
meets certain requirements is not subject to Federal income tax on that portion
of its taxable income which is distributed to its shareholders, if at least 95%
of its "real estate investment trust taxable income" (exclusive of capital
gains) is so distributed. Since January 1, 1982, the Company has elected to be
taxed as a REIT and has paid regular quarterly cash distributions. Total
dividends paid by the Company in 1999 were $.64 per share. In addition, at
December 31, 1999, the Company elected to retain $.17 per share of long-term
capital gains that the Company had received during 1999 and subsequently paid a
capital gains tax of $.06 per share. As a result, each shareholder (i) includes
its pro rata
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share of the designated long-term capital gains in computing its long-term
capital gains, (ii) receives a tax credit for its pro rata share of the tax paid
by the REIT and (iii) adjusts the basis of its shares for the difference between
the amount of capital gains and the tax credit received by the shareholder.
While the Company intends to operate in such a manner as to enable it to be
taxed as a REIT, and to pay dividends in an amount sufficient to maintain REIT
status, no assurance can be given that the Company will, in fact, continue to be
taxed as a REIT, that distributions will be maintained at the current rate or
that the Company will have cash available to pay sufficient dividends in order
to maintain REIT status. See Qualification as a REIT and Market for the
Registrant's Common Equity and Related Stockholder Matters.
At December 31, 1999, the Company employed twelve persons.
(b) Investment Strategies
The Company's current overall investment strategy is to make investments in real
property which offer attractive current yields with potential for capital
appreciation. The Company's investment policy is not contained in or subject to
restrictions included in the Company's Certificate of Incorporation or Bylaws,
and there are no limits in the Company's Certificate of Incorporation or Bylaws
on the percentage of assets which it may invest in any one type of asset or the
percentage of securities of any one issuer which it may acquire. The investment
policy may, therefore, be changed by the Directors or Officers of the Company
without the concurrence of the holders of its outstanding stock. However, to
continue qualifying as a REIT, the Company must restrict its activities to those
permitted under the Code. See Qualification as a REIT.
The Company's current primary investment strategies are as follows:
(i) Equity Properties
The Company's current investment policy is focused on acquiring
additional equity interests in income producing properties, principally
moderate income apartment properties in the eastern United States.
Although the Company's present intention is to acquire additional
moderate income apartment properties, Presidential has in the past
invested in other commercial properties, including office buildings,
shopping centers and light industrial properties, and may do so in the
future.
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<PAGE> 6
Geographically, the Company expects to invest primarily in the eastern
United States, although Presidential has in the past invested in other
locations and may do so in the future. However, the Company's plans to
expand its portfolio of real estate equities may be adversely affected
by limitations on its ability to obtain funds for investment on
satisfactory terms from external sources. Pursuant to this policy
strategy, subsequent to year end the Company acquired a 224 unit
apartment property in Clearwater, Florida and executed a contract to
acquire a 320 unit apartment property in Norcross, Georgia, a suburb of
Atlanta, which contract is expected to close in April, 2000.
(ii) Holding of Long Term Notes
The Company holds and expects to continue to hold long term mortgage
notes obtained from the sales of real property previously owned by the
Company. These notes provide for balloon principal payments at varying
times. The Company may in appropriate circumstances agree to extend and
modify these notes. See the table set forth below under Loans and
Investments.
The capital gains from sales of real properties previously owned by the
Company are recognized for income tax purposes on the installment
method as principal payments are received. To the extent that such
payments are received by Presidential, it may, as a REIT, either (i)
elect to retain such payments, in which event it will be required to
pay Federal and State income tax on the portion of the payments which
represent capital gain, (ii) distribute all or a portion of such
payments to shareholders, in which event Presidential will not be
required to pay taxes on the capital gain to the extent that it is
distributed to shareholders or (iii) elect to retain such payments and
designate them as a retained capital gain dividend, in which event the
Company would pay the Federal tax on such gain, the shareholders would
be taxed on their share of the undistributed long-term capital gain and
the shareholders would receive a tax credit for their share of the
Federal tax that the Company paid and adjust the basis of their stock
for the difference between the long-term capital gain and the tax
credit. To the extent that Presidential retains such payments, the
proceeds, after payment of any taxes, will be available for future
investment. Presidential has not adopted a specific policy with respect
to the distribution or retention of capital gains, and its decision as
to any such gain will be made in
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connection with all of the circumstances existing at the time the gain
is recognized. It should be noted that there can be no assurance that
the balloon principal payments due in accordance with the purchase
money notes will actually be made when due.
(iii) Cooperative/Condominium Conversion Loans
The Company is not currently making loans in connection with
cooperative/condominium conversion projects, but has made such loans in
the past. Presidential made a number of cooperative conversion loans
during the 1980's, the majority of which were made to Ivy. In
satisfaction of certain indebtedness due from Ivy, Presidential
received cooperative apartment units from Ivy (see Relationship with
Ivy Properties, Ltd.). Presidential has sold the majority of these
units and the remaining units are classified as real estate. Although
it may from time to time sell individual or groups of occupied
apartments, Presidential generally intends to continue to hold these
apartments until they become vacant and may, in some circumstances,
rerent apartments free from rent regulations after they have become
vacant.
(iv) Funding of Investments
In the past, the Company has obtained funds to make loans and
investments from excess cash from operations or capital transactions,
loans from financial institutions secured by specific real property or
from general corporate borrowings. Such loans have in the past been,
and may in the future be, secured by real property and provide for
recourse to Presidential. However, funds may not be readily available
from these sources and such unavailability may limit the Company's
ability to make new investments. See Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity
and Capital Resources.
(c) Loans and Investments
The Company's portfolio of investments consists of the three types of assets
described under General above. At December 31, 1999, all of the loans included
in "Mortgage portfolio: sold properties" were current.
7
<PAGE> 8
On February 22, 1999, Presidential consummated the sale of its Fairfield Towers
First and Second Mortgage Notes (excluding a $4,000,000 portion of the Second
Mortgage Note, which it retained). These notes had been secured by 997 unsold
condominium units at Fairfield Towers in Brooklyn, New York. At the date of the
sale, the Fairfield Towers First Mortgage Note had a net carrying value of
$13,957,284 after deducting a discount. The Fairfield Towers Second Mortgage
Note, which was classified as an impaired loan, had a net carrying value of
$1,311,908 after deducting a discount and a deferred gain. The aggregate sales
price for the First Mortgage Note and the Second Mortgage Note (excluding the
$4,000,000 interest retained by Presidential) was $21,350,000.
As a result of this transaction, Presidential repaid the $10,195,442 outstanding
principal balance of its bank note payable, which had been secured by
Presidential's interest in the First Mortgage Note. Presidential recognized a
gain on sale of $7,393,844 net of Federal taxes of $220,500.
The $4,000,000 portion of the Second Mortgage Note retained by Presidential was
modified to provide for interest at the rate of 9.625% per annum for the first
three years and 10.5% per annum for the remaining seven years. The $4,000,000
outstanding principal balance is due at maturity on February 18, 2009. To secure
this obligation, Presidential obtained subordinate security interests in three
apartment properties located in New Jersey as collateral for the Note.
On January 28, 1999, the Company sold its interest in the $3,235,833 Grant House
wraparound mortgage note, which had been classified as an impaired loan. The
Company's $1,023,593 equity in its second mortgage wraparound note was sold for
a purchase price of $500,000 in connection with the sale by the owner of the
apartment property. As a result of this transaction, Presidential wrote off the
$2,212,240 balance on the first mortgage and the related $2,212,240 mortgage
debt, $75,000 of the sales proceeds was applied to accrued and unpaid interest
and the Company recognized a gain on sale of $425,000.
In 1999, the Company (i) repaid the $2,300,000 first mortgage
indebtedness underlying its $11,000,000 wraparound mortgage notes secured by the
Crown Tower and Madison Towers apartment properties in New Haven, Connecticut,
(ii) received a principal repayment of $1,000,000 on the notes and paid a
$1,000,000 deferred brokerage commission (which had been deferred from the sale
of the New Haven properties in 1984) and (iii) consolidated the remaining
$12,300,000 of indebtedness into a single note and modified the terms thereof.
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The $12,300,000 note provides for an interest rate of 10% per annum with a
one-half of one percent annual rate increase and additional interest of $369,000
due at maturity on June 29, 2002. The note is now secured by a second mortgage
on the Encore Apartments and commercial space located in New York, New York and
by a personal guaranty in the maximum amount of $2,500,000 from one of the
owners of the property. As a result of these transactions, the Company received
a $30,750 loan modification fee and recognized a deferred gain on sale of
$1,000,000.
The following tables set forth information as of December 31, 1999 with respect
to the mortgage loan portfolio resulting from the sale of properties and the
loan portfolio due from Ivy.
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MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
DECEMBER 31, 1999
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<TABLE>
<CAPTION>
Net
Note Deferred Carrying
Name of Property Receivable Discount Gain Value
- ---------------- ---------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Chelsea Village Apartments (1) $ 4,000,000 $ 1,442,001 $ $ 2,557,999
Atlantic City, NJ
Liberty Garden
Bergenfield, NJ
Town Oaks Apartments
South Bound Brook, NJ
Encore Apartments (2) 12,300,000 6,991,540 5,308,460
New York, NY
Mark Terrace Associates (3) 2,244,000 558,250 1,685,750
Bronx, NY
Mark Terrace Associates 69,262 69,262
Bronx, NY
Newcastle Apartments (4) 6,000,000 2,991,850 3,008,150
Greece, NY
Pinewood I & II 100,000 100,000
Des Moines, IA
Windsor at Arbors (5) 1,175,500 261,208 684,991 229,301
Alexandria, VA
Woodland Village (6) 958,343 44,989 913,354
Hartford, CT
Woodland Village (6) 543,669 74,556 469,113
Hartford, CT
----------- ----------- ---------- -----------
Subtotal 27,390,774 1,822,754 11,226,631 14,341,389
----------- ----------- ---------- -----------
Interest Interest
Maturity Rate Rate
Name of Property Date 1999 Range
- ---------------- ---- ---- -----
<S> <C> <C> <C>
Chelsea Village Apartments 2009 9.625% 9.625-10.50%
Atlantic City, NJ
Liberty Garden
Bergenfield, NJ
Town Oaks Apartments
South Bound Brook, NJ
Encore Apartments 2002 11.50% 10.00-11.50%
New York, NY
Mark Terrace Associates 2005 5.24% 5.16-11.16%
Bronx, NY
Mark Terrace Associates 2002 9.00% 9.00%
Bronx, NY
Newcastle Apartments 2006 8.32% 7.90-8.50%
Greece, NY
Pinewood I & II 2001 12.00% 12.00%
Des Moines, IA
Windsor at Arbors 2007 8.25% 8.25-9.25%
Alexandria, VA
Woodland Village 2005 10.00% 10.00-10.25%
Hartford, CT
Woodland Village 2005 10.00% 10.00-10.25%
Hartford, CT
</TABLE>
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MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
DECEMBER 31, 1999 (CONTINUED)
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<TABLE>
<CAPTION>
Net
Note Deferred Carrying
Name of Property Receivable Discount Gain Value
- ---------------- ---------- -------- ---- -----
<S> <C> <C> <C> <C> <C>
Sold Co-op Apartments:
Emily Towers (7)(8) $ 206,116 $ 729 $ 5,687 $ 199,700
Flushing, NY
330 W.72nd St (7)(9) 58,397 8,962 49,435
New York, NY
330 W.72nd St. Purchasers (7) 129,428 49,089 80,339
New York, NY
Towne House (7)(8) 536,592 4,134 38,966 493,492
New Rochelle, NY
6300 Riverdale Ave (7)(8) 18,965 97 18,868
Riverdale, NY
Mark Terrace 35,271 35,271
Bronx, NY
Sherwood House (7)(10) 22,165 1,046 21,119
Long Beach, NY
Rye Colony 84,089 84,089
Rye, NY
----------- ----------- ----------- -----------
Subtotal 1,091,023 14,968 93,742 982,313
----------- ----------- ----------- -----------
Total Notes Receivable-
Sold Properties $28,481,797 $ 1,837,722 $11,320,373 $15,323,702
=========== =========== =========== ===========
Interest Interest
Maturity Rate Rate
Name of Property Date 1999 Range
- ---------------- ---- ---- -----
<S> <C> <C> <C>
Sold Co-op Apartments:
Emily Towers 2002-2008 7.00-9.50% 7.00-9.50%
Flushing, NY
330 W.72nd St 2016 8.00% 8.00-8.50%
New York, NY
330 W.72nd St. Purchasers 2003 8.75% 8.75%
New York, NY
Towne House 2002-2010 7.75-9.50% 7.75-9.50%
New Rochelle, NY
6300 Riverdale Ave 2003 7.50-8.25% 7.50-8.25%
Riverdale, NY
Mark Terrace 2003 9.00% 9.00%
Bronx, NY
Sherwood House 2002-2010 9.00-9.50% 9.00-9.50%
Long Beach, NY
Rye Colony 2009-2010 8.00-11.00% 8.00-11.00%
Rye, NY
</TABLE>
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MORTGAGE PORTFOLIO: NOTES RECEIVABLE - SOLD PROPERTIES
DECEMBER 31, 1999 (CONCLUDED)
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(1) The Fairfield Towers Second Mortgage was modified in February, 1999,
when the Company sold the Fairfield Towers First Mortgage and
substantially all of the Fairfield Towers Second Mortgage. The
modification provides for an interest rate of 9.625% per annum through
February 17, 2002 and an interest rate of 10.50% per annum thereafter.
The note matures on February 18, 2009. The discount on this note was
computed at a rate of 18%. To secure this obligation, Presidential
obtained subordinate security interests in three apartment properties
located in New Jersey (having an estimated equity value of
approximately $7,000,000) as collateral for the note.
(2) In June, 1999, the Crown Tower and Madison Towers wraparound mortgage
notes were modified. The Company repaid the $2,300,000 first mortgage
debt on these properties (wrap mortgage debt on sold properties),
received a $1,000,000 principal repayment and consolidated the
$12,300,000 outstanding principal balance of the mortgage notes into
one consolidated note. The modified note provides for an interest rate
of 10% per annum, with a 1/2 percent annual rate increase and
additional interest of $369,000 due at maturity, which will increase
the effective interest rate on the note to 11.50% per annum through
maturity. The modified note matures on June 29, 2002, and is secured by
a second mortgage on the Encore Apartments and commercial space located
in New York, New York and by a limited guarantee of $2,500,000 from one
of the owners of the property.
(3) As provided by the terms of the Mark Terrace Associates note, the
maturity date of the note was extended in 1999 from November 29, 1999,
to November 29, 2005. In addition, annual interest rates on the note
increase by 1% per year, from 6.16% per annum at November 30, 1999 to
11.16% per annum at November 30, 2004.
(4) Interest on this note was 6% per annum through July 31, 1999 and is
7.90% per annum through July 31, 2001. Thereafter interest will be at a
rate equal to 150 basis points in excess of the yield on specified
Treasury bills. In connection with the modification of the note in
1994, the borrower paid a $628,863 fee in order to increase the
effective interest rate on the note to 8.5% per annum through July 31,
1999. In September, 1997, the Company extended the maturity date of the
note to July 31, 2006 and the Company and the debtor agreed to
substitute Newcastle Apartments in Greece, New York for Presidential
Park Apartments in Columbus, Ohio as security for this note.
(5) The discount on this note was computed at a yield of 12%. As a result
of a modification of the note in July, 1997, the maturity date of the
loan was changed from 2015 to 2007, with interest rates of 8.25%
through 1999 and 9.25% thereafter. In addition, the Company and the
debtor agreed to substitute Windsor at Arbors in Alexandria, Virginia
for Woodgate Apartments in Wichita, Kansas, as security for this note.
(6) The discounts on the Woodland Village notes were computed at a yield of
25%. In January, 1997, the maturity dates of these loans were extended
to 2005. As a result of the sale of the Woodland property and the
assumption of the notes by the purchaser in 1998, the interest rate on
the notes was increased from 9% to 10% through 2001 and 10.25%
thereafter. The notes are amortizing monthly based on a 20 year term at
the above rates, and have balloon payments due at maturity.
(7) These notes were either assigned by Ivy as a result of the Settlement
Agreement with Ivy or were received from purchasers of apartments which
Presidential held as foreclosed property.
(8) The amount under discount represents unamortized mortgage points
received from purchasers.
(9) The discount on this note was computed at 16% of face value.
(10) The discount on this note was computed at 15% of face value.
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MORTGAGE PORTFOLIO: NOTES RECEIVABLE - RELATED PARTIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Final
Note Deferred Carrying Maturity Interest
Name of Property Receivable Discount Gain Value Date Rate
- ---------------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
UTB End Loans (1) $158,183 $100,467 $ $ 57,716 Various Various
Consolidated Loans (2) 39,259 39,259 2016 Chase Prime
Overlook 908,343 908,343 2003 6.0%
Alexandria, VA
University Towers (3) 468,243 31,606 436,637 Various 11.80 to 25.33%
New Haven, CT
---------- -------- -------- --------
$1,574,028 $132,073 $908,343 $533,612
========== ======== ======== ========
</TABLE>
(1) Ivy's equity in these purchase money notes (which are secured by co-op
apartment units at University Towers, New Haven, CT) was transferred to
Presidential as part of the Settlement Agreement. Included in the
$100,467 discount on these notes is a valuation reserve of $33,944.
This valuation reserve was recorded by the Company in 1997 to reflect
the decline in the estimated fair value of the underlying collateral.
(2) As part of the Settlement Agreement with Ivy, certain of Presidential's
outstanding nonrecourse loans (most of which had previously been
written down to zero) were consolidated into two notes which currently
have an aggregate outstanding principal balance of $4,809,309. The
$39,259 represents Presidential's net carrying value of the notes.
Presidential does not expect to recover any material amounts on these
notes in excess of their net carrying value.
(3) These notes represent a 100% interest in notes receivable held by UTB
Associates, a partnership in which Presidential has a 66-2/3% interest.
These notes are amortized over a period of approximately 28 years from
the date of a co-op apartment sale. Included in the $31,606 discount on
these notes is a valuation reserve of $9,849. This valuation reserve
was recorded by the Company in 1997 to reflect the decline in the
estimated fair value of the underlying collateral.
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(d) Qualification as a REIT
Since 1982, the Company has operated in a manner intended to permit it to
qualify as a REIT under Sections 856 to 860 of the Code. The Company intends to
continue to operate in a manner to permit it to qualify as a REIT. However, no
assurance can be given that it will be able to continue to operate in such a
manner or to remain qualified.
In any year that the Company qualifies as a REIT and meets other conditions,
including the distribution to stockholders of at least 95% of its "real estate
investment trust taxable income" (excluding long-term capital gains but before a
deduction for dividends paid), the Company will be entitled to deduct the
distributions that it pays to its stockholders in determining its ordinary
income and capital gains that are subject to federal income taxation (see Note 8
of Notes to Consolidated Financial Statements). Income not distributed is
subject to tax at rates applicable to a domestic corporation. In addition, the
Company is subject to an excise tax (at a rate of 4%) if the amounts actually or
deemed distributed during the year do not meet certain distribution
requirements. In order to receive this favorable tax treatment, the Company must
restrict its operations to those activities which are permitted under the
Internal Revenue Code and to restrict itself to the holding of assets that a
REIT is permitted to hold.
It should be noted that no assurance can be given that the Company will, in
fact, continue to be taxed as a REIT; that distributions will be maintained at
the current rate; that the Company will have sufficient cash to pay dividends in
order to maintain REIT status or that it will be able to make cash distributions
in the future. In addition, even if the Company continues to qualify as a REIT,
the Board of Directors has the discretion to determine whether or not to
distribute long-term capital gains and other types of income not required to be
distributed in order to maintain REIT tax treatment.
(e) Relationship with Ivy Properties, Ltd.
From 1979 to 1989, Presidential made loans to Ivy Properties, Ltd. and its
affiliates ("Ivy") in connection with Ivy's cooperative conversions of apartment
properties in the New York metropolitan area. In 1981, UTB Associates, a
partnership controlled by Presidential, sold an apartment property to Ivy in
return for purchase money notes. In addition, in 1984, Presidential sold to
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<PAGE> 15
Ivy its 50% partnership interest in the partnership which owned Overlook
Gardens, a 308 unit apartment complex in Alexandria, Virginia for a purchase
money note.
Ivy is owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the "Ivy
Principals"), who are the sole partners of Pdl Partnership, which owns 198,735
shares of the Company's Class A common stock. As a result of the ownership of
the 198,735 shares of Class A common stock described above and 24,601 additional
shares of Class A common stock owned in the aggregate individually by the Ivy
Principals, Pdl Partnership and the Ivy Principals have beneficial ownership of
an aggregate of approximately 47% of the outstanding shares of Class A common
stock of the Company, which class of stock is entitled to elect two-thirds of
the Board of Directors of the Company. By reason of such beneficial ownership,
the Ivy Principals are in a position substantially to control elections of the
Board of Directors of the Company.
Jeffrey Joseph is the President and a Director of Presidential. Thomas Viertel,
an Executive Vice President and the Chief Financial Officer of Presidential, is
the son of Joseph Viertel, a Director and a former President of Presidential,
and the nephew of Robert E. Shapiro, Chairman of the Board of Directors and a
former President of Presidential. Steven Baruch, an Executive Vice President of
Presidential, is the cousin of Robert E. Shapiro and Joseph Viertel.
In November, 1999, these three officers exercised stock options for the purchase
of an aggregate of 60,000 shares of Class B common stock at an exercise price of
$6.125 per share and now hold an aggregate of 87,764 shares of Class B common
stock. Presidential made loans totaling $367,500 to these officers for the
payment of the purchase price of the 60,000 shares. The loans, which are
recourse loans, provide for an interest rate of 8% per annum, mature on November
30, 2004 and are secured by a security interest in the shares. For the year
ended December 31, 1999, interest income on these notes was $4,108. In 1999,
these officers were granted options to purchase an additional 60,000 shares of
Class B common stock. See Note 14 of Notes to Consolidated Financial Statements.
As a result of the deterioration of the sales market for cooperative apartments
in the New York metropolitan area in 1989 and 1990, Ivy defaulted on certain of
its outstanding loans from Presidential in 1990 and 1991. In November, 1991,
Presidential and Ivy consummated a Settlement Agreement with respect to various
outstanding loans to Ivy. The Settlement Agreement was negotiated for
Presidential by a committee of three members of the Board of Directors with no
15
<PAGE> 16
affiliations with the Ivy Principals (the "Independent Committee") and an
officer of Presidential who was not affiliated with the Ivy Principals, and was
approved unanimously by the Board of Directors of Presidential.
In connection with the Settlement Agreement, Presidential received, among other
things, a number of vacant and occupied cooperative apartment units in the New
York metropolitan area and certain third party promissory notes held by Ivy.
Presidential received these assets in exchange for (i) the satisfaction of all
of Ivy's recourse debt to Presidential and certain of its nonrecourse debt to
Presidential with respect to which Presidential held first priority security
interests and (ii) the release by Presidential of certain subordinate security
interests in collateral securing some of the defaulted loans.
Most of Ivy's remaining nonrecourse debt to Presidential was consolidated, on
modified terms, into two nonrecourse loans (collectively, the "Consolidated
Loans") which were collateralized by substantially all of Ivy's remaining
business assets with respect to which Presidential either did not previously
have any security interest or had a junior security interest (collectively, the
"Consolidated Collateral"). The terms of the Settlement Agreement permit Ivy to
use the proceeds of each sale of Consolidated Collateral to (1) pay existing
indebtedness of Ivy to its bank and trade creditors and certain operating
expenses and (2) create and fund specified reserves to provide for payment of
future obligations and potential liabilities. At December 31, 1999, the
Consolidated Loans had an outstanding principal balance of $4,809,309 and a net
carrying value of $39,259. Since, as permitted by the terms of the Consolidated
Loans, most of Ivy's assets have been sold and the sales proceeds used to pay
other recourse obligations of Ivy, Presidential does not expect to recover any
material amount on the Consolidated Loans in excess of their net carrying value.
In 1996, Presidential and the Ivy Principals agreed to a modification of the
Settlement Agreement to provide that the Ivy Principals will make payments on
the Consolidated Loans in an amount equal to 25% of the operating cash flow
(after provision for certain reserves) of Scorpio Entertainment, Inc.
("Scorpio"), a company owned by the Ivy Principals which acts as a producer of
theatrical productions. This agreement, and Presidential's decision not to
exercise an option (which it had received as part of the original Settlement
Agreement) to acquire the capital stock of Scorpio, was made pursuant to the
unanimous determination of the Independent Committee that such actions were in
the best interests of
16
<PAGE> 17
Presidential. During 1999, Presidential received $13,309 of principal payments
and $64,405 of interest on the Consolidated Loans.
The table entitled "Mortgage portfolio: notes receivable - related parties" set
forth under Loans and Investments above reflects all loans to Ivy outstanding at
December 31, 1999. All of such loans are in good standing. Management believes
that it holds sufficient collateral to protect its interests in the loans that
remain outstanding to Ivy to the extent of the net carrying value of these
loans.
Any transactions relating to the implementation of the terms of the Settlement
Agreement, or otherwise involving the Ivy Principals, are subject to the
approval of the Independent Committee.
(f) Competition
The real estate business is highly competitive in all respects. In attempting to
expand its portfolio of owned properties, the Company will be in competition
with other potential purchasers for properties and sources of financing, many of
whom will be larger and have greater financial resources than the Company. As a
result of such competition, there can be no assurance that the Company will be
able to obtain opportunities for new investments at attractive rates of return.
ITEM 2. PROPERTIES
As of December 31, 1999, the Company had an ownership or leasehold interest in
790 apartment units, 645,900 square feet of commercial, industrial and
professional space and one parcel of land, all of which are carried on the
balance sheet at $27,416,153 (net of accumulated depreciation of $8,231,480).
The Company has mortgage debt on the majority of these properties in the
aggregate amount of $39,379,458, all of which is nonrecourse to Presidential
with the exception of $259,071 pertaining to the mortgage on the Mapletree
Industrial Center property.
The chart below indicates the operating results of each of the properties owned
by the Company at December 31, 1999 in accordance with generally accepted
accounting principles ("GAAP") and, following that, in terms of cash flow from
operations.
17
<PAGE> 18
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
REAL ESTATE
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Property
--------
Vacancy
Rentable Rate Mortgage Maturity
Residential Space (approx.) Percent Balance Date
- ----------- --------------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
330 W. 72nd St
New York, NY 3 Apt. Units (7) 0.00% $
6300 Riverdale Ave
Riverdale, NY 8 Apt. Units (7) 0.00%
Broad Park Lodge
White Plains, NY 3 Apt. Units (7) 0.00%
Cambridge Green(3)
Council Bluffs, IA 201 Apt. Units 13.62% 3,165,539 October, 2029
Continental Gardens
Miami, FL 208 Apt. Units 4.80% 7,957,942 August, 2007
Crown Court (4) 105 Apt. Units
New Haven, CT & 2,000 sq.ft. (Net Lease) 2,741,615 November, 2021
of comml. space
Fairlawn Gardens(3)
Martinsburg, WV 112 Apt. Units 17.06% 2,264,850 April, 2008
Sherwood House(5)
Long Beach, NY 1 Apt. Unit (7) 20.87%
Sunwood Apartments
Miami, FL 105 Apt. Units 8.25% 4,806,972 September, 2008
Towne House
New Rochelle, NY 42 Apt. Units (7) 2.85%
University Towers
New Haven, CT 2 Apt. Units (7) 13.24%
Commercial Buildings
- --------------------
Building Industries Center
White Plains, NY 23,500 sq.ft. 1.80% 906,469 May, 2000
Home Mortgage Plaza(6)
Hato Rey, PR 211,000 sq.ft. 1.83% 17,266,846 May, 2008
Mapletree Industrial Center
Palmer, MA 385,000 sq.ft. 2.73% 259,071 June, 2011
University Towers Professional Space(6)
New Haven, CT 24,400 sq.ft. 4.88%
Other - Land
- ------------
Towers Shoppers Parcade,
New Haven, CT 1/4 acre 0.00% 10,154 August, 2001
-----------
$39,379,458
===========
</TABLE>
<TABLE>
<CAPTION>
Property
-------- Cash Flow
Income (Deficiency)
Interest (Loss) from from
Residential Rate Operations (1) Operations (2)
- ----------- ---- -------------- --------------
<S> <C> <C> <C>
330 W. 72nd St
New York, NY $ 3,978 $ 4,867
6300 Riverdale Ave
Riverdale, NY (10,608) (8,486)
Broad Park Lodge
White Plains, NY (3,562) (3,283)
Cambridge Green(3)
Council Bluffs, IA 6.65% (446,359) (147,108)
Continental Gardens
Miami, FL 8.16% 196,261 390,359
Crown Court (4)
New Haven, CT 7.00% 74,442 63,235
Fairlawn Gardens(3)
Martinsburg, WV 7.06% (11,654) 16,828
Sherwood House(5)
Long Beach, NY (13,716) (15,099)
Sunwood Apartments
Miami, FL 6.55% 22,564 146,967
Towne House
New Rochelle, NY 30,281 41,256
University Towers
New Haven, CT (1,188) 593
Commercial Buildings
- --------------------
Building Industries Center
White Plains, NY 9.875% 14,836 26,000
Home Mortgage Plaza(6)
Hato Rey, PR 7.38% 190,016 245,077
Mapletree Industrial Center
Palmer, MA 7.75% 321,676 313,893
University Towers Professional Space(6)
New Haven, CT 65,897 77,994
Other - Land
- ------------
Towers Shoppers Parcade,
New Haven, CT 9.75% 4,132 (1,218)
----------- -----------
$ 436,996 $ 1,151,875
=========== ===========
</TABLE>
See notes on following page.
18
<PAGE> 19
(1) The results are calculated in accordance with GAAP and therefore
reflect the deduction of noncash charges such as depreciation and
amortization of mortgage costs.
(2) Cash flow or deficiencies from operations as reflected in the above
chart are calculated before deduction of depreciation, valuation
adjustments, amortization of mortgage costs and property replacements
and additions, but after deduction of mortgage amortization. These
results should not be considered as an alternative to income or loss
from operations on the GAAP basis as an indicator of the properties'
performance or to cash flows presented in accordance with GAAP. These
results do not reflect the cash available to fund cash requirements.
(3) The Cambridge Green and Fairlawn Gardens properties experienced high
vacancy rates in the first half of 1999. By the end of 1999, these
vacancy rates had been reduced and the properties were operating at a
satisfactory occupancy rate. During 1999, the mortgage on the Cambridge
Green property was refinanced. The Company wrote off $166,756 of
unamortized mortgage costs and charged amortization of mortgage costs
for a prepayment penalty fee of $31,200 relating to the prior mortgage.
In addition, renovations at the Cambridge Green property increased
operating expenses at the property in 1999.
(4) The Crown Court property is subject to a long-term net lease containing
an option to purchase commencing in 2009.
(5) During 1999, one cooperative apartment unit became vacant and was sold
in April of 1999.
(6) These results are net of minority interest share of partnership income.
(7) Individual cooperative apartment units.
In the opinion of management, all of the Company's properties are adequately
covered by insurance in accordance with normal insurance practices. All real
estate owned by the Company is owned in fee simple (except for the University
Towers professional space, which is held under a valid and existing long-term
lease), with title generally insured for the benefit of the Company by reputable
title insurance companies.
The mortgages on the Company's properties are self-liquidating at fixed rates of
interest with the exception of the mortgages on Home
19
<PAGE> 20
Mortgage Plaza, Building Industries Center, Fairlawn Gardens, Continental
Gardens and Sunwood Apartments. These mortgages amortize monthly with balloon
payments due at maturity.
ITEM 3. LEGAL PROCEEDINGS
UTB Associates, a partnership in which the Company holds a 66-2/3% interest, is
a tenant under a lease (the "Professional Space Lease") of 24,400 square feet of
professional office space at University Towers, a cooperative apartment building
in New Haven, Connecticut. In June, 1999, University Towers Owners Corp., the
cooperative corporation, filed a petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Connecticut, New Haven division. As part of the bankruptcy proceedings, in
July, 1999 the cooperative corporation filed an Adversary Proceeding against UTB
Associates for termination of the Professional Space Lease and damages primarily
based on claims arising under Connecticut law. The Company has been advised by
its litigation counsel that there are meritorious defenses to the claims raised
by the cooperative corporation and that if these defenses are successful, it is
unlikely that the Professional Space Lease will be terminated or that any
damages will be assessed against UTB Associates. However, in light of the
uncertainties of litigation, no assurances can be given as to the outcome of the
litigation. The Company's financial statements reflect approximately $66,000 of
income from the Professional Space Lease in 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The principal market for the Company's Class A and Class B Common Stock
is the American Stock Exchange (ticker symbols PDL A and PDL B). The
high and low prices for the stock on such principal exchange for each
quarterly period during the past two years, and the per share dividends
declared per quarter, are as follows:
20
<PAGE> 21
<TABLE>
<CAPTION>
Stock Prices
-------------------------------------------- Dividends
Declared Per
Class A Class B Share on
------------------ ------------------ Class A and
High Low High Low Class B
---- --- ---- --- -------
Calendar 1999
- -------------
<S> <C> <C> <C> <C> <C>
First Quarter $7 3/4 $6 5/8 $8 1/8 $6 5/8 $.16
Second Quarter 7 3/4 6 5/8 7 1/2 6 3/8 .16
Third Quarte 7 6 9/16 7 1/4 6 1/8 .16
Fourth Quarter 6 7/8 5 7/8 6 15/16 5 1/2 .16
Calendar 1998
- -------------
First Quarter $9 1/4 $9 1/8 $7 5/16 $6 11/16 $.15
Second Quarter 9 1/4 7 1/4 7 5/16 6 5/8 .16
Third Quarter 7 1/2 6 1/4 7 1/4 6 3/16 .16
Fourth Quarter 8 1/4 6 1/4 7 3/4 6 1/4 .16
</TABLE>
(b) The number of record holders for the Company's Common Stock at December
31, 1999 was 164 for Class A and 711 for Class B.
(c) Under the Internal Revenue Code of 1986, as amended, a REIT which meets
certain requirements is not subject to Federal income tax on that
portion of its taxable income which is distributed to its shareholders,
if at least 95% of its "real estate investment trust taxable income"
(exclusive of capital gains) is so distributed. Since January 1, 1982,
the Company has elected to be taxed as a REIT and has paid regular
quarterly cash distributions. No assurance can be given that the
Company will, in fact, continue to be taxed as a REIT, or that the
Company will have sufficient cash to pay dividends in order to maintain
REIT status. See Qualification as a REIT above.
21
<PAGE> 22
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands, except per common share data)
<S> <C> <C> <C> <C> <C>
Selected Data from Consolidated Statements of Operations:
Revenues:
Rental $10,672 $ 9,716 $ 8,428 $ 8,451 $ 7,999
Interest on mortgages 3,853 5,490 5,568 4,117 3,766
Investment and other 719 207 240 371 406
------- ------- ------- ------- -------
Total $15,244 $15,413 $14,236 $12,939 $12,171
======= ======= ======= ======= =======
Income before net gain from sales of properties, notes
and securities $ 1,378 $ 2,017 $ 2,135 $ 1,723 $ 1,874
Net gain from sales of properties, notes and securities (1) 7,703 756 596 845 71
------- ------- ------- ------- -------
Net Income $ 9,081 $ 2,773 $ 2,731 $ 2,568 $ 1,945
======= ======= ======= ======= =======
Earnings per common share (basic and diluted):
Income before net gain from sales of properties, notes
and securities $ 0.38 $ 0.56 $ 0.60 $ 0.49 $ 0.53
Net gain from sales of properties, notes and securities 2.12 0.21 0.17 0.24 0.02
------- ------- ------- ------- -------
Net Income $ 2.50 $ 0.77 $ 0.77 $ 0.73 $ 0.55
======= ======= ======= ======= =======
Cash distributions per common share $ 0.64 $ 0.63 $ 0.60 $ 0.60 $ 0.60
======= ======= ======= ======= =======
Weighted average number of shares outstanding 3,629 3,593 3,564 3,539 3,517
======= ======= ======= ======= =======
</TABLE>
(1) The net gain from sales of properties, notes and securities for 1999
includes a net gain of $7,394,000 from the sale of the Fairfield Towers
First and Second Mortgage Notes and a net gain of $1,000,000 from
principal payments received on the Crown Tower and Madison Towers
Notes. These gains were partially offset by a $1,450,000 loss on the
sale of securities.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA (CONCLUDED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Selected Data from Consolidated Balance Sheets:
Total mortgage portfolio (1) (2) $30,056 $62,729 $64,101 $63,726 $53,416
======= ======= ======= ======= =======
Mortgage portfolio - net of discounts and
deferred gains (1) (2) $15,857 $31,100 $30,684 $28,389 $18,882
======= ======= ======= ======= =======
Real estate (3) $35,648 $34,704 $27,691 $25,369 $23,872
Less: accumulated depreciation 8,232 7,232 6,405 5,680 5,074
------- ------- ------- ------- -------
Net real estate $27,416 $27,472 $21,286 $19,689 $18,798
======= ======= ======= ======= =======
Foreclosed properties $ 589 $ 601
======= ======= ======= ======= =======
Securities available for sale $ 2,299 $ 1,275 $ 227 $ 975 $ 2,390
======= ======= ======= ======= =======
Total assets $64,061 $73,906 $60,009 $57,800 $49,513
======= ======= ======= ======= =======
Mortgage debt - includes amounts due in one year:
Properties owned (3)(4) $39,379 $39,728 $26,271 $26,514 $26,978
Wrap mortgage debt on sold properties (5) 4,668 5,149 5,613 6,061
------- ------- ------- ------- -------
Total $39,379 $44,396 $31,420 $32,127 $33,039
======= ======= ======= ======= =======
Note payable - includes amounts due in one year (1) $10,395 $10,543 $ 8,643
======= ======= ======= ======= =======
Stockholders' equity $19,547 $12,851 $12,173 $11,438 $10,801
======= ======= ======= ======= =======
</TABLE>
(1) In 1996, the Company purchased the $14,651,000 Fairfield Towers First
Mortgage at a $3,500,000 discount for a net purchase price of
$11,151,000. The Company paid $2,501,000 in cash and obtained an
$8,650,000 bank loan for the balance of the purchase price. During
1997, the Company advanced an additional $3,000,000 under the Fairfield
Towers First Mortgage and borrowed an additional $2,500,000 under the
bank loan. In February, 1999, the Company sold this mortgage and repaid
the bank loan.
(2) During 1999, the Company sold the Fairfield Towers First and Second
Mortgage Notes and the equity portion of the Grant House wraparound
mortgage. The Company also received payments on notes as a result of
modifications or prepayments. See Note 2 of Notes to Consolidated
Financial Statements.
(3) In August, 1998, the Company acquired Sunwood Apartments in Miami,
Florida, for a purchase price of $6,505,000 and obtained a $4,875,000
first mortgage loan on the property.
(4) During 1998, the Company refinanced the mortgage on the Home Mortgage
Plaza property, increasing the mortgage debt on that property by
$6,711,000. The Company also obtained a $2,300,000 mortgage on the
Fairlawn Gardens property .
(5) During 1999, the Company repaid the $2,300,000 Crown Tower and Madison
Towers wrap mortgage debt and wrote off the wrap mortgage debt on Grant
House as a result of the sale of the equity portion of the Grant House
wraparound mortgage note.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
1999 vs 1998
Revenue decreased by $168,483 primarily as a result of decreases in interest on
mortgages-sold properties, interest on wrap mortgages and interest on
mortgages-related parties. These decreases were offset by increases in rental
income, investment income and other income.
Interest on mortgages-sold properties decreased by $699,796 primarily due to the
sale of the Fairfield Towers First Mortgage in February of 1999, which decreased
interest income by $1,404,406. In addition, the amortization of discounts on
notes receivable decreased by $354,238. Amortization of discounts on notes
receivable decreases as notes mature or are sold. These decreases were partially
offset by the $333,667 of interest received on the $4,000,000 unsold portion of
the Fairfield Towers Second Mortgage and interest of $707,592 received on the
modified New Haven note (see below).
Interest on wrap mortgages decreased by $749,301 primarily as a result of the
Company's repayment in June, 1999 of the first mortgage debt on the Crown Tower
and Madison Towers properties. The Crown Tower and Madison Towers wraparound
mortgage notes were modified into one consolidated note (the "New Haven note").
As a result of these transactions, wrap mortgage interest decreased by $680,606
because the modified New Haven note is not a wraparound mortgage note. In
addition, the sale of the Grant House wraparound mortgage note in January, 1999
decreased interest by $68,695.
Interest on mortgages-related parties decreased by $187,549 primarily as a
result of decreases in interest on the Consolidated Loans of $111,719 and
decreases in interest on the Overlook loan of $68,906. The decrease in interest
on the Overlook loan is a result of principal prepayments received in 1998.
Rental income increased by $956,140 primarily as a result of increased rental
income of $670,515 at the Sunwood Apartments property, which was purchased in
August of 1998. In addition, rental income increased by $285,625 at all other
properties.
Investment income increased by $479,914 primarily as a result of increased
dividend income on securities available for sale.
24
<PAGE> 25
Other income increased by $32,109 primarily as a result of a $30,750 fee
received on the modification of the New Haven note.
Costs and expenses increased by $470,662 primarily due to increases in general
and administrative expenses, rental property operating expenses, interest on
mortgages, depreciation on real estate, amortization of mortgage costs, and an
increase in minority interest share of partnership income. These increases were
partially offset by a decrease in interest expense on note payable and a
decrease in interest expense on wrap mortgage debt.
General and administrative expenses increased by $429,350 primarily as a result
of the $378,522 bad debt write-off for receivables due from the Company's
unaffiliated rental property management company. These receivables resulted from
unreimbursed shared overhead expenses and advances made from time to time by
Presidential to the management company. Although these outstanding advances of
$378,522 have not been forgiven, it is unlikely that Presidential will collect
them in the near future and, accordingly, Presidential determined that it was
appropriate to write off these receivables. In addition, there were increases in
salary expenses of $107,087 (of which $60,442 pertains to increases in executive
bonuses), increases in executive pension plan expenses of $91,437, increases in
professional fees of $63,792 and increases of $37,341 in other categories of
general and administrative expenses. These increases were partially offset by a
decrease in franchise tax expenses of $248,829. The decrease in 1999 is a result
of a franchise tax expense incurred in 1998 on the partnership distributions
received from the proceeds of the mortgage refinancing on the Home Mortgage
Plaza property.
Interest on note payable and other decreased by $891,714 primarily as a result
of the repayment of the note payable in February, 1999.
Interest on wrap mortgage debt decreased by $150,630 as a result of the
repayment of the first mortgage debt on the Crown Tower and Madison Towers
properties in June of 1999. In addition, in January, 1999, the Company sold the
Grant House wraparound mortgage note and the related first mortgage debt on the
property was assigned to the purchaser.
Rental property operating expenses increased by $412,078 primarily as a result
of increased operating expenses at the Cambridge Green and Sunwood Apartments
properties of $233,837 and $229,365, respectively. The increased operating
expenses at the Cambridge Green property were a result of renovations at the
property in 1999. These increases
25
<PAGE> 26
were partially offset by a $70,329 decrease in operating expenses at the Home
Mortgage Plaza property.
Interest on mortgages increased by $304,795 primarily as a result of the
addition of the Sunwood Apartments property, which increased mortgage interest
expense by $209,342. In April, 1998, the Company refinanced the $10,788,825
mortgage on the Home Mortgage Plaza property for a new $17,500,000 mortgage,
which increased mortgage interest expense by $125,474. In addition, the Company
obtained a new mortgage on the Fairlawn Gardens property in March, 1998, which
increased mortgage interest expense by $33,738. These increases were offset by a
decrease of $43,760 on the Cambridge Green mortgage which was refinanced in
January, 1999.
Depreciation expense on real estate increased by $180,265 primarily as a result
of $112,345 of increased depreciation expense on the Sunwood Apartments property
and increases in depreciation expense on all other properties as a result of
additions and improvements.
Amortization of mortgage costs increased by $81,404 primarily as a result of the
write-off of unamortized mortgage costs of $166,756 and the $31,200 prepayment
penalty fee resulting from the refinancing of the mortgage on the Cambridge
Green property in January, 1999. This increase was offset by a decrease of
$124,556 in amortization of mortgage costs on the Home Mortgage Plaza property.
In 1998, the Company had written off $107,412 of unamortized mortgage costs in
connection with the refinancing of the mortgage on the Home Mortgage Plaza
property.
Minority interest share of partnership income increased by $111,979 as a result
of an increase in partnership income on the Home Mortgage Plaza property.
Net gain from sales of properties, notes and securities are sporadic (as they
depend on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 1999, the net gain from sales of properties, notes and
securities was $7,703,081 compared with $755,801 in 1998:
26
<PAGE> 27
<TABLE>
<CAPTION>
Gain (loss) from sales recognized at December 31, 1999 1998
----------- -----------
<S> <C> <C>
Sales of mortgage notes:
Fairfield Towers First and Second Mortgages
(net of taxes of $220,500) sold
in 1999 $ 7,393,844
Grant House wraparound mortgage note
sold in 1999 425,000
Deferred gains recognized upon receipt of
principal payments on notes:
New Haven - $1,000,000 principal payment
received in 1999 1,000,000
Pinewood - $317,662 principal prepayment
received in 1999 218,534
Overlook 21,714 $ 613,285
Fairfield Towers Second Mortgage 19,466 69,217
Hastings Gardens 7,754
Towne House 3,672
Sales of property:
Sherwood House 74,672 40,435
Sales of securities (1,450,149) 21,438
----------- -----------
$ 7,703,081 $ 755,801
=========== ===========
</TABLE>
Balance Sheet
Net mortgage portfolio decreased by $15,243,115 primarily as a result of the
sale of the Fairfield Towers First and Second Mortgage Notes, the sale of the
Grant House wraparound mortgage note and the principal prepayment received on
the Pinewood note receivable. The sale of the Fairfield Towers First and Second
Mortgages resulted in a net decrease of $12,862,048, the sale of the Grant House
wraparound mortgage note resulted in a net decrease of $2,212,240 and the
principal prepayment of $317,662 received on the Pinewood note receivable
resulted in a net decrease of $99,128 after recognizing a deferred gain of
$218,534. In addition, although the effect on net mortgage portfolio is zero,
the Company received a $1,000,000 principal payment on the New Haven note and
recognized a deferred gain on sale of $1,000,000.
Prepaid expenses and deposits in escrow decreased by $696,135 primarily due to a
$626,512 decrease in mortgagee replacement reserve deposits as a result of
reimbursements for replacements at rental properties. In addition, there was a
decrease of $70,000 in mortgagee escrow deposits.
Other receivables decreased by $129,301 primarily as a result of the write-off
of the receivable due from the rental property management company which
decreased other receivables by $146,054.
27
<PAGE> 28
Securities available for sale increased by $1,024,760 as a result of purchases
of $10,343,705 of marketable equity securities, primarily corporate preferred
stocks, which were offset by the $9,082,194 sale of marketable equity securities
in the fourth quarter of 1999. In addition, there was a $236,751 decline in the
fair value of securities available for sale.
Cash and cash equivalents increased by $5,250,077 primarily as a result of the
sale of the Fairfield Towers First and Second Mortgage Notes and the sale of the
equity portion of the Grant House note. The net proceeds received from the sale
of these notes were $20,328,728. This increase was offset by the repayment of
the $10,195,442 outstanding bank loan and the $2,300,000 repayment of wrap
mortgage debt. In addition, the Company purchased $10,343,705 of securities
available for sale and received $7,632,045 from the sale of securities, for a
net decrease of $2,711,660.
Other assets decreased by $347,026 primarily as a result of a $303,901 decrease
in mortgage and loan acquisition costs and a $81,007 decrease in deferred
charges. Mortgage costs decreased as a result of the refinancing of the mortgage
on the Cambridge Green property and the write-off of the unamortized costs of
the prior mortgage. In addition, the sale of the Fairfield Towers First and
Second Mortgage Notes resulted in the write-off of unamortized loan acquisition
costs. Deferred charges decreased as a result of the write-off of 1998 deferred
expenses incurred in connection with the sale of the Fairfield Towers First and
Second Mortgage Notes.
Wrap mortgage debt on sold properties decreased by $4,668,462 primarily due to
the repayment of the $2,300,000 Crown Tower and Madison Towers wrap mortgage
debt by the Company in June, 1999 and the sale of the Grant House wraparound
mortgage note in January, 1999.
Note payable to bank decreased by $10,395,361 primarily as a result of the sale
of the Fairfield Towers First and Second Mortgages. The note payable, which had
been secured by Presidential's interest in the First Mortgage Note, was repaid
from the proceeds of the sale of the Fairfield Towers First and Second
Mortgages.
Accrued liabilities decreased by $993,495 primarily as a result of the payment
of a $1,000,000 deferred brokerage commission, which arose from the sale of the
New Haven properties in 1984.
28
<PAGE> 29
Deferred income decreased by $519,180 primarily as a result of the recognition
in 1999 of the $400,000 deposit received in 1998 on the sale of the Fairfield
Towers First and Second Mortgages. In addition, $86,607 of prepaid interest on
mortgages for sold properties and $35,123 of prepaid rental income were
recognized in 1999.
Accounts payable increased by $178,388 primarily as a result of increases of
$146,052 in rental property accounts payable and increases of $32,336 in general
and administrative accounts payable.
Additional paid-in capital increased by $400,913 primarily as a result of the
exercise of 60,000 shares of stock options for a price of $367,500, of which
$361,500 increased additional paid-in capital and $6,000 ($.10 per share)
increased Class B common stock. In addition, the net proceeds from the dividend
reinvestment and share purchase plan increased additional paid-in capital by
$103,863. These increases were offset by a decrease of $64,450 for the issuance
of treasury stock.
Net unrealized gain (loss) on securities available for sale decreased by
$236,751 as a result of the decrease in the fair value of securities available
for sale.
Treasury stock decreased by $135,139. In March, 1999, three directors of the
Company were each given 1,000 shares of the Company's Class B common stock as
partial payment for 1999 directors fees. In addition, an officer of the Company
was given 7,000 shares of the Company's Class B common stock as additional
compensation. Such shares had been held in treasury at an average cost of $13.54
per share.
Notes receivable for exercise of stock options increased by $367,500. In
November, 1999, three employees exercised their stock options for 60,000 shares
of Class B common stock at an exercise price of $6.125 per share. Presidential
loaned $367,500 to these employees for the purchase of the shares. These notes,
which are recourse, mature on November 30, 2004 and provide for an interest rate
of 8% per annum. Presidential has a security interest in the shares, as security
for these notes.
29
<PAGE> 30
Results of Operations
1998 vs 1997
Revenue increased by $1,177,186 primarily as a result of increases in rental
income and interest on mortgages-related parties. These increases were offset by
decreases in interest on mortgages-sold properties.
Rental income increased by $1,288,604 primarily as a result of increases of
$553,846 at the Home Mortgage Plaza property, increases of $202,879 at the
Fairlawn Gardens property and the acquisition in 1998 of a new apartment
property. On August 31, 1998, the Company purchased Sunwood Apartments, a 105
unit apartment property in Miami, Florida. Rental income from this property was
$325,183. In addition, rental income increased at all other properties by
$206,696.
Interest on mortgages-related parties increased by $203,293 primarily as a
result of increases in interest on the Consolidated Loans of $169,921 and
increases in interest on the Overlook loan of $38,844.
Interest on mortgages-sold properties decreased by $260,264 primarily due to the
$382,796 amortization of discount on the Cedarbrooke note in 1997 when it was
prepaid. In addition, there was a decrease of $50,168 of interest received on
the Fairfield Towers Second Mortgage. These decreases were offset by increases
of $57,878 in interest income from the Fairfield Towers First Mortgage and
$121,973 from the amortization of discounts on the mortgage portfolio.
Costs and expenses increased by $1,294,323 primarily due to increases in general
and administrative expenses, interest on mortgages, real estate tax expense,
depreciation expense and an increase in minority interest share of partnership
income. These increases were partially offset by a decrease in amortization of
mortgage costs.
General and administrative expenses increased by $340,682 primarily due to
increases in franchise tax expenses of $318,305, resulting from the partnership
distribution received from the proceeds of the mortgage refinancing on the Home
Mortgage Plaza property and the taxes thereon. In addition, there were increases
in salary expense
30
<PAGE> 31
of $36,885 (of which $21,482 pertains to increases in executive bonuses).
Mortgage interest expense increased by $508,750 as a result of the refinancing
of the mortgage on the Home Mortgage Plaza property in April of 1998, the new
mortgage obtained on the Fairlawn Gardens property in March of 1998 and the
mortgage obtained on Sunwood Apartments, which was purchased in August of 1998.
Mortgage interest on the Home Mortgage Plaza property increased by $292,908.
Mortgage interest on the Fairlawn Gardens and Sunwood Apartments properties was
$129,094 and $107,180, respectively.
Real estate tax expense increased by $106,700 primarily as a result of increases
in real estate tax expense of $93,307 at the Crown Court, Home Mortgage Plaza
and Continental Gardens properties. Also, the addition of the Sunwood Apartments
property increased real estate tax expense by $31,385. These increases were
offset by a $24,468 decrease in real estate tax expense at the Cambridge Green
property. The 1997 real estate tax expense included refunds of $46,143 for prior
years' taxes at the Crown Court property.
Depreciation expense increased by $89,792 primarily as a result of the addition
of the Sunwood Apartments property in 1998, which increased depreciation expense
by $55,199. Additions and improvements made to other properties in 1997 and 1998
also increased depreciation expense.
Amortization of mortgage costs decreased by $91,452 as a result of the write-off
in 1997 of $146,097 of unamortized mortgage costs associated with the prior
mortgage on the Continental Gardens property, which was refinanced in July,
1997. This decrease was offset by the $107,412 write-off in 1998 of unamortized
mortgage costs associated with the prior mortgage on the Home Mortgage Plaza
property, which was refinanced in April, 1998. In addition, mortgage costs for
the refinanced mortgage on the Home Mortgage Plaza property were less than the
mortgage costs on the prior mortgage which resulted in a $67,604 decrease in
amortization of mortgage costs.
Minority interest share of partnership income increased by $111,137 as a result
of an increase in partnership income on the Home Mortgage Plaza property.
Net gain from sales of properties, notes and securities are sporadic (as they
depend on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 1998, the
31
<PAGE> 32
net gain from sales of properties, notes and securities was $755,801 compared
with $596,171 in 1997. In 1998, the Company recognized a gain of $40,435 from
the sale of a cooperative apartment unit at Sherwood House. In addition, the
Company recognized deferred gains of $613,285 and $69,217, respectively, from
principal payments received on the Overlook loan and the Fairfield Towers Second
Mortgage. In 1997, the Company recognized $472,497 of deferred gain from the
sale of the Cedarbrooke property as a result of a $1,074,200 principal
prepayment received on that note. In addition in 1997, the Company recognized
deferred gains of $24,058 and $80,651, respectively, from principal payments
received on the Overlook loan and the Fairfield Towers Second Mortgage and a
gain from the sale of securities of $18,965.
Forward-Looking Statements
Certain statements made in this report may constitute "forward- looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for apartments or commercial space, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
Year 2000 Compliance
The following is a Year 2000 readiness disclosure entitled to protection as
provided in the Year 2000 Information and Readiness Disclosure Act.
The Company completed its assessments of its information technology systems
("IT") and its non-information technology systems ("NIT") for Year 2000
compliance. All Year 2000 ("Y2K") sensitive systems
32
<PAGE> 33
were upgraded and tested. All of the Company's systems are Y2K compliant and are
operational.
The Company received confirmations from tenants, mortgagors, third party vendors
and the Company's property management company verifying that they are Y2K
compliant or will be compliant in a timely manner. As a result of the
confirmations received, the Company does not anticipate an adverse effect on the
operations of the Company's properties, or the ability of its mortgagors and
tenants to make payments due to the Company in a timely fashion. As a result of
the Company's evaluation of its systems and confirmations received from third
party vendors, no formal contingency plan is required.
At December 31, 1999, the Company had capitalized $32,393 for replacement of
equipment and had expensed $4,789 for the upgrading of its systems. The costs to
complete date sensitivity testing and assessments of third party vendors were
minimal. The Company does not anticipate any further expenditures relating to
the Y2K issue.
Subsequent to December 31, 1999, the Company has not encountered any Y2K
complications and all of the Company's IT and NIT systems have been operational.
To the Company's knowledge, none of the tenants, mortgagors, financial
institutions, utility companies and suppliers that the Company does business
with have encountered any Y2K complications. However, there can be no absolute
assurance that these external agents will not experience any complications in
the future.
Liquidity and Capital Resources
Management believes that the Company has sufficient liquidity and capital
resources to carry on its existing business and, barring any unforeseen
circumstances, to pay the dividends required to maintain REIT status in the
foreseeable future. The Company is seeking to expand its portfolio of real
estate equities and plans to utilize for this purpose a portion of its available
funds, funds received from sales of securities and additional funds that the
Company may receive from balloon payments due on the Company's notes receivable
as they mature, as well as funds that may be available from external sources.
However, the Company's plans to expand its portfolio of real estate equities may
be adversely affected by limitations on its ability to obtain funds for
investment on satisfactory terms from external sources. Except as discussed
herein, management is not aware of any other trends, events, commitments or
uncertainties that will have a significant effect on liquidity.
33
<PAGE> 34
Presidential obtains funds for working capital and investment from its available
cash and cash equivalents, from securities available for sale, from operating
activities, from refinancing of mortgage loans on its real estate equities, and
from the sales of or repayments on its mortgage portfolio. The Company also has
at its disposal a $250,000 unsecured line of credit from a lending institution.
At December 31, 1999, Presidential had $7,014,542 in available cash and cash
equivalents, an increase of $5,250,077 from the $1,764,465 at December 31, 1998.
This increase in cash and cash equivalents was due to cash provided by operating
activities of $3,772,326 and financing activities of $17,933,561, offset by cash
used in investing activities of $16,455,810.
In March, 2000, the Company acquired Farrington Apartments, a 224 unit apartment
property in Clearwater, Florida for a purchase price of $9,630,950. In
connection with the acquisition, the Company obtained a nonrecourse first
mortgage loan on the property in the amount of $7,900,000, with interest at the
rate of 8.25% per annum and a ten year maturity.
The Company also executed a contract to acquire Preston Lake, a 320 unit
apartment property in Norcross, Georgia for a purchase price of $17,500,000 and
obtained a commitment for a first mortgage loan on the property in the amount of
$14,000,000, with interest at the rate of 8.15% per annum and a ten year
maturity. The Company expects to finalize this purchase in April, 2000.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $3,414,860 in 1999, net of
interest payments on wrap mortgage debt and note payable. In 1999, net cash
received from rental property operations was $2,557,595, which is net of
distributions from partnership operations to minority partners but before
additions and improvements and mortgage amortization.
Investing Activities
Presidential holds a portfolio of mortgage notes receivable, which consist
primarily of notes arising from sales of real properties previously owned by the
Company. Some of these notes wrap around underlying mortgage debt (the
"Underlying Debt") which is paid by
34
<PAGE> 35
Presidential only out of funds received on its mortgage portfolio relating to
the Underlying Debt. During 1999, the Company received principal payments of
$2,036,619 on its mortgage portfolio (net of any principal payments attributable
to the Underlying Debt), of which $1,894,359 represented prepayments, which are
sporadic and cannot be relied upon as a regular source of liquidity.
On February 22, 1999, Presidential consummated the sale of its Fairfield Towers
First and Second Mortgage Notes (excluding a $4,000,000 portion of the Second
Mortgage Note, which it retained).
The First Mortgage Note, which had an outstanding principal balance at the date
of sale of $17,002,695, was acquired by Presidential in October, 1996 at a
discount of $3,500,000. The Second Mortgage Note, which had an outstanding
principal balance at the date of sale of $14,206,895, was obtained by
Presidential when it sold the Fairfield Towers apartment property in 1984.
The aggregate sales price for the First Mortgage Note and the Second Mortgage
Note (excluding the $4,000,000 interest retained by Presidential) was
$21,350,000. In connection with this transaction, the $4,000,000 portion of the
Second Mortgage Note retained by Presidential was modified to provide for
interest payments at the rate of 9.625% ($385,000) per annum for the first three
years and 10.5% ($420,000) per annum for the remaining seven years. The
outstanding principal balance of $4,000,000 is due at maturity in 2009. To
secure this obligation, Presidential obtained subordinate security interests in
three apartment properties located in New Jersey as collateral for the Note.
Presidential repaid the $10,195,442 outstanding principal balance of its bank
note payable, which had been secured by Presidential's interest in the First
Mortgage Note. After payment of the bank loan and expenses related to the
transaction, but before payment of any income tax on the capital gain,
Presidential received approximately $10,108,000 from the sale. Presidential
expects to invest a large portion of these sales proceeds in the acquisition of
rental apartment properties. Presidential recognized a gain on sale of
$7,614,344 (before accrued taxes of $220,500).
In January, 1999, the Company sold its equity interest in the $3,235,833
wraparound mortgage note secured by the Grant House apartment building located
in White Plains, New York. Presidential assigned the $2,212,240 nonrecourse
first mortgage note to the purchaser and received $500,000 for the sale of its
$1,023,593 equity interest in the wraparound mortgage note. As a result of this
35
<PAGE> 36
transaction, the Company wrote off the $2,212,240 outstanding balance on the
first mortgage and the related $2,212,240 mortgage debt, and recognized a gain
on sale of $425,000.
In June, 1999, the Company modified its $13,300,000 wraparound mortgage notes
secured by the Crown Tower and Madison Towers properties in New Haven,
Connecticut. In connection with the modification, the Company repaid the
$2,300,000 first mortgage debt on these properties (wrap mortgage debt on sold
properties) and consolidated the $13,300,000 outstanding principal balance of
the wraparound mortgage notes into one consolidated note (the "New Haven note").
The Company received a $1,000,000 principal payment on the New Haven note and
paid a $1,000,000 deferred brokerage commission (which had been deferred from
the original sale of the New Haven properties). In connection with the
modification Presidential also received a fee of $30,750.
The note matures on June 29, 2002, provides for an interest rate of 10% per
annum with a 1/2 percent rate increase annually and a $369,000 payment of
additional interest due at maturity, which will increase the effective interest
rate to 11.5% per annum. The New Haven note is secured by a second mortgage on
the Encore Apartments and commercial space located in New York, New York and by
a limited guarantee of $2,500,000 from one of the owners of the property.
During 1999, the Company invested $967,802 in additions and improvements to its
properties.
The Company also holds a portfolio of marketable equitable securities which
increased by $1,024,760, primarily as a result of the $10,343,705 purchase of
corporate preferred stocks, offset by the $9,082,194 sale of preferred stocks
and a decrease in the fair value of securities of $236,751. During 1999, while
the Company was pursuing the acquisition of new properties with the sales
proceeds received from the sale of the Fairfield Towers Mortgage Notes, the
Company invested these proceeds in corporate preferred stocks. Management
believed that these stocks would yield a greater return on investment than could
be earned from other types of investments with similar risks and liquidity. The
Company earned $456,831 of interest and dividends on these securities in 1999.
In the third quarter of 1999, these securities had declined in market value
primarily due to increases in market interest rates. The market value of these
securities further declined during the fourth quarter of 1999 and as a result,
the Company decided to sell them and incurred a loss of $1,450,149. The Company
was able to utilize the $1,450,149 capital loss to offset a portion of its 1999
taxable capital gains.
36
<PAGE> 37
Financing Activities
The Company's indebtedness at December 31, 1999, consisted of $39,379,458 of
mortgage debt. The mortgage debt, which is secured by individual properties, is
nonrecourse to the Company with the exception of the $259,071 Mapletree
Industrial Center mortgage, which is secured by the property and a guarantee of
repayment by Presidential. In addition, some of the Company's mortgages provide
for personal liability for damages resulting from specified acts or
circumstances, such as for environmental liabilities and fraud. Generally,
mortgage debt repayment is serviced with cash flow from the operations of the
individual properties. During 1999, the Company made $423,883 of principal
payments on mortgage debt on properties which it owns.
In January, 1999, Presidential refinanced the mortgage on its Cambridge Green
property. The existing $3,120,190 mortgage was paid from the proceeds of the new
$3,195,500 mortgage. The new mortgage bears interest at the rate of 6.65% per
annum, requires monthly payments of principal and interest of $20,358, and
matures on October 1, 2029.
The mortgages on the Company's properties are self-liquidating at fixed rates of
interest with the exception of the following mortgages:
<TABLE>
<CAPTION>
Outstanding Maturity Interest Balloon
Property Balance Date Rate Payment
-------- ------- ---- ---- -------
<S> <C> <C> <C> <C>
Building Ind. Ctr. $ 906,469 May, 2000 9.875% $ 901,688
Continental Gardens 7,957,942 Aug., 2007 8.16 7,158,323
Fairlawn Gardens 2,264,850 April,2008 7.06 2,012,668
Home Mtg. Plaza 17,266,846 May, 2008 7.38 15,445,099
Sunwood Apts. 4,806,972 Sept.,2008 6.55 4,146,349
</TABLE>
During 1999 Presidential declared and paid cash distributions of $2,325,046 to
its shareholders and received proceeds from its dividend reinvestment and share
purchase plan of $105,494.
Environmental Matters
The Company is not aware of any environmental issues at any of its properties,
with the exception of the environmental expenses incurred in prior years at its
Mapletree Industrial Center property in Palmer, Massachusetts. The presence,
with or without the Company's knowledge, of hazardous substances at any of its
37
<PAGE> 38
properties could have an adverse effect on the Company's operating results and
financial condition.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments consist primarily of mortgage notes
receivable and mortgage notes payable. Substantially all of these instruments
bear interest at fixed rates, so the Company's cash flows from them are not
directly impacted by changes in market rates of interest. The Company does not
own any derivative financial instruments or engage in hedging activities.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Table of Contents to Consolidated Financial Statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held June 14, 2000, which Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A and
which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held June 14, 2000, which Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A and
which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held June 14, 2000, which Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A and
which is incorporated herein by reference.
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<PAGE> 39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the Company's definitive Proxy Statement for its Annual
Meeting of Shareholders to be held June 14, 2000, which Proxy Statement will be
filed with the Securities and Exchange Commission pursuant to Regulation 14A and
which is incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) and (d) A Table of Contents to Consolidated Financial Statements and
Schedules is included in this report.
(b) No report on Form 8-K was filed during the calendar quarter ended December
31, 1999.
(c) Exhibits:
3.1 Certificate of Incorporation of the Company (incorporated herein by
reference to Exhibit 3.5 to Post-effective Amendment No. 1 to the Company's
Registration Statement on Form S-14, Registration No. 2-83073)
3.2 Certificate of Amendment to Certificate of Incorporation of the Company
(incorporated herein by reference to Exhibit 3 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1987, Commission File No.
1-8594).
3.3 Certificate of Amendment to Certificate of Incorporation of the Company,
filed July 21, 1988 with the Secretary of State of the State of Delaware
(incorporated herein by reference to Exhibit 3.3 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1988, Commission File No. 1-8594).
3.4 Certificate of Amendment to Certificate of Incorporation of the Company,
filed on September 12, 1989 with the Secretary of State of the State of Delaware
(incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1989, Commission File No. 1-8594).
3.5 By-laws of the Company (incorporated herein by reference to Exhibit 3.7 to
Post-effective Amendment No. 1 to the Company's Registration Statement on Form
S-14, Registration No. 2-83073).
39
<PAGE> 40
10.1 1993 Stock Option Plan for 250,000 shares of Class B common stock
(incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993, Commission File No. 1-8594).
10.2 Employment Agreement dated as of November 1, 1982 between the Company and
Robert E. Shapiro, as amended by Amendments dated March 1, 1983, November 25,
1985, February 23, 1987 and January 4, 1988, (incorporated herein by reference
to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1988, Commission File No. 1-8594).
10.3 Employment Agreement dated as of November 1, 1982 between the Company and
Joseph Viertel, as amended by Amendments dated March 1, 1983, November 22, 1985,
February 23, 1987, (incorporated herein by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1992,
Commission File No. 1-8594).
10.4 Settlement Agreement dated November 14, 1991 between the Company and Steven
Baruch, Jeffrey F. Joseph and Thomas Viertel, (incorporated herein by reference
to Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991, Commission File No. 1-8594).
10.5 Presidential Realty Corporation Defined Benefit Plan dated December 16,
1994, (incorporated herein by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994, Commission File No.
1-8594).
10.6 Employment Agreement dated January 1, 1997 between the Company and Jeffrey
F. Joseph, (incorporated herein by reference to Exhibit 10.10 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).
10.7 Employment Agreement dated January 1, 1997 between the Company and Steven
Baruch, (incorporated herein by reference to Exhibit 10.11 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).
10.8 Employment Agreement dated January 1, 1997 between the Company and Thomas
Viertel, (incorporated herein by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).
40
<PAGE> 41
10.9 First Amendment dated August 1, 1996 to Settlement Agreement dated November
14, 1991 between the Company and Steven Baruch, Jeffrey F. Joseph and Thomas
Viertel (incorporated herein by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1997, Commission
File No. 1-8594).
10.10 First and Second Amendments dated December 11, 1995 and December 8, 1999,
respectively, to the Presidential Realty Corporation Defined Benefit Plan, (see
page 89).
10.11 1999 Stock Option Plan for 150,000 shares of Class B common stock (see
page 90).
21. List of Subsidiaries of Registrant dated December 31, 1999 (see page 91).
27. Financial Data Schedule for the year ended December 31, 1999 (see page 92).
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PRESIDENTIAL REALTY CORPORATION
By: THOMAS VIERTEL
--------------
Thomas Viertel
Chief Financial Officer
March 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
By: ROBERT E. SHAPIRO March 22, 2000
-------------------------------
Robert E. Shapiro
Chairman of the Board of
Directors and Director
By: JEFFREY F. JOSEPH March 22, 2000
-------------------------------
Jeffrey F. Joseph
President and Director
By: THOMAS VIERTEL March 22, 2000
-------------------------------
Thomas Viertel
Executive Vice President
(Chief Financial Officer)
By: ELIZABETH DELGADO March 22, 2000
-------------------------------
Elizabeth Delgado
Treasurer
(Principal Accounting Officer)
By: RICHARD BRANDT March 22, 2000
-------------------------------
Richard Brandt
Director
By: MORTIMER M. CAPLIN March 22, 2000
-------------------------------
Mortimer M. Caplin
Director
</TABLE>
42
<PAGE> 43
SIGNATURES (Continued)
<TABLE>
<CAPTION>
Signature and Title Date
------------------- ----
<S> <C>
By: ROBERT FEDER March 22, 2000
-------------------------------
Robert Feder
Director
By: JOSEPH VIERTEL March 22, 2000
-------------------------------
Joseph Viertel
Director
</TABLE>
43
<PAGE> 44
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 45
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets - December 31, 1999
and 1998 46
Consolidated Statements of Operations for the
Years Ended December 31, 1999, 1998 and 1997 48
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998 and 1997 49
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1999, 1998 and 1997 50
Notes to Consolidated Financial Statements 52
CONSOLIDATED SCHEDULES:
II. Valuation and Qualifying Accounts for the Years
Ended December 31, 1999, 1998 and 1997 84
III. Real Estate and Accumulated Depreciation at
December 31, 1999 85
IV. Mortgage Loans on Real Estate at December 31, 1999 87
</TABLE>
NOTE: All schedules, other than those indicated above, are omitted because
of the absence of the conditions under which they are required or
because the required information is included in the consolidated
financial statements or the notes to the consolidated financial
statements.
44
<PAGE> 45
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Presidential Realty Corporation
White Plains, New York
We have audited the accompanying consolidated balance sheets of Presidential
Realty Corporation and subsidiaries (the "Company") as of December 31, 1999 and
1998 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedules listed in the
foregoing Table of Contents. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Presidential Realty Corporation and
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedules, when considered in relation to
the basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth herein.
Deloitte & Touche LLP
Stamford, Connecticut
March 14, 2000
45
<PAGE> 46
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Assets December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Mortgage portfolio (Note 2):
Sold properties, accrual $28,481,797 $43,440,675
Related parties, accrual 1,574,028 1,698,982
Sold properties, impaired 17,589,027
----------- -----------
Total mortgage portfolio 30,055,825 62,728,684
----------- -----------
Less discounts:
Sold properties, accrual 1,837,722 4,049,630
Related parties, accrual 132,073 149,685
Sold properties, impaired 7,597,138
----------- -----------
Total discounts 1,969,795 11,796,453
----------- -----------
Less deferred gains:
Sold properties, accrual 11,320,373 12,538,907
Related parties, accrual 908,343 930,057
Sold properties, impaired 6,362,838
----------- -----------
Total deferred gains 12,228,716 19,831,802
----------- -----------
Net mortgage portfolio 15,857,314 31,100,429
----------- -----------
Real estate (Note 3) 35,647,633 34,703,657
Less: accumulated depreciation 8,231,480 7,231,639
----------- -----------
Net real estate 27,416,153 27,472,018
----------- -----------
Minority partners' interest (Note 4) 7,904,533 7,552,743
Prepaid expenses and deposits in escrow 1,434,079 2,130,214
Other receivables (net of valuation allowance of
$139,822 in 1999 and $120,102 in 1998) 494,220 623,521
Securities available for sale (Note 5) 2,299,494 1,274,734
Cash and cash equivalents 7,014,542 1,764,465
Other assets 1,641,095 1,988,121
----------- -----------
Total Assets $64,061,430 $73,906,245
=========== ===========
</TABLE>
See notes to consolidated financial statements.
46
<PAGE> 47
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Liabilities:
Mortgage debt (Note 6):
Properties owned $39,379,458 $39,728,031
Wrap mortgage debt on sold properties 4,668,462
------------ ------------
Total (of which $1,338,491 in 1999 and $905,305
in 1998 are due within one year) 39,379,458 44,396,493
Note payable to bank (Note 7) 10,395,361
Executive pension plan liability (Note 15) 1,479,185 1,496,357
Accrued liabilities 1,637,069 2,630,564
Accrued taxes payable (Note 8) 220,500
Accrued postretirement costs (Note 16) 538,398 562,167
Deferred income 46,533 565,713
Accounts payable 414,195 235,807
Other liabilities 799,490 772,949
------------ ------------
Total Liabilities 44,514,828 61,055,411
------------ ------------
Stockholders' Equity:
Common stock; par value $.10 per share (Note 11)
Class A, authorized 700,000 shares, issued and
outstanding 478,940 shares 47,894 47,894
</TABLE>
<TABLE>
<CAPTION>
Class B December 31, 1999 December 31, 1998 321,240 313,609
------- ----------------- -----------------
<S> <C> <C>
Authorized: 10,000,000 10,000,000
Issued: 3,212,402 3,136,092
Treasury: 1,258 11,224
</TABLE>
<TABLE>
<S> <C> <C>
Additional paid-in capital 2,573,281 2,172,368
Retained earnings 17,209,589 10,453,253
Accumulated other comprehensive income (loss) (Note 5) (221,074) 15,677
Class B, treasury stock (at cost) (Note 13) (16,828) (151,967)
Notes receivable for exercise of stock options (Notes 14 and 18) (367,500)
------------- ------------
Total Stockholders' Equity 19,546,602 12,850,834
------------- ------------
Total Liabilities and Stockholders' Equity $64,061,430 $73,906,245
============= ============
</TABLE>
See notes to consolidated financial statements.
47
<PAGE> 48
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Rental $10,672,236 $ 9,716,096 $ 8,427,492
Interest on mortgages - sold properties 3,074,034 3,773,830 4,034,094
Interest on wrap mortgages 528,173 1,277,474 1,299,147
Interest on mortgages - related parties 250,491 438,040 234,747
Investment income 648,221 168,307 135,406
Other 71,127 39,018 104,693
----------- ----------- -----------
Total 15,244,282 15,412,765 14,235,579
----------- ----------- -----------
Costs and Expenses:
General and administrative 3,098,272 2,668,922 2,328,240
Interest on note payable and other 236,739 1,128,453 1,055,969
Interest on wrap mortgage debt 54,586 205,216 226,889
Amortization of loan acquisition costs 3,128 32,459 30,062
Depreciation on non-rental property 25,497 24,594 23,689
Rental property:
Operating expenses 4,684,312 4,272,234 4,097,633
Interest on mortgages 2,952,811 2,648,016 2,139,266
Real estate taxes 927,344 905,781 799,081
Depreciation on real estate 1,008,051 827,786 737,994
Amortization of mortgage costs 273,752 192,348 283,800
Minority interest share of partnership income 601,489 489,510 378,373
----------- ----------- -----------
Total 13,865,981 13,395,319 12,100,996
----------- ----------- -----------
Income before net gain from sales of properties, notes and securities 1,378,301 2,017,446 2,134,583
Net gain from sales of properties, notes and securities (includes a provision
for Federal taxes of $220,500 in 1999) (Notes 2, 5 and 8) 7,703,081 755,801 596,171
----------- ----------- -----------
Net Income $ 9,081,382 $ 2,773,247 $ 2,730,754
=========== =========== ===========
Earnings per Common Share (basic and diluted) (Note 1-I):
Income before net gain from sales of properties, notes and securities $ 0.38 $ 0.56 $ 0.60
Net gain from sales of properties, notes and securities 2.12 0.21 0.17
----------- ----------- -----------
Net Income per Common Share $ 2.50 $ 0.77 $ 0.77
=========== =========== ===========
Cash Distributions per Common Share (Note 12) $ 0.64 $ 0.63 $ 0.60
=========== =========== ===========
Weighted Average Number of Shares Outstanding 3,629,333 3,592,543 3,563,851
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
48
<PAGE> 49
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income (Loss)
----- ------- -------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 $ 356,569 $ 1,874,341 $ 9,350,801 $ 49,014
Net proceeds from dividend reinvestment
and share purchase plan 2,702 169,312
Cash distributions ($.60 per share) (2,138,314)
Purchase of treasury stock
Comprehensive income:
Net income 2,730,754
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (29,509)
Comprehensive income
------------ ------------ ------------ ------------
Balance at December 31, 1997 359,271 2,043,653 9,943,241 19,505
Net proceeds from dividend reinvestment
and share purchase plan 2,232 148,455
Cash distributions ($.63 per share) (2,263,235)
Issuance of treasury stock (Note 13) (19,740)
Comprehensive income:
Net income 2,773,247
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (3,828)
Comprehensive income
------------ ------------ ------------ ------------
Balance at December 31, 1998 361,503 2,172,368 10,453,253 15,677
Net proceeds from dividend reinvestment
and share purchase plan 1,631 103,863
Exercise of stock options (Notes 14 and 18) 6,000 361,500
Cash distributions ($.64 per share) (2,325,046)
Issuance of treasury stock (Note 13) (64,450)
Purchase of treasury stock
Comprehensive income:
Net income 9,081,382
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (236,751)
Comprehensive income
------------ ------------ ------------ ------------
Balance at December 31, 1999 $ 369,134 $ 2,573,281 $ 17,209,589 ($ 221,074)
============ ============ ============ ============
Notes
Receivable Total
Treasury for Exercise of Comprehensive Stockholders'
Stock Stock Options Income Equity
----- ------------- ------ ------
<S> <C> <C> <C> <C>
Balance at January 1, 1997 ($ 192,568) $ 11,438,157
Net proceeds from dividend reinvestment
and share purchase plan 172,014
Cash distributions ($.60 per share) (2,138,314)
Purchase of treasury stock (19) (19)
Comprehensive income:
Net income $ 2,730,754 2,730,754
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (29,509) (29,509)
------------
Comprehensive income $ 2,701,245
============
------------ ------------ ------------
Balance at December 31, 1997 (192,587) 12,173,083
Net proceeds from dividend reinvestment
and share purchase plan 150,687
Cash distributions ($.63 per share) (2,263,235)
Issuance of treasury stock (Note 13) 40,620 20,880
Comprehensive income:
Net income $ 2,773,247 2,773,247
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (3,828) (3,828)
------------
Comprehensive income $ 2,769,419
============
------------ ------------ ------------
Balance at December 31, 1998 (151,967) 12,850,834
Net proceeds from dividend reinvestment
and share purchase plan 105,494
Exercise of stock options (Notes 14 and 18) ($ 367,500)
Cash distributions ($.64 per share) (2,325,046)
Issuance of treasury stock (Note 13) 135,398 70,948
Purchase of treasury stock (259) (259)
Comprehensive income:
Net income $ 9,081,382 9,081,382
Other comprehensive income-
Change in net unrealized gain (loss) on
securities available for sale (236,751) (236,751)
------------
Comprehensive income $ 8,844,631
============
------------ ------------ ------------
Balance at December 31, 1999 ($ 16,828) ($ 367,500) $ 19,546,602
============ ============ ============
</TABLE>
See notes to consolidated financial statements
49
<PAGE> 50
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Cash received from rental properties $ 10,703,186 $ 9,645,206 $ 8,431,167
Interest received 3,671,309 4,447,382 4,180,370
Miscellaneous income 62,597 34,522 116,782
Interest paid on rental property mortgages (2,959,551) (2,608,842) (2,131,785)
Interest paid on wrap mortgage debt (54,586) (205,216) (226,889)
Interest paid on note payable and other (201,863) (920,230) (863,446)
Cash disbursed for rental property operations (4,676,761) (5,931,851) (4,814,072)
Cash disbursed for general and administrative costs (2,772,005) (2,705,418) (2,345,167)
------------ ------------ ------------
Net cash provided by operating activities 3,772,326 1,755,553 2,346,960
------------ ------------ ------------
Cash Flows from Investing Activities:
Payments received on notes receivable 2,192,841 1,420,506 2,573,682
Payments disbursed for investments in notes receivable (60,000) (3,011,698)
Payments disbursed for deferred sales commission (1,000,000)
Proceeds from sale of notes receivable (net of a $400,000
deposit on sale received in 1998) 20,328,728 400,000
Payments disbursed for additions and improvements (967,802) (529,261) (1,596,480)
Purchase of property (6,549,637)
Proceeds from sales of securities 7,632,045 23,986 817,316
Purchases of securities (10,343,705) (1,054,562) (79,202)
Other 91,454 74,550 (60,000)
------------ ------------ ------------
Net cash provided by (used in) investing activities 17,933,561 (6,274,418) (1,356,382)
------------ ------------ ------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (423,883) (429,237) (590,826)
Wrap mortgage debt on sold properties (156,222) (480,755) (463,824)
Mortgage debt payment from proceeds of mortgage refinancing (3,120,190) (10,788,825) (7,771,546)
Mortgage proceeds 3,195,500 24,675,000 8,120,000
Repayment of wrap mortgage debt (2,300,000)
Mortgage refinancing repairs and replacement escrows (558,730)
Mortgage costs (82,823) (591,251) (248,875)
Note payable proceeds 2,500,000
Principal payments on note payable (10,395,361) (147,191) (600,048)
Cash distributions on common stock (2,325,046) (2,263,235) (2,138,314)
Proceeds from dividend reinvestment and share purchase plan 105,494 150,687 172,014
Distributions to minority partners (953,279) (4,262,845) (381,582)
------------ ------------ ------------
Net cash (used in) provided by financing activities (16,455,810) 5,303,618 (1,403,001)
------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash Equivalents 5,250,077 784,753 (412,423)
Cash and Cash Equivalents, Beginning of Year 1,764,465 979,712 1,392,135
------------ ------------ ------------
Cash and Cash Equivalents, End of Year $ 7,014,542 $ 1,764,465 $ 979,712
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
50
<PAGE> 51
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $ 9,081,382 $ 2,773,247 $ 2,730,754
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 1,310,428 1,077,187 1,075,545
Gain from sales of properties, notes and securities (7,703,081) (755,801) (596,171)
Issuance of treasury stock for fees and expenses 21,510 20,880
Amortization of discounts on notes and fees (702,041) (1,094,967) (1,369,026)
Minority share of partnership income 601,489 489,510 378,373
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 129,301 100,173 (77,737)
Increase (decrease) in accounts payable and accrued liabilities 383,041 (9,299) 261,627
Decrease in deferred income (119,180) (108,385) (121,580)
Decrease (increase) in prepaid expenses, deposits in escrow
and deferred charges 777,142 (491,120) (66,886)
Increase in security deposit restricted funds (352,573)
Increase in security deposit liabilities 1,124 112,243 76,447
Other (8,789) (5,542) 55,614
----------- ----------- -----------
Total adjustments (5,309,056) (1,017,694) (383,794)
----------- ----------- -----------
Net cash provided by operating activities $ 3,772,326 $ 1,755,553 $ 2,346,960
=========== =========== ===========
Supplemental noncash disclosures:
Property received in satisfaction of debt $ 39,858 $ 11,569 $ 45,765
=========== =========== ===========
Net carrying value of foreclosed properties
reclassified to real estate $ 588,683
===========
</TABLE>
See notes to consolidated financial statements.
51
<PAGE> 52
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General - Presidential Realty Corporation ("Presidential" or the "Company"),
a Real Estate Investment Trust ("REIT"), is engaged principally in the holding
of notes and mortgages secured by real estate and in the ownership of income
producing real estate. Presidential operates in a single business segment,
investments in real estate related assets.
B. Real Estate - Real estate is stated at cost. Generally, depreciation is
provided on the straight-line method over the assets' estimated useful lives,
which range from twenty to fifty years for buildings and leaseholds and from
three to ten years for furniture and equipment. Maintenance and repairs are
charged to operations as incurred and renewals and replacements are capitalized.
The Company reviews each of its property investments for possible impairment at
least annually, and more frequently if circumstances warrant. Impairment of
properties is determined to exist when estimated amounts recoverable through
future operations on an undiscounted basis are below the properties' carrying
value. If a property is determined to be impaired, it is written down to its
estimated fair value.
The determination of impairment value is based not only upon future cash flows,
which rely upon estimates and assumptions including expense growth, occupancy
and rental rates, but also upon market capitalization and discount rates as well
as other market indicators. Management believes that the estimates and
assumptions used are appropriate in evaluating the carrying amounts of the
Company's properties. However, changes in market conditions and circumstances
may occur in the near term which would cause these estimates and assumptions to
change, which, in turn, could cause the amounts ultimately realized upon the
sale or other disposition of the properties to differ materially from their
estimated fair value. Such changes may also require write-downs in future years.
C. Mortgage Portfolio - Net mortgage portfolio represents the outstanding
principal amounts of notes receivable reduced by discounts and/or deferred
gains. Real estate is the primary form of collateral on all notes receivable.
The Company periodically evaluates the collectibility of both interest on and
principal of
52
<PAGE> 53
its notes receivable to determine whether they are impaired. A mortgage loan is
considered to be impaired when, based on current information and events, it is
probable that the Company will be unable to collect all amounts due according to
the existing contractual terms of the loan. When the mortgage loan is considered
to be impaired, the Company establishes a valuation allowance equal to the
difference between a) the carrying value of the loan, and b) the present value
of the expected cash flows from the loan at its effective interest rate, or, for
practical purposes, at the estimated fair value of the real estate
collateralizing the loan.
D. Securities Available for Sale - The Company's investments are in marketable
equity securities consisting of common and preferred stocks of listed
corporations. Disposition of such securities may be appropriate for either
liquidity management or in response to changing economic conditions, so they are
classified as securities available for sale.
Securities available for sale are reported at fair value with unrealized gains
and losses reported as other comprehensive income in the statement of
stockholders' equity until realized. Gains and losses on sales of securities are
determined using the specific identification method.
E. Sale of Real Estate - Presidential complies with the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 66, "Accounting for Sales of Real
Estate". Accordingly, the gains on certain transactions are deferred and are
being recognized on the installment method until such transactions have complied
with the criteria for full profit recognition.
F. Discounts on Notes Receivable - Presidential assigned discounted values to
long-term notes received from the sales of properties to reflect the difference
between the stated interest rates on the notes and market interest rates at the
time of acceptance. In addition, discounts on notes receivable include discounts
received from the purchase of notes. Such discounts are being amortized using
the interest method.
G. Principals of Consolidation - The consolidated financial statements include
the accounts of Presidential Realty Corporation and its wholly owned
subsidiaries. Additionally, the consolidated financial statements include 100%
of the account balances of UTB Associates and PDL, Inc. and Associates Limited
Co-Partnership ("Home Mortgage Partnership"), partnerships in which Presidential
or PDL, Inc., a wholly owned subsidiary of Presidential, is the General
53
<PAGE> 54
Partner and owns a 66-2/3% interest and an aggregate 26% interest, respectively
(see Note 4).
All significant intercompany balances and transactions have been eliminated.
H. Rental Income Recognition - Rental income is recorded on the accrual method.
Recognition of rental income is generally discontinued when the rental is
delinquent for ninety days or more, or earlier if management determines that
collection is doubtful.
I. Net Income Per Share - Basic net income per share data is computed by
dividing the net income by the weighted average number of shares of Class A and
Class B common stock outstanding during each year. Basic net income per share
and diluted income per share are the same in 1997, 1998 and 1999. The dilutive
effect of stock options is calculated using the treasury stock method.
J. Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand,
cash in banks and money market funds.
K. Benefits - The Company follows SFAS Nos. 87, 106 and 132 in accounting for
pension and postretirement benefits (see Notes 15 and 16).
L. Management Estimates - The consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. In
preparing the consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated balance sheets and the reported amounts of income and
expense for the reporting period. Actual results could differ from those
estimates.
M. Environmental Liabilities and Expenditures - Accruals for environmental
matters are recorded in operating expenses when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Accrued liabilities are exclusive of claims against third parties and are not
discounted (see Note 9).
N. Accounting for Stock Options - The Company complies with the additional
disclosures required by SFAS No. 123 "Accounting for Stock-Based Compensation"
but has elected to continue to account for employee stock-based compensation as
prescribed by Accounting
54
<PAGE> 55
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Additional disclosures are required because of new options granted in 1999 (see
Note 14).
O. New Pronouncement - The Financial Accounting Standards Board has issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. This statement, as amended, is effective
for the Company beginning with the first quarter of 2001. Management does not
anticipate that implementation of this statement will have a material effect on
the Company's financial statements.
2. MORTGAGE PORTFOLIO
The Company's mortgage portfolio includes notes receivable - sold properties and
notes receivable - related parties.
Notes receivable - sold properties consist of:
(1) Long-term purchase money notes from sales of properties previously
owned by the Company or notes purchased by the Company. These purchase
money notes have varying interest rates with balloon payments due at
maturity.
(2) Notes receivable from sales of cooperative apartment units. These notes
generally have market interest rates and the majority of these notes
amortize monthly with balloon payments due at maturity.
Notes receivable - related parties are all due from Ivy Properties, Ltd. or its
affiliates (collectively "Ivy") and consist of:
(1) Purchase money notes resulting from sales of property or partnership
interests to Ivy.
(2) Notes receivable relating to loans made by the Company to Ivy in
connection with Ivy's cooperative conversion business.
At December 31, 1999, all of the notes in the Company's mortgage portfolio are
current.
The following table summaries the components of the mortgage portfolio:
55
<PAGE> 56
MORTGAGE PORTFOLIO
<TABLE>
<CAPTION>
Sold Properties
------------------------------------------
Accrual Impaired Accrual
Properties Properties Cooperative
previously previously apartment
owned owned units Total
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1999
Notes receivable $27,390,774 $1,091,023 $28,481,797
Less: Discounts 1,822,754 14,968 1,837,722
Deferred gains 11,226,631 93,742 11,320,373
----------- ---------- ---------- -----------
Net $14,341,389 $982,313 $15,323,702
=========== ========== ========== ===========
Due within one year $37,119 $45,922 $83,041
Long-term 14,304,270 936,391 15,240,661
----------- ---------- ---------- -----------
Net $14,341,389 $982,313 $15,323,702
=========== ========== ========== ===========
December 31, 1998
Notes receivable $42,204,265 $17,589,027 $1,236,410 $61,029,702
Less: Discounts 4,032,591 7,597,138 17,039 11,646,768
Deferred gains 12,445,165 6,362,838 93,742 18,901,745
----------- ---------- ---------- -----------
Net $25,726,509 $3,629,051 $1,125,629 $30,481,189
=========== ========== ========== ===========
Due within one year $692,613 $146,567 $48,219 $887,399
Long-term 25,033,896 3,482,484 1,077,410 29,593,790
----------- ---------- ---------- -----------
Net $25,726,509 $3,629,051 $1,125,629 $30,481,189
=========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Related Parties
-----------------------------------------------
Accrual
Accrual Cooperative Total
Sold conversion mortgage
properties loans Total portfolio
---------- --------------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1999
Notes receivable $1,376,586 $197,442 $1,574,028 $30,055,825
Less: Discounts 31,606 100,467 132,073 1,969,795
Deferred gains 908,343 908,343 12,228,716
---------- -------- --------- -----------
Net $436,637 $96,975 $533,612 $15,857,314
======== ======== ======== ===========
Due within one year $14,339 $30,423 $44,762 $127,803
Long-term 422,298 66,552 488,850 15,729,511
-------- -------- -------- -----------
Net $436,637 $96,975 $533,612 $15,857,314
======== ======== ======== ===========
December 31, 1998
Notes receivable $1,462,514 $236,468 $1,698,982 $62,728,684
Less: Discounts 34,591 115,094 149,685 11,796,453
Deferred gains 930,057 930,057 19,831,802
-------- -------- -------- -----------
Net $497,866 $121,374 $619,240 $31,100,429
======== ======== ======== ===========
Due within one year $14,027 $29,967 $43,994 $931,393
Long-term 483,839 91,407 575,246 30,169,036
-------- -------- -------- -----------
Net $497,866 $121,374 $619,240 $31,100,429
======== ======== ======== ===========
</TABLE>
56
<PAGE> 57
Prepayments
In January, 1999, the Company received a $317,662 principal prepayment on its
$417,662 mortgage note which is secured by 316 apartment units at Pinewood in
Des Moines, Iowa. As a result of the $317,662 prepayment, the Company recognized
a deferred gain on sale of $218,534.
During 1998, the Company received $590,000 in prepayments from two mortgages
which had been assigned by Ivy to the Company as security for the Overlook loan.
In connection with this transaction, the Company recognized a deferred gain on
sale of $590,000.
In March, 1997, the Company received prepayment of its $1,074,200 Cedarbrooke
note receivable resulting in the recognition of income from the amortization of
discount of $382,796 and recognition of a deferred gain on sale of $472,497.
Modifications
The Crown Tower and Madison Towers wraparound mortgage notes in the outstanding
principal amount of $13,300,000, which were secured by the Crown Tower and
Madison Towers properties in New Haven, Connecticut, were modified in June of
1999. In connection with the modification, the Company repaid the $2,300,000
first mortgage debt on these properties (wrap mortgage debt on sold properties)
and consolidated the $13,300,000 outstanding principal balance of the wraparound
mortgage notes into one consolidated note (the "New Haven note"). The Company
received a $1,000,000 principal payment on the New Haven note and paid a
$1,000,000 deferred brokerage commission (which had been deferred from the sale
of the New Haven properties in 1984). As a result of these transactions, the
Company received a $30,750 loan modification fee and recognized a deferred gain
on sale of $1,000,000.
The New Haven note in the outstanding principal balance of $12,300,000 is due at
maturity on June 29, 2002. The note provides for an interest rate of 10% per
annum, with a 1/2 percent annual rate increase and additional interest of
$369,000 due at maturity, which will increase the effective interest rate to
11.5% per annum through maturity. The New Haven note is secured by a second
mortgage on the Encore Apartments and commercial space located in New York, New
York and by a limited guarantee of $2,500,000 from one of the owners of the
property.
57
<PAGE> 58
In January, 1997, the Company modified its Woodland notes receivable, extending
the maturity date from 2000 to 2005, with interest rates increasing in 2002 from
9% to 9.25%. In March, 1998, the Company further modified these notes as a
result of the sale of the property and the assumption of the notes by the
purchaser. The interest rate on the notes was increased from 9% to 10% through
2001 and will increase to 10.25% thereafter.
In July, 1997, the Company modified its $1,175,500 Woodgate note receivable,
changing the maturity date from 2015 to 2007, with interest rates of 8.25%
through 1999 and 9.25% thereafter. In addition, the Company and the debtor
agreed to substitute Windsor at Arbors in Alexandria, Virginia for Woodgate
Apartments in Wichita, Kansas, as security for this note.
In September of 1997, the Company extended and modified its $6,250,000
Presidential Park note receivable. This note, which had previously been modified
and extended in August of 1994 and which was due to mature on July 31, 2001, was
extended until July 31, 2006. The interest rate was 6% per annum through July
31, 1999. The interest rate is 7.90% per annum from August 1, 1999 through July
31, 2001. From August 1, 2001 through maturity the interest rate will be at a
rate equal to one hundred fifty basis points in excess of the yield on specified
Treasury bills. In accordance with the terms of this note, the Company and the
debtor agreed to substitute Newcastle Apartments in Greece, New York for
Presidential Park Apartments in Columbus, Ohio as security for this note. In
connection with the modification, the borrower made a $100,000 principal payment
on the note reducing the outstanding principal balance to $6,150,000.
Valuation Reserves
In the fourth quarter of 1997, the Company recorded a valuation reserve of
$43,793 on the University Towers purchase money notes to reflect the decline of
the estimated fair value of the University Towers cooperative apartments in New
Haven, Connecticut that secure the notes. The valuation reserve was recorded to
discounts on notes receivable and an expense of $43,793 was recorded to bad
debts.
Sold Notes
During the year ended December 31, 1999, the Company sold the Fairfield Towers
First Mortgage Note and substantially all of the Fairfield Towers Second
Mortgage Note (the Fairfield Towers Second Mortgage Note had been classified as
an impaired loan). The Company
58
<PAGE> 59
also sold the Grant House wraparound mortgage note, which had also been
classified as an impaired loan.
The Fairfield Towers Second Mortgage and the Grant House wraparound mortgage
note were classified as impaired loans at December 31, 1998. These two loans
were in the aggregate amount of $17,589,027 and had a net carrying value of
$3,629,051 after deducting discounts of $7,597,138 and deferred gains of
$6,362,838.
Fairfield Towers
On February 22, 1999, Presidential consummated the sale of its Fairfield Towers
First and Second Mortgage Notes (excluding a $4,000,000 portion of the Second
Mortgage Note, which it retained). At the date of the sale, the Fairfield Towers
First Mortgage Note had an outstanding principal balance of $17,002,695 and a
net carrying value of $13,957,284 after deducting a discount of $3,045,411. The
Fairfield Towers Second Mortgage Note, which was classified as an impaired loan,
had an outstanding principal balance of $14,206,895 and a net carrying value of
$1,311,908 after deducting discount and deferred gain of $12,894,987. The
aggregate sales price for the First Mortgage Note and the Second Mortgage Note
(excluding the $4,000,000 interest retained by Presidential) was $21,350,000.
As a result of this transaction, Presidential repaid the $10,195,442 outstanding
principal balance of its bank note payable, which had been secured by
Presidential's interest in the First Mortgage Note. Presidential recognized a
gain on sale of $7,393,844 net of Federal taxes of $220,500.
In connection with this transaction, the $4,000,000 portion of the Second
Mortgage Note retained by Presidential was modified to provide for interest at
the rate of 9.625% per annum for the first three years and 10.5% per annum for
the remaining seven years. The $4,000,000 outstanding principal balance is due
at maturity on February 18, 2009. To secure this obligation, Presidential
obtained subordinate security interests in three apartment properties located in
New Jersey as collateral for the Note.
Presidential obtained the Fairfield Towers Second Mortgage, which was secured by
997 unsold condominium units at Fairfield Towers in Brooklyn, New York, when it
sold the Fairfield Towers property in 1984. This nonrecourse note had been in
default since March of 1991. At December 31, 1998, the note had a $14,341,147
outstanding
59
<PAGE> 60
principal balance and a net carrying value of $1,404,764, after a discount of
$7,597,138 and a deferred gain of $5,339,245.
In 1996, the Company acquired the Fairfield Towers First Mortgage (also secured
by the unsold condominium units), with an outstanding principal balance of
$14,650,867, for a purchase price of $11,150,867. During 1997, the Company had
advanced an additional $3,000,018, which was added to the indebtedness secured
by the Fairfield Towers First Mortgage. The outstanding principal balance on the
Fairfield Towers First Mortgage at December 31, 1998 was $17,176,884.
Grant House
On January 28, 1999, the Company sold its equity interest in the $3,235,833
Grant House wraparound mortgage note, which had been classified as an impaired
loan. The Company's underlying second mortgage in the outstanding principal
amount of $1,023,593 was sold to the purchaser for a sales price of $500,000.
The nonrecourse first mortgage which Presidential's second mortgage wrapped
around was also assigned to the purchaser. As a result of this transaction,
Presidential wrote off the $2,212,240 balance on the first mortgage and the
related $2,212,240 mortgage debt, $75,000 of the sales proceeds was applied to
accrued and unpaid interest and the Company recognized a gain on sale of
$425,000.
At December 31, 1997, the Company had classified the Grant House wraparound
mortgage note as an impaired loan. The note was secured by a wraparound mortgage
on the Grant House apartment building (181 apartment units) located in White
Plains, New York. The outstanding principal balance of the note at December 31,
1998 was $3,247,880 and the net carrying value was $2,224,287 (which was equal
to the outstanding principal amount of the underlying nonrecourse first mortgage
debt) after deducting a deferred gain of $1,023,593.
3. REAL ESTATE
Real estate is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
1999 1998
---- ----
<S> <C> <C>
Land $ 5,461,173 $ 5,454,549
Buildings and leaseholds 29,909,205 29,008,677
Furniture and equipment 277,255 240,431
----------- -----------
Total real estate $35,647,633 $34,703,657
=========== ===========
</TABLE>
60
<PAGE> 61
4. MINORITY PARTNERS' INTEREST
Presidential is the General Partner of UTB Associates and PDL, Inc., a wholly
owned subsidiary of Presidential, is the General Partner of Home Mortgage
Partnership. Presidential has a 66-2/3% interest in UTB Associates, and
Presidential and PDL, Inc. have an aggregate 26% interest in Home Mortgage
Partnership. As the General Partner of these partnerships, Presidential and PDL,
Inc., respectively, exercise effective control over the business of these
partnerships, and, accordingly, Presidential consolidates these partnerships in
the accompanying financial statements. The minority partners' interest reflects
the minority partners' equity in the partnerships.
The minority partners' interest in the Home Mortgage Partnership is a negative
interest and therefore, minority partners' interest is a net asset on the
Company's financial statements. The negative basis for each partner's interest
in the Home Mortgage Partnership is due to the refinancing of the mortgage on
the property and the distribution of the proceeds to the partners. The mortgage
debt, which is included in the Company's financial statements, is substantially
in excess of the net carrying amount of the property, but the estimated fair
value of the property is significantly greater than the mortgage debt. Thus, the
asset recorded as minority partners' interest should be realized upon sale of
the property.
Minority partners' interest is comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------
1999 1998
---- ----
<S> <C> <C>
Home Mortgage Partnership $8,112,127 $7,735,342
UTB Associates (207,594) (182,599)
---------- ----------
Total minority partners' interest $7,904,533 $7,552,743
========== ==========
</TABLE>
61
<PAGE> 62
5. SECURITIES AVAILABLE FOR SALE
The cost and fair value of securities available for sale are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
Cost $2,520,568 $1,259,057
Gross unrealized gains 1,824 23,433
Gross unrealized losses (222,898) (7,756)
---------- ----------
Fair value $2,299,494 $1,274,734
========== ==========
</TABLE>
Sales activity results for securities available for sale are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Gross sales proceeds $ 7,663,713 $23,986 $822,073
=========== ======= ========
Gross realized gains $ $21,438 $ 58,418
Gross realized losses (1,450,149) (39,453)
----------- ------- --------
Net realized gain (loss) $(1,450,149) $21,438 $ 18,965
=========== ======= ========
</TABLE>
6. MORTGAGE DEBT
All mortgage debt is secured by individual properties and is nonrecourse to the
Company with the exception of the $259,071 mortgage on the Mapletree Industrial
Center property in Palmer, Massachusetts, which is guaranteed by Presidential.
In January, 1999, the Company refinanced the mortgage on its Cambridge Green
property. The existing mortgage balance of $3,120,190 was paid from the proceeds
of the new $3,195,500 mortgage. The new mortgage bears interest at the rate of
6.65% per annum, requires monthly payments of principal and interest of $20,358,
and matures on October 1, 2029.
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<PAGE> 63
As a result of the refinancing of this mortgage, the Company wrote off $166,756
of unamortized mortgage costs and paid a prepayment penalty fee of $31,200
relating to the prior mortgage.
As described in Note 2 above, during the year ended December 31, 1999, the
Company sold the Grant House wraparound mortgage and repaid the Crown Tower and
Madison Towers first mortgage debt (the wrap mortgage debt). As a result of
these transactions, wrap mortgage debt was reduced from $4,668,462 at December
31, 1998 to $0 at December 31, 1999. Interest income and interest expense
related to wrap mortgages are shown as gross amounts in the consolidated
statements of operations.
Amortization requirements of all mortgage debt as of December 31, 1999 are
summarized as follows:
<TABLE>
<CAPTION>
FHA Insured Other
Total Mortgages Mortgages
----- --------- ---------
<S> <C> <C> <C>
Year ending December 31:
2000 $ 1,338,491 $ 34,831 $ 1,303,660
2001 466,961 37,219 429,742
2002 497,866 39,771 458,095
2003 535,717 42,497 493,220
2004 572,437 45,411 527,026
2005 - 2029 35,967,986 2,965,810 33,002,176
----------- ---------- -----------
TOTAL $39,379,458 $3,165,539 $36,213,919
=========== ========== ===========
</TABLE>
Interest on mortgages is payable at annual rates, summarized as follows:
<TABLE>
<CAPTION>
FHA Insured Other
Total Mortgages Mortgages
----- --------- ---------
<S> <C> <C> <C>
Interest rates:
6.55%-6.65% $ 7,972,511 $3,165,539 $ 4,806,972
7%-7.75% 22,532,381 22,532,381
8.16% 7,957,942 7,957,942
9.75%-9.875% 916,624 916,624
----------- ---------- -----------
TOTAL $39,379,458 $3,165,539 $36,213,919
=========== ========== ===========
</TABLE>
63
<PAGE> 64
7. NOTE PAYABLE TO BANK
In connection with the Company's purchase of the Fairfield Towers First Mortgage
in 1996, the Company obtained a bank loan from Fleet Bank, N.A. The note, which
was due to mature on October 30, 2001, was secured by a collateral assignment of
the Fairfield Towers First Mortgage and was nonrecourse to Presidential except
for a limited guarantee.
Presidential sold the Fairfield Towers First Mortgage in February, 1999 and
repaid the outstanding principal balance of the bank note from the proceeds of
the sale. The outstanding principal balance at the date of the sale was
$10,195,442.
The Company has an unsecured $250,000 line of credit from a lending institution.
The interest rate is 1% above the prime rate and the line of credit expires in
February, 2001. Presidential pays a 1% annual fee for the line of credit. At
December 31, 1999, no advances are outstanding on this line of credit.
8. INCOME TAXES
Presidential has elected to qualify as a Real Estate Investment Trust under the
Internal Revenue Code. A REIT which distributes at least 95% of its real estate
investment trust taxable income to its shareholders each year by the end of the
following year and which meets certain other conditions will not be taxed on
that portion of its taxable income which is distributed to its shareholders.
Upon filing the Company's income tax return for the year ended December 31,
1998, Presidential applied its available 1998 stockholders' distributions and
elected to apply (under Section 858 of the Internal Revenue Code) all but
approximately $801,000 of its 1999 stockholders' distributions to reduce its
taxable income for 1998 to $4,831. As a result, Presidential paid Federal income
taxes of $725 for 1998.
For the year ended December 31, 1999, the Company had taxable income (before
distributions to stockholders) of approximately $3,711,000 ($1.01 per share),
which included approximately $2,836,000 ($.77 per share) of capital gains. This
amount will be reduced by the $630,000 ($.17 per share) of undistributed capital
gains designated as paid under Section 857(b)(3)(D) (see below) and by the
$801,000 ($.22 per share) of its 1999 distributions that were not utilized in
reducing the Company's 1998 taxable income. In addition, the Company
64
<PAGE> 65
may elect to apply any eligible year 2000 distributions to reduce its 1999
taxable income.
As previously stated, in order to retain REIT status, Presidential is required
to distribute 95% of its REIT taxable income ($.23 per share exclusive of
capital gains). Presidential will apply the available 1999 distributions
(approximately $.22 per share) and will be required to pay additional
distributions of not less than $.01 per share in 2000 to maintain REIT status,
which it intends to do.
Under the provisions of the Internal Revenue Code, Section 857(b)(3)(D),
Presidential elected to designate and retain net long-term capital gains of
$630,000 received in 1999. Presidential subsequently paid a $220,500 income tax
on this retained capital gain. Each shareholder (i) includes its pro rata share
($.17 per share) of the Company's retained capital gain in computing its
long-term capital gain, (ii) receives a tax credit for its pro rata share ($.06
per share) of the tax paid by Presidential and (iii) adjusts the basis of its
shares ($.11 per share) for the difference between the amount of the capital
gains and the tax credit received. In addition, although no assurances can be
given, the Company currently expects to distribute all of its remaining 1999
taxable income (after the $630,000 retained capital gain) during 1999 and 2000.
Presidential has, for tax purposes, reported the gain from the sale of certain
of its properties using the installment method.
9. COMMITMENTS AND CONTINGENCIES
Presidential is not a party to any material legal proceedings except as noted
below.
UTB Associates, a partnership in which the Company holds a 66-2/3% interest, is
a tenant under a lease (the "Professional Space Lease") of 24,400 square feet of
professional office space at University Towers, a cooperative apartment building
in New Haven, Connecticut. In June, 1999, University Towers Owners Corp., the
cooperative corporation, filed a petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Connecticut, New Haven division. As part of the bankruptcy proceedings, in
July, 1999 the cooperative corporation filed an Adversary Proceeding against UTB
Associates for termination of the Professional Space Lease and damages primarily
based on claims arising under Connecticut law. The Company has been advised by
its litigation counsel that there are meritorious defenses to the claim raised
by the cooperative corporation and that if these
65
<PAGE> 66
defenses are successful, it is unlikely that the Professional Space Lease will
be terminated or that any damages will be assessed against UTB Associates.
However, in light of the uncertainties of litigation, no assurances can be given
as to the outcome of the litigation. The Company's financial statements reflect
approximately $66,000 of income from the Professional Space Lease in 1999.
In addition, the Company may be a party to routine litigation incidental to the
ordinary course of its business. In the opinion of management, all of the
Company's properties are adequately covered by insurance in accordance with
normal insurance practices. The Company is not aware of any environmental issues
at any of its properties, with the exception of the environmental expenses
incurred in prior years at its Mapletree Industrial Center property in Palmer,
Massachusetts. The presence, with or without the Company's knowledge, of
hazardous substances at any of its properties could have an adverse effect on
the Company's operating results and financial condition.
10. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of its mortgage portfolio, cash and cash
equivalents, and securities available for sale.
The Company's mortgage portfolio consists of long-term notes receivable
collateralized by real estate located in five states (primarily New York and New
Jersey). At December 31, 1999, the aggregate principal amount of these notes was
$30,055,825 with a net carrying value of $15,857,314. The real estate securing
these notes, consisting primarily of moderate income apartment properties and,
to a lesser extent, cooperative apartment units, has at a minimum an estimated
fair value equal to the net carrying value of the notes.
The mortgage portfolio also includes notes receivable due from a related party,
Ivy, with a net carrying value of $533,612 at December 31, 1999.
The Company generally maintains its cash in money market funds with high credit
quality financial institutions. Periodically, the Company may invest in time
deposits with such institutions. Although the Company may maintain balances at
these institutions in
66
<PAGE> 67
excess of the FDIC insurance limit, the Company does not anticipate and has not
experienced any losses.
The Company also invests its funds in marketable equity securities available for
sale. Such investments are reflected on the Company's consolidated balance
sheets at their fair value.
11. COMMON STOCK
The Class A and Class B common stock of Presidential have identical rights
except that the holders of Class A common stock are entitled to elect two-thirds
of the Board of Directors and the holders of the Class B common stock are
entitled to elect one-third of the Board of Directors.
Other than as described in Note 14, no shares of common stock of Presidential
are reserved for officers, employees, warrants or other rights.
12. DISTRIBUTIONS ON COMMON STOCK
For income tax purposes, distributions paid on common stock are allocated as
follows:
<TABLE>
<CAPTION>
Total Taxable Taxable
Year Distribution Ordinary Income Capital Gain
- ---- ------------ --------------- ------------
<S> <C> <C> <C>
1999 $0.64 $0.42 $0.22
1998 0.63 0.22 0.41
1997 0.60 0.19 0.41
</TABLE>
Designated Undistributed Long-Term Capital Gains:
In addition, on December 31, 1999, the Company elected to retain $0.17 per share
of long-term capital gains received in 1999. This undistributed long-term
capital gain of $0.17 per share is taxable to shareholders as a long-term
capital gains distribution. Shareholders will receive a tax credit of $0.06 per
share and should also increase the basis of their shares by $0.11 per share.
13. TREASURY STOCK
In March, 1999, three directors of the Company were each given 1,000 shares of
the Company's Class B common stock as partial payment for directors fees for
1999. Such shares had been held in treasury at an
67
<PAGE> 68
average cost of approximately $13.54 per share. The average market value for the
previous month of the Class B common stock, on which the fees were based, was
$7.17 per share. As a result of this transaction, the Company recorded $21,510
for directors fees based on the average market value of the stock. Treasury
stock was reduced by a cost of $40,618 and additional paid-in capital was
charged $19,108 for the excess of the cost over the market value. In addition,
on March 24, 1999, an executive of the Company was given 7,000 shares of the
Company's Class B common stock at a market price of $7.0625 per share (the
closing price of the stock on the date of issuance). The Company recorded a
salary expense of $49,438, reduced treasury stock by a cost of $94,780 and
charged additional paid-in capital $45,342 for the excess of the cost over the
market value.
In March, 1998, three directors of the Company were each given 1,000 shares of
the Company's Class B common stock as partial payment for directors fees for
1998. Such shares had been held in treasury at an average cost of approximately
$13.54 per share. The average market value for the previous month of the Class B
common stock, on which the fees were based, was $6.96 per share. As a result of
this transaction, the Company recorded $20,880 for directors fees based on the
average market value of the stock. Treasury stock was reduced by a cost of
$40,620 and additional paid-in capital was charged $19,740 for the excess of the
cost over the market value.
14. STOCK OPTION PLANS
In 1993, the Company adopted a Nonqualified Stock Option Plan (the "1993 Stock
Option Plan"). The 1993 Stock Option Plan provided that options to purchase up
to 250,000 shares of the Company's Class B common stock could be issued prior to
December 31, 1998 to the Company's key employees at exercise prices equal to the
market value on the date the option was granted. On November 17, 1993, options
to purchase 60,000 shares were granted to three employees at an exercise price
of $6.125 per share. All of the options were exercised on November 10, 1999. No
other options have been granted, exercised or cancelled under this plan from
inception to December 31, 1999 and no further options can be granted under this
plan.
In connection with the exercise of the options discussed above, the Company
loaned the three employees, who are officers of Presidential, $367,500 to pay
for the stock. The recourse notes, secured by the stock, bear interest at 8% per
annum, payable quarterly, and the principal is due at maturity on November 30,
2004. See Note 18.
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<PAGE> 69
In 1999, the Company adopted a Nonqualified Stock Option Plan (the "1999 Stock
Option Plan"). The 1999 Stock Option Plan provides that options to purchase up
to 150,000 shares of the Company's Class B common stock may be issued prior to
December 31, 2003 to the Company's key employees at exercise prices equal to the
market value on the date the option is granted. On November 10, 1999, options to
purchase 60,000 shares were granted to three employees at an exercise price of
$6.375 per share. All of the options are exercisable at December 31, 1999 and
expire on November 10, 2005. No other options have been granted, exercised or
cancelled under this plan. The Company has agreed that to the extent that any of
the existing stock options held by these key employees are either exercised or
lapse, the Company will grant new options in the amount of the stock options
that have either been exercised or lapse, which new options will have an
exercise price equal to the closing price of the Class B common stock on the
date that the new option is actually granted, will have a term of six years from
the date such new option is granted and will be otherwise subject to the terms
of the 1999 Stock Option Plan or any successor plan.
The Company has determined that the pro forma effect of the stock options on
compensation expense required by SFAS No. 123 is not material.
15. PENSION PLANS
Defined Benefit Plan
The Company has a noncontributory defined benefit pension plan, which covers
substantially all of its employees. The plan provides monthly retirement
benefits commencing at age 65. The monthly benefit is equal to the sum of (1)
6.5% (as of January 1, 2000, 6.5% is amended to 7.15%) of average monthly
compensation multiplied by the total number of plan years of service (up to a
maximum of 10 years), plus (2) .62% of such average monthly compensation in
excess of one-twelfth of covered compensation multiplied by the total number of
plan years of service (up to a maximum of 10 years). The Company makes annual
contributions that meet the minimum funding requirements and the maximum
contribution limitations under the Internal Revenue Code. Periodic pension costs
are reflected in general and administrative expenses in the Company's
consolidated statements of operations.
69
<PAGE> 70
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $330,649 $324,374 $297,908
Interest cost 112,973 79,370 55,484
Expected return on plan assets (131,403) (96,438) (66,209)
Amortization and deferrals (11,356) (8,950)
-------- -------- --------
Net periodic benefit cost $300,863 $298,356 $287,183
======== ======== ========
</TABLE>
The following sets forth the plan's funded status and amount recognized in the
Company's consolidated balance sheets:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $1,613,907 $1,133,852
Service cost 330,649 324,374
Interest cost 112,973 79,370
Amendments 194,286
Actuarial loss 14,403 76,311
---------- ----------
Benefit obligation at end
of year 2,266,218 1,613,907
---------- ----------
Change in plan assets
Fair value of plan assets at
beginning of year 1,804,482 1,296,290
Actual return on plan assets 360,412 263,017
Employer contributions 94,040 245,175
---------- ----------
Fair value of plan assets at
end of year 2,258,934 1,804,482
---------- ----------
Funded status actuarial (7,284) 190,575
Unrecognized prior service cost 194,286
Unrecognized gain (569,931) (366,681)
---------- ----------
Net amount recognized $ (382,929) $ (176,106)
========== ==========
Weighted-average assumptions as of
December 31
Discount rate 7% 7%
Expected return on plan assets 7% 7%
Rate of compensation increase 5% 5%
</TABLE>
70
<PAGE> 71
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Plan Assets
Cash and cash equivalents $ 162,332 $ 65,215
Securities available for sale 2,096,602 1,739,267
---------- ----------
Total plan assets $2,258,934 $1,804,482
========== ==========
</TABLE>
Executive Pension Plan
Presidential has employment contracts with several active and retired key
officers and employees. Such contracts are being accounted for as constituting
pension agreements. The contracts generally provide for annual benefits in
specified amounts for each participant for life, commencing upon retirement,
with an annual adjustment for an increase in the consumer price index. Periodic
pension costs are reflected in general and administrative expenses in the
Company's consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 52,364 $ 15,127 $ 14,137
Interest cost 173,211 166,262 187,983
Amortization of prior
service cost (4,079) (4,079) (4,079)
Recognized actuarial loss 168,741 121,490 87,297
-------- -------- --------
Net periodic benefit cost $390,237 $298,800 $285,338
======== ======== ========
</TABLE>
71
<PAGE> 72
Presidential has elected not to fund expenses accrued under these contracts. The
following set forth the pension liability included in Presidential's
consolidated balance sheets:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 2,881,845 $ 2,779,019
Service cost 52,364 15,127
Interest cost 173,211 166,262
Amendments 138,611
Actuarial loss 194,294 325,291
Benefits paid (407,409) (403,854)
----------- -----------
Benefit obligation at end of year 3,032,916 2,881,845
----------- -----------
Change in plan assets
Employer contributions 407,409 403,854
Benefits paid (407,409) (403,854)
----------- -----------
Fair value of plan assets at end of year 0 0
----------- -----------
Funded status (3,032,916) (2,881,845)
Unrecognized net actuarial loss 1,438,680 1,413,127
Unrecognized prior service cost 115,051 (27,639)
----------- -----------
Net amount recognized $(1,479,185) $(1,496,357)
=========== ===========
Weighted-average assumptions as of December 31
Discount rate 7% 7%
Expected return on plan assets 7% 7%
Rate of compensation increase 5% 5%
</TABLE>
16. POSTRETIREMENT BENEFITS
Presidential has employment contracts with several active and retired key
officers and employees which provide for postretirement benefits other than
pensions (such as health care benefits). The Company accrues the estimated cost
of retiree benefit payments during the years the employee provides services.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 13% for participants age 65 and over and
15% for participants under age 65, decreasing linearly each successive year
until it reaches 6% in 2002, after which it remains constant.
72
<PAGE> 73
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic
benefit cost
Service cost $ 7,180 $ 6,711 $ 6,272
Interest cost 32,785 34,241 35,484
Recognized net actuarial gain (10,386) (9,196) (8,069)
------- ------- -------
Net periodic benefit cost $29,579 $31,756 $33,687
======= ======= =======
</TABLE>
The accumulated postretirement benefit obligation and recorded liability, none
of which has been funded, was as follows:
<TABLE>
<CAPTION>
December 31,
1999 1998
---- ----
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $ 498,846 $ 518,570
Service cost 7,180 6,711
Interest cost 32,785 34,241
Actuarial gain (9,543) (16,450)
Benefits paid (53,348) (44,226)
--------- ---------
Benefit obligation at end of year 475,920 498,846
--------- ---------
Change in plan assets
Employer contributions 53,348 44,226
Benefits paid (53,348) (44,226)
--------- ---------
Fair value of plan assets at end of year 0 0
--------- ---------
Funded status (475,920) (498,846)
Unrecognized actuarial gain (62,478) (63,321)
--------- ---------
Net amount recognized $(538,398) $(562,167)
========= =========
Weighted-average assumptions as of December 31
Discount rate 7% 7%
Expected return on plan assets 7% 7%
</TABLE>
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
<S> <C> <C>
Effect on total service and
interest cost components $ 1,000 $ (1,000)
Effect on postretirement
benefit obligation 46,000 (38,000)
</TABLE>
73
<PAGE> 74
17. DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
Presidential maintains a Dividend Reinvestment and Share Purchase Plan (the
"Plan"). Under the Plan, stockholders may reinvest cash dividends and make
optional cash payments to purchase Class B common stock without incurring any
brokerage commission or service charge. Additionally, the price of Class B
common stock purchased with reinvested cash dividends will be discounted by 5%
from the average of the high and low market prices of the five days immediately
prior to the dividend payment date, as reported on the American Stock Exchange.
Class B Common Shares issued under the Plan are summarized below:
<TABLE>
<CAPTION>
Net Proceeds
Shares Received
------ --------
<S> <C> <C>
Total shares issued at December 31, 1997 327,754 $2,230,058
Shares issued during 1998 22,319 150,687
------- ----------
Total shares issued at December 31, 1998 350,073 2,380,745
Shares issued during 1999 16,310 105,494
------- ----------
Total shares issued at December 31, 1999 366,383 $2,486,239
======= ==========
</TABLE>
18. RELATED PARTY TRANSACTIONS
Ivy Properties, Ltd. and various affiliated companies (collectively "Ivy") are
owned by Thomas Viertel, Steven Baruch and Jeffrey Joseph (the "Ivy
Principals"), who are also the sole partners of Pdl Partnership, which owns
198,735 shares of the Company's Class A common stock. As a result of the
ownership of the 198,735 shares of Class A common stock described above and
24,601 additional shares of Class A common stock owned in the aggregate
individually by the Ivy Principals, Pdl Partnership and the Ivy Principals have
beneficial ownership of an aggregate of approximately 47% of the outstanding
shares of Class A common stock of the Company, which class of stock is entitled
to elect two-thirds of the Board of Directors of the Company. By reason of such
beneficial ownership, the Ivy Principals are in a position substantially to
control elections of the Board of Directors of the Company.
Jeffrey Joseph is the President and a Director of Presidential. Thomas Viertel,
an Executive Vice President and the Chief Financial Officer of Presidential, is
the son of Joseph Viertel, a Director and a former President of Presidential,
and the nephew of Robert E. Shapiro, Chairman of the Board of Directors and a
former President
74
<PAGE> 75
of Presidential. Steven Baruch, an Executive Vice President of Presidential, is
the cousin of Robert E. Shapiro and Joseph Viertel.
In connection with the exercise of stock options in November, 1999, the Company
loaned $367,500 in the aggregate to Jeffrey Joseph ($147,000), Thomas Viertel
($110,250) and Steven Baruch ($110,250) to pay for the purchase of the stock.
The recourse notes, secured by the stock, bear interest at 8% per annum, payable
quarterly, and the principal is due at maturity on November 30, 2004. For the
year ended December 31, 1999, Presidential recognized interest income of $4,108
on these notes. These three officers own an aggregate of 87,764 shares of Class
B common stock and options to purchase 60,000 shares of Class B common stock.
See Note 14.
From 1979 to 1989, Presidential made loans to Ivy in connection with Ivy's
cooperative conversions of apartment properties in the New York metropolitan
area. In 1981, UTB Associates, a partnership controlled by Presidential, sold an
apartment property to Ivy in return for purchase money notes. In addition, in
1984, Presidential sold to Ivy its 50% partnership interest in the partnership
which owned Overlook Gardens, a 308 unit apartment complex in Alexandria,
Virginia for a purchase money note. During 1989 and 1990 the sales market for
cooperative apartments in the New York metropolitan area deteriorated and as a
result in 1990 and 1991 Ivy defaulted on certain of its outstanding loans from
Presidential. In early 1990, Ivy began negotiations with Presidential with
respect to a workout of the loans then in default. Because of the relationships
described above between the Ivy Principals and Presidential, the negotiations
with Ivy were conducted on behalf of Presidential by a committee of three
members of the Board of Directors with no affiliations with the Ivy Principals
(the "Independent Committee") and an officer of Presidential who was not
affiliated with the Ivy Principals. On November 14, 1991, Presidential and Ivy
consummated a settlement agreement (the "Settlement Agreement") with respect to
various outstanding loans to Ivy, which was approved unanimously by the Board of
Directors of Presidential.
In connection with the Settlement Agreement, Presidential received, among other
things, a number of vacant and occupied cooperative apartment units in the New
York metropolitan area and certain third party promissory notes held by Ivy.
Presidential received these assets in exchange for (i) the satisfaction of all
of Ivy's recourse debt to Presidential and certain of its nonrecourse debt to
Presidential with respect to which Presidential held first priority security
interests and (ii) the release by Presidential of certain
75
<PAGE> 76
subordinate security interests in collateral securing some of the defaulted
loans.
Most of Ivy's remaining nonrecourse debt to Presidential was consolidated, on
modified terms, into two nonrecourse loans (collectively, the "Consolidated
Loans") which were collateralized by substantially all of Ivy's remaining
business assets with respect to which Presidential either did not previously
have any security interest or had a junior security interest (collectively, the
"Consolidated Collateral"). The terms of the Settlement Agreement permit Ivy to
use the proceeds of each sale of Consolidated Collateral to (1) pay existing
indebtedness of Ivy to its bank and trade creditors and certain operating
expenses and (2) create and fund specified reserves to provide for payment of
future obligations and potential liabilities. At December 31, 1999, the
Consolidated Loans have an outstanding principal balance of $4,809,309 and a net
carrying value of $39,259. Since, as permitted by the terms of the Consolidated
Loans, most of Ivy's assets have been sold with the sales proceeds used to pay
other recourse obligations of Ivy, Presidential does not expect to recover any
material amount on the Consolidated Loans in excess of their net carrying value.
In 1996, Presidential and the Ivy Principals agreed to a modification of the
Settlement Agreement to provide that the Ivy Principals will make payments on
the Consolidated Loans in an amount equal to 25% of the operating cash flow
(after provision for certain reserves) of Scorpio Entertainment, Inc.
("Scorpio"), a company owned by the Ivy Principals which acts as a producer of
theatrical productions. This agreement, and Presidential's decision not to
exercise an option (which it had received as part of the original Settlement
Agreement) to acquire the capital stock of Scorpio, was made pursuant to the
unanimous determination of the Independent Committee that such actions were in
the best interests of Presidential. During 1999, Presidential received $13,309
of principal payments and $64,405 of interest on the Consolidated Loans.
All outstanding loans from Ivy at December 31, 1999 are current. Management
believes that Presidential holds sufficient collateral to protect its interests
in the loans that remain outstanding from Ivy to the extent of the net carrying
value of these loans.
Presidential received interest of $236,457, $426,990 and $223,402 from Ivy
during 1999, 1998 and 1997, respectively, on the loans referred to above. In
addition, in 1999, 1998 and 1997, Presidential recognized $14,034, $11,050 and
$11,345, respectively,
76
<PAGE> 77
of income representing the amortization of discounts on notes receivable.
Any transactions relating to the implementation of the terms of the Settlement
Agreement, or otherwise involving the Ivy Principals, are subject to the
approval of the Independent Committee.
All outstanding loans from Ivy are set forth in the table below:
77
<PAGE> 78
MORTGAGE PORTFOLIO: NOTES RECEIVABLE - RELATED PARTIES
<TABLE>
<CAPTION>
Loan Balance
Original December 31,
Loan Basic
Date Advanced Description Interest Rate 1999 1998
- ---- -------- ----------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
1981 $5,285,000 UTB Associates, a partnership in 11.8 to 25.33% $468,243 $532,457
which Presidential owns a 66-2/3%
interest, sold an apartment property in
New Haven, CT to Ivy for
long-term, nonrecourse
purchase money notes.
1984 4,305,500 Sale by Presidential to Ivy of 6.0% 908,343 930,057
50% interest in a partnership
which owns an apartment complex
in Alexandria, VA (Overlook loan).
1991 526,454 UTB End Loans: Purchase money notes Various 158,183 183,900
on co-op apts. These notes were transferred
to Presidential as part of the Ivy settlement.
1991 155,084 Consolidated Loans: Replaced previously Chase Prime 39,259(1) 52,568
defaulted loans.
--------- ---------
Total Loans 1,574,028 1,698,982
Less: Discounts 132,073(2) 149,685
Deferred gain on Overlook loan 908,343 930,057
--------- ---------
Net Carrying Value $533,612 $619,240
========= =========
</TABLE>
(1) The Consolidated Loans have a net carrying value of $39,259 and an
outstanding principal balance of $4,809,309.
(2) Included in the $132,073 discount is a valuation reserve of $43,793. This
valuation reserve was recorded by the Company in 1997 to reflect the
decline in the estimated fair value on the University Towers co-op
apartments held as security for the UTB Associates and the UTB End Loan
notes.
78
<PAGE> 79
19. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair values of the Company's financial instruments as of December 31,
1999 and 1998 have been determined using available market information and
various valuation estimation methodologies. Considerable judgement is required
to interpret the effects on fair value of such items as future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments and other factors. The estimates presented herein are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange. Also, the use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
values.
The following table summaries the estimated fair values of financial
instruments:
79
<PAGE> 80
FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
Net Estimated Net Estimated
Carrying Fair Carrying Fair
Value (1) Value Value (1) Value
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $7,014,542 $7,014,542 $1,764,465 $1,764,465
Securities available for sale 2,299,494 2,299,494 1,274,734 1,274,734
Notes receivable-sold properties-
accrual 15,323,702 28,461,062 26,852,138 39,975,890
Notes receivable-sold properties-
impaired(2) 3,629,051 10,720,562
Notes receivable-related parties-
accrual 533,612 1,651,797 619,240 1,688,873
Liabilities:
Mortgage debt on properties owned 39,379,458 34,716,388 39,728,031 39,728,031
Wrap mortgage debt 4,668,462 4,668,462
Note payable to bank 10,395,361 10,395,361
</TABLE>
(1) Net carrying value is net of discounts and deferred gains where
applicable.
(2) The fair value of the impaired loans at December 31, 1998, includes all
impaired loans. As a result of the sale of these notes in the first
quarter of 1999, the fair value of these notes was assessed by discounting
the cash flows received or to be received for these notes.
80
<PAGE> 81
The fair value estimates presented above are based on pertinent information
available to management as of December 31, 1999 and 1998. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued since
December 31, 1999 and, therefore, current estimates of fair value may differ
significantly from the amounts presented above.
Fair value methods and assumptions are as follows:
Cash and Cash Equivalents - The estimated fair value approximates carrying
value, due to the short maturity of these investments.
Securities Available for Sale - The fair value of securities available for sale
is estimated based on quoted market prices or dealer quotes, if available. If a
quote is not available, fair value is estimated using quoted market prices for
similar securities.
Notes Receivable - The fair value of notes receivable has been estimated by
discounting projected cash flows using current rates for similar notes
receivable.
Mortgage Debt on Properties Owned, Wrap Mortgage Debt and Note Payable to Bank -
At December 31, 1999, the fair value of mortgage debt on properties owned has
been estimated by discounting projected cash flows using current rates for
similar debt. At December 31, 1998, the fair value of mortgage debt on
properties owned, wrap mortgage debt and note payable to bank was estimated at
their net carrying value.
81
<PAGE> 82
20. QUARTERLY FINANCIAL INFORMATION - UNAUDITED
(Amounts in thousands, except earnings (loss) per common share)
<TABLE>
<CAPTION>
Income Before Earnings
Net Gain from (Loss)
Year Sales of Per
Ended Properties, Notes Net Income Common
December 31 Revenues and Securities (Loss) Share
- ----------- -------- -------------- ------ -----
<S> <C> <C> <C> <C>
1999
First $3,922 $298 $7,017 (1) $ 1.94 (1)
Second 3,782 561 1,641 0.46
Third 3,747 423 428 0.11
Fourth 3,793 96(2) (5)(1) (0.01)(1)
1998
First $3,830 $633 $ 696 $ 0.19
Second 3,777 451 1,069 0.30
Third 3,869 538 582 0.16
Fourth 3,937 395 426 0.12
</TABLE>
(1) Net income for the first quarter of 1999 includes a net gain of
$6,050,740 (after accrued taxes of $1,566,474) from the sale of the
Fairfield Towers First and Second Mortgage Notes. The tax accrual of
$1,566,474 was based on management's intention, at that time, that the
Company would retain all of the taxable gain from the sale of the
Fairfield Towers Notes. On December 31, 1999, the Company elected to
retain only $630,000 of the taxable gain from the sale of the Fairfield
Towers Notes. This election reduced the accrued taxes on the sale from
$1,566,474 to $220,500 and resulted in an increase in the net gain from
sales of $1,345,974. This increase was offset by the $1,450,149 loss
incurred in the fourth quarter from the sales of securities.
(2) Income before net gain from sales of properties, notes and securities
for the fourth quarter of 1999 includes a $378,522 write-off to bad
debt expense of amounts advanced to the Company's unaffiliated rental
property management company. Although it is unlikely that the rental
property management company will be able to repay these advances in the
near future, Presidential has not released the management company from
its liability for these amounts due.
82
<PAGE> 83
21. SUBSEQUENT EVENTS
In March, 2000, the Company acquired Farrington Apartments, a 224 unit apartment
property in Clearwater, Florida for a purchase price of $9,630,950. In
connection with the acquisition, the Company obtained a nonrecourse first
mortgage loan on the property in the amount of $7,900,000, with interest at the
rate of 8.25% per annum and a ten year maturity.
The Company also executed a contract to acquire Preston Lake, a 320 unit
apartment property in Norcross, Georgia for a purchase price of $17,500,000 and
obtained a commitment for a first mortgage loan on the property in the amount of
$14,000,000, with interest at the rate of 8.15% per annum and a ten year
maturity. The Company expects to finalize this purchase in April, 2000.
83
<PAGE> 84
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
SCHEDULE II
<TABLE>
<CAPTION>
BALANCE AT CHARGED BALANCE
BEGINNING TO AT END
CLASSIFICATION OF YEAR EXPENSES DEDUCTIONS (1) OF YEAR
-------------- ------- -------- -------------- -------
<S> <C> <C> <C> <C>
1999
Discount on mortgage
portfolio and valuation
allowance for other receivables $11,916,555 $60,488 $9,867,426 (2)(3) $ 2,109,617
=========== ======= ========== ===========
1998
Discount on mortgage
portfolio and valuation
allowance for other receivables $13,020,904 $46,799 $1,151,148 $11,916,555
=========== ======= ========== ===========
1997
Discount on mortgage
portfolio and valuation
allowance for other receivables $14,419,071 $68,042 $1,466,209 $13,020,904
=========== ======= ========== ===========
</TABLE>
(1) Represents amortization of discount on mortgages and notes using the
interest method and also includes write-off of discounts on notes due to
prepayments on notes.
(2) Includes $3,045,411 of discount on the Fairfield Towers First Mortgage
which was recognized as a gain on the sale of the Fairfield Towers First
Mortgage.
(3) Includes a write-off of discount of $6,075,210 relating to the Fairfield
Towers Second Mortgage which was sold in 1999.
84
<PAGE> 85
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
SCHEDULE III
<TABLE>
<CAPTION>
INITIAL COST TO
COMPANY COSTS
----------------------- CAPITALIZED
BUILDING SUBSEQUENT TO
AMOUNT OF AND ACQUISITION
PROPERTIES ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS (1)
---------- ------------ ---- ------------ ----------------
<S> <C> <C> <C> <C>
Office and Commercial except
where otherwise indicated:
Building Industries Center,
White Plains, NY $906,469 $61,328 $496,198 $584,227
*Cambridge Green,
Council Bluffs, IA 3,165,539 200,000 2,034,315 1,328,645
*Continental Gardens,
Miami, FL 7,957,942 2,448,000 7,389,786 416,071
*Crown Court,
New Haven, CT 2,741,615 168,000 3,077,445 58,481
*Fairlawn Gardens
Martinsburg, WV 2,264,850 71,408 657,805 1,201,736
Home Mortgage Plaza,
Hato Rey, Puerto Rico 17,266,846 636,712 5,070,769 1,871,686
Mapletree Industrial Center,
Palmer, MA 259,071 79,100 191,378
*Sunwood Apartments
Miami, FL 4,806,972 1,680,000 4,860,251 38,815
Towers Shoppers Parcade,
New Haven, CT 10,154 7,000
University Towers,
New Haven, CT 233,791
Cooperative Apartment Shares:
330 W.72nd St.,
New York, NY 20,891 28,013
6300 Riverdale Ave.,
Riverdale, NY 10,164 66,032 1,986
Broad Park Lodge,
White Plains, NY 1,203 8,797
Sherwood House,
Long Beach, NY 7,316 51,930 (42,926)(2)
Towne House,
New Rochelle, NY 61,051 343,286 169,459
University Towers,
New Haven, CT 1,375 54,735 1,374
---------- ---------- ----------- ----------
TOTAL $39,379,458 $5,446,548 $24,146,362 $6,054,723
========== ========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
GROSS AMOUNT AT WHICH CARRIED
AT CLOSE OF YEAR
------------------------------------
BUILDING
AND ACCUMULATED
PROPERTIES LAND IMPROVEMENTS TOTAL DEPRECIATION
---------- ---- ------------ ----- ------------
<S> <C> <C> <C> <C>
Office and Commercial except
where otherwise indicated:
Building Industries Center,
White Plains, NY $61,328 $1,080,425 $1,141,753 $921,449
*Cambridge Green,
Council Bluffs, IA 200,000 3,362,960 3,562,960 745,522
*Continental Gardens,
Miami, FL 2,448,000 7,805,857 10,253,857 1,118,087
*Crown Court,
New Haven, CT 168,000 3,135,926 3,303,926 2,569,233
*Fairlawn Gardens
Martinsburg, WV 71,408 1,859,541 1,930,949 129,729
Home Mortgage Plaza,
Hato Rey, Puerto Rico 636,712 6,942,455 7,579,167 2,371,294
Mapletree Industrial Center,
Palmer, MA 79,100 191,378 270,478 27,707
*Sunwood Apartments
Miami, FL 1,680,000 4,899,066 6,579,066 222,743
Towers Shoppers Parcade,
New Haven, CT 7,000 7,000 7,000
University Towers,
New Haven, CT 233,791 233,791 63,478
Cooperative Apartment Shares:
330 W.72nd St.,
New York, NY 20,891 28,013 48,904 2,667
6300 Riverdale Ave.,
Riverdale, NY 10,164 68,018 78,182 6,341
Broad Park Lodge,
White Plains, NY 1,203 8,797 10,000 837
Sherwood House,
Long Beach, NY 1,788 14,532 16,320 1,365
Towne House,
New Rochelle, NY 81,204 492,592 573,796 40,033
University Towers,
New Haven, CT 1,375 56,109 57,484 3,995
---------- ----------- ----------- ----------
TOTAL $5,461,173 $30,186,460 $35,647,633 $8,231,480
========== =========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
YEARS ON
WHICH DE-
PRECIATION
IN LATEST
INCOME
STATE-
DATE OF DATE MENT IS
PROPERTIES CONSTRUCTION ACQUIRED COMPUTED
---------- ------------ -------- --------
<S> <C> <C> <C>
Office and Commercial except
where otherwise indicated:
Building Industries Center,
White Plains, NY 1956 1966 25
*Cambridge Green,
Council Bluffs, IA 1974 1992 50
*Continental Gardens,
Miami, FL 1971 1994 27-1/2
*Crown Court,
New Haven, CT 1973 1973 40
*Fairlawn Gardens
Martinsburg, WV 1964 1996 50
Home Mortgage Plaza,
Hato Rey, Puerto Rico 1966-1967 1966 40
Mapletree Industrial Center,
Palmer, MA 1902-1966 1974 20
*Sunwood Apartments
Miami, FL 1976 1998 30
Towers Shoppers Parcade,
New Haven, CT 1962 1962 33-1/3
University Towers,
New Haven, CT
Cooperative Apartment Shares:
330 W.72nd St.,
New York, NY 1997 31 1/2
6300 Riverdale Ave.,
Riverdale, NY 1997 31 1/2
Broad Park Lodge,
White Plains, NY 1995 31 1/2
Sherwood House,
Long Beach, NY 1997 31 1/2
Towne House,
New Rochelle, NY 1997 31 1/2
University Towers,
New Haven, CT 1997 31 1/2
</TABLE>
* Apartments
(1) Includes furniture and equipment of $277,255.
(2) Includes sales of cooperative apartments in 1998 and 1999.
85
<PAGE> 86
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
SCHEDULE III (CONCLUDED)
(3) The aggregate cost of real estate for Federal income tax purposes is
$34,710,056 at December 31, 1999.
(4) The reconciliations of the total cost of real estate at the beginning
of each year with the total cost at the end of each year are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at the beginning of year $34,703,657 $27,690,535 $25,369,405
Additions during the year:
Acquisitions through foreclosure 44,284 11,569 101,875
Additions and improvements 917,365 7,036,611 1,643,877
Reclassed from foreclosed properties 588,683
----------- ----------- -----------
35,665,306 34,738,715 27,703,840
Deductions during the year:
Dispositions 17,673 35,058 13,305
----------- ----------- -----------
Balance at end of year $35,647,633 $34,703,657 $27,690,535
=========== =========== ===========
</TABLE>
(5) The reconciliations of the accumulated depreciation at the beginning of
each year with the total shown at the end of each year are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at the beginning of year $7,231,639 $6,404,797 $5,680,108
Additions during the year:
Depreciation charged to income 1,008,051 827,786 737,994
---------- ---------- ----------
8,239,690 7,232,583 6,418,102
Deductions during the year:
Dispositions and replacements 8,210 944 13,305
---------- ---------- ----------
Balance at end of year $8,231,480 $7,231,639 $6,404,797
========== ========== ==========
</TABLE>
86
<PAGE> 87
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
SCHEDULE IV
<TABLE>
<CAPTION>
PERIODIC
INTEREST MATURITY PAYMENT PRIOR FACE AMOUNT
DESCRIPTION RATE DATE TERMS MORTGAGES OF MORTGAGE
<S> <C> <C> <C> <C> <C>
First Mortgages:
Apartment buildings:
Greece, NY 7.90-8.50% 2006 (2) (3) $6,000,000
Hartford, CT 10.00-10.25% 2005 (4) (4) 1,502,012
Sold Co-op Apartments:
Bronx, NY (2 notes) 9.00% 2003 (5) 35,271
Flushing, NY (8 notes) 7.00-9.50% 2002-2008 (5)(6) 206,116
Long Beach, NY (2 notes) 9.00-9.50% 2002-2010 (5)(6) 22,165
New Rochelle, NY (19 notes) 7.75-9.50% 2002-2010 (5)(6) 536,592
New York, NY (3 notes) 8.00-8.75% 2003-2016 (5)(6) 187,825
Riverdale, NY (3 notes) 7.50-8.25% 2003 (6) 18,965
Rye, NY (2 notes) 8.00-11.00% 2009-2010 (6) 84,089
----------- -----------
Total First Mortgage Loans 8,593,035
----------- -----------
Junior Mortgages:
Apartment buildings:
Alexandria, VA 8.25-9.25% 2007 (7) (3) $20,072,419 1,175,500
Bronx, NY 5.16-11.16% 2002-2005 (8) (3) 3,450,000 2,313,262
Atlantic City, NJ ) 9.625-10.50% 2009 (9) (3) 6,745,566 4,000,000
Bergenfield, NJ ) 9,001,182
South Bound Brook, NJ ) 3,296,772
Des Moines, IA 12.00% 2001 (3) 100,000
New York, NY 10.00-11.50% 2002 (10) (3) 50,000,000 12,300,000
----------- -----------
Total Junior Mortgage Loans 92,565,939 19,888,762
----------- -----------
Total Mortgage Loans $92,565,939 $28,481,797
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
CARRYING PRINCIPAL AMT. OF LOANS
AMOUNT OF SUBJECT TO DELINQUENT
DESCRIPTION MORTGAGE (1) PRINCIPAL OR INTEREST
<S> <C> <C>
First Mortgages:
Apartment buildings:
Greece, NY $3,008,150
Hartford, CT 1,382,467
Sold Co-op Apartments:
Bronx, NY (2 notes) 35,271
Flushing, NY (8 notes) 199,700
Long Beach, NY (2 notes) 21,119
New Rochelle, NY (19 notes) 493,492
New York, NY (3 notes) 129,774
Riverdale, NY (3 notes) 18,868
Rye, NY (2 notes) 84,089
----------- ----------------
Total First Mortgage Loans 5,372,930
----------- ----------------
Junior Mortgages:
Apartment buildings:
Alexandria, VA 229,301
Bronx, NY 1,755,012
Atlantic City, NJ ) 2,557,999
Bergenfield, NJ )
South Bound Brook, NJ )
Des Moines, IA 100,000
New York, NY 5,308,460
----------- ----------------
Total Junior Mortgage Loans 9,950,772
----------- ----------------
Total Mortgage Loans $15,323,702
=========== ================
</TABLE>
87
<PAGE> 88
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1999
SCHEDULE IV (CONCLUDED)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $30,481,189 $30,036,785 $27,558,691
Additions during the year:
New mortgage loans $60,000 $3,011,698
Less:
Discounts on additions
---------- --------- ----------
Net addition to carrying amount 60,000 3,011,698
Deductions during the year:
Reclass of loan foreclosed 39,858 11,569 45,765
Collections of principal 2,062,203 768,587 2,398,668
Collections on notes sold 21,775,000
Write-off balance of notes sold 8,670,424
Less:
Amortization of discounts 688,007 1,083,917 1,357,681
Discount recognized as gain on sale 3,045,411
Write-off of discounts on notes sold 6,075,210
Deferred gains recognized 7,581,370 80,643 553,148
---------- --------- ----------
Net reduction of carrying amount 15,157,487 (384,404) 533,604
------------ ------------ ------------
Balance at end of year $15,323,702 $30,481,189 $30,036,785
============ ============ ============
</TABLE>
(1) Carrying value is net of discounts and deferred gains. The aggregate
net carrying value of this portfolio for tax purposes at December 31,
1999, is $7,067,030.
(2) Interest was paid on this note at the rate of 6% per annum through July
31, 1999 and is 7.90% per annum through July 31, 2001. Thereafter
interest will be at a rate equal to 150 basis points in excess of the
yield on specified Treasury bills. In connection with the modification
of the note in 1994, the borrower paid a $628,863 fee in order to
increase the effective interest rate on the note to 8.5% per annum
through July 31, 1999. In September, 1997 the Company extended the
maturity date of the note to July 31, 2006 and the Company and the
debtor agreed to substitute Newcastle Apartments in Greece, New York
for Presidential Park Apartments in Columbus, Ohio as security for this
note.
(3) Entire principal due at Final Maturity Date.
(4) In January, 1997, the maturity dates of these loans were extended to
2005. As a result of the sale of the property and the assumption of the
notes by the purchaser in 1998, the interest rate on the notes was
increased from 9% to 10% through 2001 and 10.25% thereafter. The notes
are amortizing monthly, based on a 20 year term at the above rates, and
have balloon payments of $1,234,813 due at maturity.
(5) Principal amortization each year with a balloon payment in the year of
maturity.
(6) Principal amortization each year through maturity.
(7) As a result of a modification of the note in July, 1997, the maturity
date of this loan was changed from 2015 to 2007, with interest rates of
8.25% through 1999 and 9.25% thereafter. In addition, the Company and
the debtor agreed to substitute Windsor at Arbors in Alexandria,
Virginia for Woodgate Apartments in Wichita, Kansas, as security for
this note.
(8) As provided by the terms of the $2,244,000 note, the maturity date of
this note was extended from November 29, 1999 to November 29, 2005. In
addition, annual interest rates will increase by 1% per year, from
6.16% per annum at November 30, 1999 to 11.16% per annum at November
30, 2004. The $69,262 smaller portion of the note matures on December
31, 2002 and the interest rate is 9% per annum.
(9) The Fairfield Towers Second Mortgage was modified in February, 1999,
when the Company sold the Fairfield Towers First Mortgage and
substantially all of the Fairfield Towers Second Mortgage. The
modification provides for an interest rate of 9.625% per annum through
February 17, 2002 and an interest rate of 10.50% per annum thereafter.
The note matures on February 18, 2009. To secure this obligation,
Presidential obtained subordinate security interests in three apartment
properties located in New Jersey.
(10) In June, 1999, the New Haven, Connecticut wraparound mortgage notes
were modified. The Company repaid the $2,300,000 first mortgage debt on
these properties (wrap mortgage debt on sold properties), received a
$1,000,000 principal repayment and consolidated the $12,300,000
outstanding principal balance of the mortgage notes into one
consolidated note. The modified note provides for an interest rate of
10% per annum, with a 1/2 percent annual rate increase and additional
interest of $369,000 due at maturity, which will increase the effective
interest rate on the note to 11.50% per annum through maturity. The
modified note matures on June 29, 2002, and is secured by a second
mortgage on the Encore Apartments and commercial space located in New
York, New York and by a limited guarantee of $2,500,000 from one of the
owners of the property.
88
<PAGE> 1
AMENDMENT NUMBER ONE TO
PRESIDENTIAL REALTY CORPORATION
DEFINED BENEFIT PLAN
BY THIS AGREEMENT, Presidential Realty Corporation Defined Benefit Plan
(herein referred to as the "Plan") is hereby amended as follows, effective as of
January 1, 1995, except as otherwise provided:
1. The definition of "Actuarial Equivalent" is amended, effective with the
later of the adoption date or the effective date of this amendment, by the
addition of the following paragraphs:
Notwithstanding the foregoing, the mortality table and the
interest rate for the purposes of determining an Actuarial Equivalent amount
(other than nondecreasing life annuities payable for a period not less than the
life of a Participant or, in the case of a Pre-Retirement Survivor Annuity, the
life of the surviving spouse) shall be the "Applicable Mortality Table" and the
"Applicable Interest Rate" described below. However, if prior to the first day
of the Plan Year beginning after the later of the adoption date or the effective
date of this amendment, the Plan used an interest rate other than the Pension
Benefit Guaranty Corporation interest rate (or an interest rate or rates based
on the Pension Benefit Guaranty Corporation interest rate) in determining the
present value of a Participant's Accrued Benefit, the mortality table and the
interest rate for the purposes of determining an Actuarial Equivalent amount
(other than nondecreasing life annuities payable for a period not less than the
life a Participant or, in the case of a Pre-Retirement Survivor Annuity, the
life of the surviving spouse) shall be the mortality table and the interest rate
specified above or the "Applicable Mortality Table" and the "Applicable Interest
Rate" described below, whichever produces the greater benefit:
(a) The "Applicable Mortality Table" means the table prescribed by the
Secretary of the Treasury. Such table shall be based on the prevailing
commissioner's standard table (described in Code Section 807(d)(5)(A)) used to
determine reserves for group annuity contracts issued on the date as of which
present value is being determined (without regard to any other subparagraph of
Code Section 807(d)(5)).
(b) The "Applicable Interest Rate" means the annual rate of interest on
30-year Treasury securities determined as of the first calendar month preceding
the first day of the Plan Year
89
<PAGE> 2
during which the "annuity starting date" occurs. However, except as provided in
Regulations, if a Plan amendment (including this amendment) changes the time for
determining the interest rate assumption (including an indirect change as a
result of a change in the Plan Year), any distribution for which the "annuity
starting date" occurs in the one-year period commencing at the time the Plan
amendment is effective (if the amendment is effective on or after the adoption
date) must use the interest rate as provided under the terms of the Plan after
the effective date of the amendment, determined at either the date for
determining the interest rate before the amendment or the date for determining
the interest rate after the amendment, whichever results in the larger
distribution. If the Plan amendment is adopted retroactively (that is, the
amendment is effective prior to the adoption date), the Plan must use the
interest rate determination date resulting in the larger distribution for the
period beginning with the effective date and ending one year after the adoption
date.
In the case of a distribution (other than nondecreasing life
annuities payable for a period not less than the life of a Participant or, in
the case of a Pre-Retirement Survivor Annuity, the life of the surviving spouse)
that was made in a Plan Year beginning after December 31, 1994, and before the
later of the adoption date or the effective date of this amendment, the
calculation shall be made by using the interest rate determined under the
regulations of the Pension Benefit Guaranty Corporation for determining the
present value of a lump sum distribution on plan termination that were in effect
on September 1, 1993, and using the provisions of the Plan as in effect on the
day before December 8, 1994; but only if such provisions of the Plan met the
requirements of Code Section 417(e)(3) as in effect on the day before December
8, 1994.
2. Section 5.6(a) is amended as follows:
(a) Payment to a Former Participant of the Vested portion of his Accrued
Benefit, unless he otherwise elects, shall begin not later than the 60th day
after the close of the Plan Year in which the latest of the following events
occurs: (1) the date on which the Participant attains the earlier of age 65 or
the Normal Retirement Age specified herein; (2) the 10th anniversary of the year
in which the Participant commenced participation in the Plan; or (3) the date
the Participant terminates his service with the Employer.
However, the Administrator shall direct at the Participant's request,
the earlier payment of the entire Vested portion of the Present Value of Accrued
Benefit, but only if it
<PAGE> 3
does not exceed $3,500 and has never exceeded $3,500 at the time of any prior
distribution.
3. Section 6.3(a) is amended, effective with the first "limitation year"
beginning after December 31, 1994, by the deletion of the last sentence and the
addition of the following sentences:
In order to determine actuarial equivalence for this purpose,
the lesser of the equivalent amount computed using the Plan interest rate and
mortality table and the amount computed using five percent (5%) interest and the
"Applicable Mortality Table" shall be used. However, if the "annual benefit" is
paid in a form other than a nondecreasing life annuity payable for a period not
less than the life of a Participant or, in the case of a Pre-Retirement Survivor
Annuity, the life of the surviving spouse, the actuarial equivalence shall be
determined by substituting the "Applicable Interest Rate" for five percent (5%)
in the preceding sentence.
4. Section 6.3 is amended, effective with the first "limitation year"
beginning after December 31, 1994, by the addition of the following subsection:
For purposes of adjusting the "annual benefit" to a straight
life annuity, the equivalent "annual benefit" shall be the greater of the
equivalent "annual benefit" computed using the Plan interest rate and mortality
table and the equivalent "annual benefit" computed using five percent (5%)
interest rate assumption and the "Applicable Mortality Table." However, if the
"annual benefit" is paid in a form other than a nondecreasing life annuity
payable for a period not less than the life of a Participant or, in the case of
a Pre-Retirement Survivor Annuity, the life of the surviving spouse, the
"Applicable Interest Rate" shall be substituted for five percent (5%) in the
preceding sentence.
5. Section 6.6(c)(4) is amended, effective with the first "limitation
year" beginning after December 31, 1994, to read as follows:
If, as a result of a reasonable error in estimating a Participant's
Compensation or other facts and circumstances to which Regulation 1.415-6(b)(6)
shall be applicable, voluntary employee contributions for the "limitation year"
would cause the "annual additions" credited to a "participant's account" to
exceed that lesser of (A) $30,000 adjusted annually as provided in Code Section
415(d) pursuant to the Regulations, or (B) twenty-five percent (25%) of the
Participant's "415 Compensation" for Regulation 1.415-6(b)(6)(iv), return such
<PAGE> 4
voluntary employee contributions and distribute any gains attributable to such
voluntary employee contributions to the Participant to the extent necessary so
that "annual additions" for the "limitation year" do not exceed the lesser of
(A) or (B).
6. Section 6.7 is amended, effective with the first "limitation year"
beginning after December 31, 1994, by the addition of the following paragraph:
A Participant's Accrued Benefit shall not be reduced
Below his Accrued Benefit as of the last day of the last Plan Year beginning
before January 1, 1995 (freeze date), merely because his Accrued Benefit is
determined solely in accordance with changes made to Code Section 415(b)(2)(E)
by the Retirement Protection Act of 1994, which is part of the Uruguay Round
Agreements Act of 1994. Accordingly, a Participant's Accrued Benefit shall be
equal to the greater of (1) the Participant's benefit under the terms of the
Plan, for the "annuity starting date" and optional form and taking into account
the limitations of Code Section 415 as amended, and (2) the Participant's
protected Accrued Benefit as of the freeze date. However, the protected Accrued
Benefit may be reduced if the Plan interest rate is changed to comply with Code
Section 417(e).
IN WITNESS WHEREOF, this Amendment has been executed this 11th day of
December, 1995.
Signed, sealed, and delivered
in the presence of:
Presidential Realty
Corporation
By Jeffrey F. Joseph
-------------------------------
EMPLOYER
ATTEST Roslyn Lacativa
---------------------------
Robert Feder
----------------------------------
TRUSTEE
Thomas Viertel
----------------------------------
TRUSTEE
<PAGE> 5
SECOND AMENDMENT
TO THE
PRESIDENTIAL REALTY CORPORATION DEFINED BENEFIT PLAN
WHEREAS, Presidential Realty Corporation (the "Employer"), has
previously adopted the Presidential Realty Corporation Defined Benefit Plan (the
"Plan"); and
WHEREAS, the Employer desires to amend the Plan; and
NOW, THEREFORE, effective January 1, 2000, the Plan is hereby amended
to read as follows:
1. Section 1.1 of the Plan shall be amended by adding the following
paragraph at the end thereof:
"The Accrued Benefit of a Participant who is a Participant in the Plan
as of December 31, 1999 shall not be less than the Accrued Benefit as determined
under the terms of the Plan as in effect on December 31, 1999."
2. Section 5.1, paragraph (a) of the Plan shall be amended by inserting
the following paragraph after the first paragraph thereof:
"Notwithstanding the foregoing, effective January 1, 2000, and solely
for Participants who are Eligible Employees on and after January 1, 2000, a
Participant's Accrued Benefit is based on a retirement benefit formula equal to
the sum of (1) 7.15% of such Participant's Average Monthly Compensation
multiplied by the Participant's total number of Plan Years of Service (up to a
maximum of 10 years), plus (2) .62% of such Average Monthly Compensation in
excess of one-twelfth of Covered Compensation multiplied by the Participant's
total number of Plan Years of Service (up to a maximum of 10 years), computed to
the nearest dollar."
<PAGE> 6
IN WITNESS WHEREOF, the Employer has caused this Amendment to
be executed by a duly authorized officer on this 8th day of December, 1999.
PRESIDENTIAL REALTY CORPORATION
By: Jeffrey F. Joseph
-----------------------------
Title: President
-----------------------------
<PAGE> 7
PRESIDENTIAL REALTY CORPORATION
CERTIFICATE OF SECRETARY
The undersigned Secretary of Presidential Realty Corporation (the
"Employer") hereby certifies that the following resolutions were duly authorized
by the Board of Directors of the Employer on this 8th day of December, 1999:
RESOLVED, that the Employer hereby authorizes the
adoption of the Second Amendment to the Presidential
Realty Corporation Defined Benefit Plan, effective
January 1, 2000; and be it further
RESOLVED, that the appropriate officers of the
Employer are hereby authorized and directed to
execute any and all documents necessary in order to
effectuate the foregoing resolution.
Roslyn Lacativa
---------------------------------------
Secretary
December 8, 1999
---------------------------------------
Date
<PAGE> 1
PRESIDENTIAL REALTY CORPORATION
1999 STOCK OPTION PLAN
EFFECTIVE JANUARY 1, 1999
1. PURPOSE
The purpose of the Presidential Realty Corporation 1999 Stock Option
Plan (the "Plan") is to advance the interests of Presidential Realty Corporation
(the "Company") by providing stock ownership opportunities to certain key
employees (including officers and directors who are employees) who contribute
significantly to the performance of the Company. In addition, the Plan is
intended to enhance the ability of the Company to attract and retain individuals
of superior managerial ability and to motivate such key employees to exert their
best efforts towards the future progress and profitability of the Company.
2. ADMINISTRATION AND INTERPRETATION
(a) ADMINISTRATION. The administration and operation of the Plan shall
be supervised by the Compensation Committee of the Board of Directors of the
Company, or such other committee of such Board of Directors which shall succeed
to the functions and responsibilities, in whole or in part, of said Compensation
Committee (the "Committee"). The Committee shall consist of not less than three
members of the Board of Directors of the Company (the "Board of Directors") who
are not officers of the Company. No member of the Committee shall be entitled to
participate in the Plan.
The Committee shall have the authority, consistent with the
provisions of the Plan, to determine the provisions of the Options to be granted
under the Plan; to determine the form of any such Option; to interpret the Plan
and any Option granted under the Plan; to adopt, amend and rescind rules and
regulations for the administration of the Plan and the Options granted under
the Plan; and to make all determinations in connection therewith which may be
necessary or advisable. The day-to-day administration of the Plan shall be
carried out by such officers and employees of the Company as shall be designated
from time to time by the Committee.
90
<PAGE> 2
(b) INTERPRETATION. The interpretation and construction by the
Committee of any provisions of the Plan or of any Option granted under the Plan
and any determination by the Committee under any provision of the plan or any
such Option shall be final and conclusive, unless otherwise determined by the
Board of Directors, in which event the determination of the Board of Directors
shall be final and conclusive.
(c) LIMITATION ON LIABILITY. Neither the Board of Directors nor the
Committee, nor any member of either, shall be liable for any act, omission,
interpretation, construction or determination made in connection with the Plan
in good faith, and the members of the Committee shall be entitled to
indemnification and reimbursement by the Company in respect to any claim, loss,
damage or expense (including counsel fees) arising therefrom to the full extent
permitted by law and under any directors and officers liability insurance
coverage which may be in effect from time to time.
3. SHARES SUBJECT TO OPTIONS UNDER THE PLAN
(a) LIMITATION ON NUMBER OF SHARES. The shares subject to Options under
the Plan ("Option Shares") shall be shares of the Company's authorized but
unissued Class B common stock, par value $.10 per share ("Common Stock"). The
aggregate number of Option Shares as to which options may be granted under and
issued pursuant to the Plan shall not exceed 150,000.
If any outstanding Option expires or terminates unexercised or is
terminated for any reason prior to December 31, 2003, the shares allocable to
the unexercised or terminated portion of such Option may again be made the
subject of grants under the Plan.
(b) ADJUSTMENTS OF AGGREGATE NUMBER OF SHARES. The aggregate number of
shares stated in Section 3(a) shall be subject to appropriate adjustment, from
time to time, in accordance with the provisions of Section 4(c) hereof. In the
event of a change in the designation thereof to "Capital Stock" or other similar
designation, or to a change in the par value thereof, without increase or
decrease in the number of issued shares, the shares resulting from any such
change shall be deemed to be Common Stock within the meaning of the Plan.
<PAGE> 3
4. STOCK OPTIONS
(a) ELIGIBILITY. The individuals who shall be eligible to receive
Options under the Plan shall be such key employees (including officers and
directors who are employees) of the Company as the Board of Directors and the
Committee from time to time shall determine as provided below.
(b) GRANTS OF OPTIONS
(1) IN GENERAL. Options granted under the Plan shall be Non-qualified
Stock Options (as defined below). Options granted under the Plan shall be for
such number of Option Shares (subject to the limitation contained in Section 3)
as the Board of Directors and the Committee shall designate.
The Committee, at any time and from time to time before December 31,
2003, may authorize the granting of Options to any individual eligible to
receive the same; provided, however, that Options to be granted to a senior
executive officer of the Company, as determined by the Board of Directors, and
the aggregate number of Options to be granted on a given date to all other
eligible employees, shall be approved by the Board of Directors.
(2) NON-QUALIFIED STOCK OPTIONS. The term "Non-qualified Stock Option"
shall mean an Option which is not intended to qualify as an incentive stock
option under Section 422A of the Internal Revenue Code of 1986, as amended.
(c) TERMS OF OPTIONS. Options granted pursuant to this Plan shall be
evidenced by agreements ("Stock Option Agreements"). Stock Option Agreements
shall comply with and be subject to the following terms and conditions and may
contain such other provisions, consistent with the terms of this Plan, as the
Committee or the Board of Directors shall deem advisable:
(1) MEDIUM OF PAYMENT. Upon exercise of an Option, the option price
shall be payable to the Company (i) in United States dollars in cash or by
certified check, bank draft or money order payable to the order of the Company
(or such other forms of payment as the Committee may determine to be acceptable)
or (ii) by tendering to the Company for purchase and cancellation shares of
Common Stock owned by the optionee having an aggregate Market Value Per Share as
of the date of exercise which is not greater than the option price and by paying
the
<PAGE> 4
remainder of the option price as provided in (i) above. Payment instruments will
be received subject to collection.
(2) NUMBER OF SHARES. Each Stock Option Agreement shall state the total
number of Option Shares which are subject to the Option.
(3) OPTION PRICE. The option price for each Option Share shall not be
less than the "Closing Price Per Share" on the date of the granting of the
Option.
(4) CLOSING PRICE. The Closing Price Per Share as of any particular
date shall be the closing price on such date for the Common Stock (or if there
are no trades on such date, the closing price prior to such date), on the
American Stock Exchange if the Common Stock is then listed thereon, or if such
stock it not then listed on the American Stock Exchange, on the principal
securities market on which it is traded.
(5) TERM. The term of each Option shall be determined by the Committee
at the date of grant; provided, however, that each Option shall expire not more
than six years from the date the Option is granted.
(6) DATE OF EXERCISE. Each Stock Option Agreement shall state that the
Option granted therein may not be exercised in whole or in part for any period
or periods of time specified in such agreement or otherwise as specified by the
Committee. Except as may be so specified, any Option may be exercised in whole
at any time or in part from time to time during its term.
(7) TERMINATION OF EMPLOYMENT. In the event that an optionee's
employment by the Company shall terminate, the optionee's Options shall
terminate immediately, except as hereinafter provided in this subsection.
The Committee, in its sole discretion, may determine that the
optionee's Options, to the extent exercisable immediately prior to such
termination of employment, may remain exercisable for a designated period of
time not to exceed 90 days after such termination of employment.
If any termination of employment is due to retirement with the consent
of the Company, the optionee shall have the right, subject to the provisions of
subsections (5) and (6) above, to exercise his Option at any time within the
thirty-six month period after such retirement to the extent that the optionee
was
<PAGE> 5
entitled to exercise the same immediately prior to retirement. Whether any
termination of employment is to be considered a retirement with the consent of
the Company and whether an authorized leave of absence or absence on military or
government service or for other reasons shall constitute a termination of
employment for the purpose of the Plan shall be determined by the Committee.
If an optionee shall die while entitled to exercise an Option, the
optionee's estate, personal representative, or beneficiary, as the case may be,
shall have the right, subject to the provisions of subsections (5) and (6)
above, to exercise the Option at any time within thirty-six months from the date
of the optionee's death (but in no event more than thirty-six months from the
date of the optionee's retirement with the consent of the Company), to the
extent that the optionee was entitled to exercise the same immediately prior to
the optionee's death.
(8) RECAPITALIZATION. The aggregate number of shares stated in Section
3(a), the number of Option Shares to which each outstanding Option relates, and
the option price in respect of each such Option shall all be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a subdivision or consolidation of shares or other capital
adjustments, or the payment of a stock dividend or other increase or decrease in
such shares, effected without receipt of consideration by the Company or a
Subsidiary; provided, however, that any fractional shares resulting from any
such adjustment shall be eliminated.
(9) MERGER OR CONSOLIDATION. After a merger of one or more corporations
in the Company, or after a consolidation of the surviving or resulting
corporation, an optionee shall, at the same cost, be entitled upon the exercise
of an Option, to receive (subject to any required action by stockholders) such
securities of the surviving or resulting corporation as the board of directors
of such corporation, in its sole discretion and without liability to any person,
shall determine to be equivalent, as nearly as practicable, to the nearest whole
number and class of shares of stock or other securities to the Option Shares
which were then subject to such Option, and such shares of stock or other
securities shall, after such merger or consolidation, be deemed to be Option
Shares for all purposes of the Plan and of the Options granted under the Plan;
provided, however, that anything herein contained to the contrary notwith-
standing, upon the dissolution or liquidation of the Company, or
<PAGE> 6
a merger or consolidation in which the Company is not the surviving or resulting
corporation, every Option outstanding hereunder shall terminate, except to the
extent that the surviving or resulting corporation may, in its absolute and
uncontrolled discretion, issue substituted options.
(10) OPTIONEE'S AGREEMENT. If, at the time of the exercise of any
Option, in the opinion of counsel for the Company, it is necessary or desirable,
in order to comply with any then applicable laws or regulations relating to the
sale of securities, that the optionee exercising the Option shall agree to hold
any Option Shares issued to the optionee for investment and without any present
intention to resell or distribute the same and that the optionee will dispose of
such shares only in compliance with such laws and regulations, the optionee
will, upon the request of the Company, execute and deliver to the Company a
further agreement to such effect. Each optionee understands that the Common
Stock to be issued upon the exercise of any Option will not be registered under
the Securities Act of 1933 and must be held indefinitely unless they are
specifically registered under the Securities Act of 1933 or an exemption from
such registration is available (including an exemption according to the
provisions of Rule 144). Optionee further acknowledges that any sales of Shares
made in reliance upon Rule 144 can be made only in limited amounts in accordance
with the terms and conditions of that Rule and that other exemptions from
registration are extremely limited and may not be available at such time as
optionee may wish to sell said Shares. Optionee further understands that no
Shares may be issued pursuant to the Option until such Shares are listed on the
American Stock Exchange.
(d) EFFECT OF EXERCISE OF OPTIONS. The right of an optionee to exercise
an Option shall terminate to the extent that such Option is exercised.
(e) APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Option Shares pursuant to Options will be used for general corporate
purposes.
5. WITHHOLDING FOR TAXES
Any distribution of shares of Common Stock under the Plan shall not be
made until appropriate arrangements have been made for the payment of any
amounts which may be required to be withheld or paid with respect thereto under
all present or future federal, state and local tax laws and regulations which
<PAGE> 7
may be effective as of the date of each such distribution, including, but not
limited to, withholding the distribution of a portion of the shares of Common
Stock otherwise issuable or the tendering of such shares back to the Company
(under such rules and conditions as may be established by the Committee) in
order to satisfy all or a portion of the required withholdings or payments.
6. AMENDMENT AND TERMINATION
The Board of Directors may from time to time and at any time alter,
amend, suspend, discontinue or terminate this Plan and any Options granted
hereunder.
7. PREEMPTION BY APPLICABLE LAWS AND REGULATIONS
Anything in the Plan or any Stock Option Agreement entered into
pursuant to the Plan to the contrary notwithstanding, if, at any time specified
herein or therein for the making of any determination or the issue or other
distribution of shares of Common Stock, any law, regulation or requirement of
any governmental authority having jurisdiction in the premises shall require
either the Company or the employee (or the employee's beneficiary thereof) to
take any action in connection with any such determination or the shares then to
be issued or distributed, the issue or distribution of such shares shall be
deferred until such action shall have been taken.
8. MISCELLANEOUS
(a) NO EMPLOYMENT CONTRACT. Nothing contained in the Plan shall be
construed as conferring upon an employee the right to continue in the employ of
the Company.
(b) NO RIGHTS AS A STOCKHOLDER. An employee shall have no rights as a
stockholder with respect to Option Shares covered by the employee's Option until
the date of the issuance of such shares to the employee and only after such
shares are fully paid. No adjustment will be made for dividends or other
distributions or rights for which the record date is prior to the date of such
issuance.
(c) NO RIGHT TO CORPORATE ASSETS. Nothing contained in the Plan shall
be construed as giving an employee, the employee's beneficiaries or any other
person any equity or interest of any kind in any assets of the Company or
creating a
<PAGE> 8
trust of any kind or a fiduciary relationship of any kind between the Company
and any such person.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company from taking any corporate action which
is deemed by the Company to be appropriate or in its best interest, whether or
not such action would have an adverse effect on the Plan or any Option granted
under the Plan. No employee, beneficiary or other person shall have any claim
against the Company as a result of any such action.
(e) NON-ASSIGNABILITY. Neither an employee nor an employee's
beneficiary shall have the power or right to sell, exchange, pledge, transfer,
assign or otherwise encumber or dispose of such employee's or beneficiary's
interest in the Plan or in any Option received under the Plan; nor shall such
interest be subject to seizure for the payment of an employee's or beneficiary's
debts, judgments, alimony, or separate maintenance or be transferable by
operation of law in the event of an employee's or beneficiary's bankruptcy or
insolvency.
The Company's obligations under the Plan are not assignable or
transferable except to a corporation which acquires all or substantially all of
the assets of the Company or to any corporation into which the Company may be
merged or consolidated.
(f) OTHER BENEFIT PLANS. No Option or payment under the Plan shall be
taken into account in determining any benefits under any retirement,
profit-sharing or other plan maintained by the Company.
(g) GOVERNING LAW; CONSTRUCTION. All rights and obligations under the
Plan shall be governed by, and the Plan shall be construed in accordance with,
the laws of the State of New York. Titles and headings to Sections herein are
for purposes of reference only, and shall in no way limit, define or otherwise
affect the meaning or interpretation of any provisions of the Plan.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF PRESIDENTIAL REALTY
CORPORATION DATED DECEMBER 31, 1999
(1) PDL, Inc. organized under the laws of the State of Delaware, which
carries on business under its own name.
(2) Presidential Realty of Iowa, Incorporated, organized under the laws of
the State of Iowa, which carries on business under its own name.
(3) Presidential Continental Gardens Corp., organized under the laws of the
State of Florida, which carries on business under its own name.
(4) Fairlawn Gardens Corp., organized under the laws of the State of West
Virginia, which carries on business under its own name.
(5) Presidential Sunwood Corp., organized under the laws of the State of
Florida, which carries on business under its own name.
91
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