UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





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





For the
Quarterly Period Ended:  June 30, 2009


Or





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


For the
transition period from ____to ____





Commission
File Number 1-6249





WINTHROP
REALTY TRUST


(Exact
name of Registrant as specified in its certificate of
incorporation)





Ohio
              
              34-6513657(State or other jurisdiction of incorporation or organization)
              
              (IRS Employer Identification Number)7 Bulfinch Place, Suite 500, Boston, Massachusetts
              
              02114(Address of principal executive offices)
              
              (Zip Code)





(617)
570-4614


(Registrant’s
telephone number, including area code)





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 and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).   Yes
 ̈ No  ̈





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





Large
      accelerated filer    ̈
                Accelerated
      filer     xNon-accelerated
      filer     ̈
                Smaller
      reporting company   ̈(Do
      not check if a smaller reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule12b-2). Yes o No ý





As of
August 1, 2009 there were 15,861,233 Common Shares of Beneficial Interest
outstanding.








INDEX





Part
      I.
                            Financial
      Information
                            PageItem 1.
                            Financial
      Statements (Unaudited):Consolidated
      Balance Sheets as of June 30, 2009 andDecember
      31, 2008
                            3Consolidated
      Statements of Operations and Comprehensive Income (Loss)for
      the Three and Six Months Ended June 30, 2009 and June 30,
    2008
                            4Consolidated
      Statements of Equity for the Six Months Ended June 30,
2009and
      June 30, 2008
                            5Consolidated
      Statements of Cash Flows for the Six Months Ended June 30,
      2009and
      June 30, 2008
                            6Notes
      to Consolidated Financial Statements
                            8Item 2.
                            Management’s
      Discussion and Analysis of Financial Conditionand
      Results of Operations
                            39Item 3.
                            Quantitative
      and Qualitative Disclosure about Market Risk
                            50Item 4.
                            Controls
      and Procedures
                            51Part II.
                            Other
      InformationItem 4.
                            Submission
      of Matters to a Vote of Security Holders
                            52Item 6.
                            Exhibits
                            53Signatures
                            54Exhibit
      Index
                            55




2





Item
1. Financial Information





WINTHROP
REALTY TRUST


FORM
10-Q - JUNE 30, 2009





CONSOLIDATED
BALANCE SHEETS





(Unaudited)


(In
thousands, except share and per share data)





June 30, 2009
                  
                  
                  December 31, 2008(as adjusted)ASSETSInvestments
      in real estate, at costLand
                  
                  $
                  21,344
                  
                  
                  $
                  21,344Buildings
      and improvements
                  
                  
                  246,579
                  
                  
                  
                  246,362267,923
                  
                  
                  
                  267,706Less
      - accumulated depreciation
                  
                  
                  (28,884
                  )
                  
                  
                  (25,901
                  )Investments
      in real estate, net
                  
                  
                  239,039
                  
                  
                  
                  241,805Cash
      and cash equivalents
                  
                  
                  20,469
                  
                  
                  
                  59,238Restricted
      cash held in escrows
                  
                  
                  8,821
                  
                  
                  
                  14,353Loans
      receivable, net of reserve of $1,538 and $2,445,
    respectively
                  
                  
                  25,591
                  
                  
                  
                  22,876Accounts
      receivable, net of reserve of $130 and $225, respectively
                  
                  
                  11,995
                  
                  
                  
                  14,028Securities
      carried at fair value
                  
                  
                  53,676
                  
                  
                  
                  36,516Available
      for sale securities, net
                  
                  
                  195
                  
                  
                  
                  184Preferred
      equity investment
                  
                  
                  45,780
                  
                  
                  
                  50,624Real
      estate loan available for sale
                  
                  
                  34,797
                  
                  
                  
                  -Equity
      investments
                  
                  
                  17,299
                  
                  
                  
                  92,202Lease
      intangibles, net
                  
                  
                  24,798
                  
                  
                  
                  25,929Deferred
      financing costs, net
                  
                  
                  2,272
                  
                  
                  
                  3,218Deposit
      for purchase of Series B-1 Preferred Shares
                  
                  
                  -
                  
                  
                  
                  17,081Other
      assets
                  
                  
                  -
                  
                  
                  
                  40TOTAL
      ASSETS
                  
                  $
                  484,732
                  
                  
                  $
                  578,094LIABILITIESMortgage
      loans payable
                  
                  $
                  226,655
                  
                  
                  $
                  229,737Series
      B-1 Cumulative Convertible Redeemable Preferred Shares, $25 per share
      liquidation preference; 1,496,000 and 2,413,105 shares authorized and
      outstanding at June 30, 2009 and December 31, 2008,
      respectively
                  
                  
                  37,400
                  
                  
                  
                  60,328Loan
      payable
                  
                  
                  19,818
                  
                  
                  
                  -Note
      payable
                  
                  
                  -
                  
                  
                  
                  9,800Accounts
      payable and accrued liabilities
                  
                  
                  8,463
                  
                  
                  
                  8,596Dividends
      payable
                  
                  
                  3,956
                  
                  
                  
                  5,934Deferred
      income
                  
                  
                  58
                  
                  
                  
                  795Below
      market lease intangibles, net
                  
                  
                  3,220
                  
                  
                  
                  3,696TOTAL
      LIABILITIES
                  
                  
                  299,570
                  
                  
                  
                  318,886COMMITMENTS
      AND CONTINGENCIESEQUITYWinthrop
      Realty Trust Shareholders' Equity:Common
      Shares, $1 par, unlimited shares authorized; 15,823,249 and 15,754,495
      outstanding at June 30, 2009 and December 31, 2008,
      respectively
                  
                  
                  15,823
                  
                  
                  
                  15,754Additional
      paid-in capital
                  
                  
                  461,614
                  
                  
                  
                  460,956Accumulated
      distributions in excess of net income
                  
                  
                  (303,176
                  )
                  
                  
                  (213,284
                  )Accumulated
      other comprehensive loss
                  
                  
                  (373
                  )
                  
                  
                  (15,176
                  )Total
      Winthrop Realty Trust Shareholders' Equity
                  
                  
                  173,888
                  
                  
                  
                  248,250Non-controlling
      interests
                  
                  
                  11,274
                  
                  
                  
                  10,958Total  Equity
                  
                  
                  185,162
                  
                  
                  
                  259,208TOTAL
      LIABILITIES AND EQUITY
                  
                  $
                  484,732
                  
                  
                  $
                  578,094





See Notes
to Consolidated Financial Statements.


3





WINTHROP
REALTY TRUST


FORM
10-Q - JUNE 30, 2009




CONSOLIDATED
STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
INCOME (LOSS)


(Unaudited)


(In
thousands, except per share data)





For
      the Three Months Ended
                                                                                    
                                                                                    
                                                                                    For
      the Six Months EndedJune
      30,
                                                                                    
                                                                                    
                                                                                    June
      30,2009
                                                                                    
                                                                                    
                                                                                    2008
                                                                                    
                                                                                    
                                                                                    2009
                                                                                    
                                                                                    
                                                                                    2008RevenueRents
      and reimbursements
                                                                                    
                                                                                    $
                                                                                    10,447
                                                                                    
                                                                                    
                                                                                    $
                                                                                    10,993
                                                                                    
                                                                                    
                                                                                    $
                                                                                    21,432
                                                                                    
                                                                                    
                                                                                    $
                                                                                    21,660Interest
      and dividends
                                                                                    
                                                                                    
                                                                                    2,214
                                                                                    
                                                                                    
                                                                                    
                                                                                    350
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,966
                                                                                    
                                                                                    
                                                                                    
                                                                                    88312,661
                                                                                    
                                                                                    
                                                                                    
                                                                                    11,343
                                                                                    
                                                                                    
                                                                                    
                                                                                    25,398
                                                                                    
                                                                                    
                                                                                    
                                                                                    22,543ExpensesProperty
      operating
                                                                                    
                                                                                    
                                                                                    1,822
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,802
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,823
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,669Real
      estate taxes
                                                                                    
                                                                                    
                                                                                    652
                                                                                    
                                                                                    
                                                                                    
                                                                                    675
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,355
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,414Depreciation
      and amortization
                                                                                    
                                                                                    
                                                                                    2,682
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,910
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,581
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,968Interest
                                                                                    
                                                                                    
                                                                                    4,433
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,468
                                                                                    
                                                                                    
                                                                                    
                                                                                    8,831
                                                                                    
                                                                                    
                                                                                    
                                                                                    11,299Impairment
      loss on available for sale securities
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    107
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    207Provision
      for loss on loan receivable
                                                                                    
                                                                                    
                                                                                    1,724
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,152
                                                                                    
                                                                                    
                                                                                    
                                                                                    -General
      and administrative
                                                                                    
                                                                                    
                                                                                    1,878
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,482
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,324
                                                                                    
                                                                                    
                                                                                    
                                                                                    3,553State
      and local taxes
                                                                                    
                                                                                    
                                                                                    147
                                                                                    
                                                                                    
                                                                                    
                                                                                    98
                                                                                    
                                                                                    
                                                                                    
                                                                                    197
                                                                                    
                                                                                    
                                                                                    
                                                                                    22213,338
                                                                                    
                                                                                    
                                                                                    
                                                                                    12,542
                                                                                    
                                                                                    
                                                                                    
                                                                                    25,263
                                                                                    
                                                                                    
                                                                                    
                                                                                    26,332Other
      incomeEarnings
      (loss) from preferred equity investments
                                                                                    
                                                                                    
                                                                                    (3,209
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (912
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (2,194
                                                                                    )
                                                                                    
                                                                                    
                                                                                    1,418Loss
      of equity investments
                                                                                    
                                                                                    
                                                                                    (82,249
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (22,333
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (100,412
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (18,521
                                                                                    )Gain
      on sale of available for sale securities
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,029Gain
      on sale of securities carried at fair value
                                                                                    
                                                                                    
                                                                                    2,685
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,598
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Gain
      on sale of mortgage-backed securitiesavailable
      for sale
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    454Unrealized
      gain on securities carried at fair value
                                                                                    
                                                                                    
                                                                                    12,580
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,432
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Impairment
      loss on real estate loan available for sale
                                                                                    
                                                                                    
                                                                                    (203
                                                                                    )
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    (203
                                                                                    )
                                                                                    
                                                                                    
                                                                                    -Gain
      on early extinguishment of debt
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    5,237
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Interest
      income
                                                                                    
                                                                                    
                                                                                    42
                                                                                    
                                                                                    
                                                                                    
                                                                                    436
                                                                                    
                                                                                    
                                                                                    
                                                                                    114
                                                                                    
                                                                                    
                                                                                    
                                                                                    664(70,354
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (22,809
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (93,428
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (13,956
                                                                                    )Consolidated
      loss from continuing operations
                                                                                    
                                                                                    
                                                                                    (71,031
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (24,008
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (93,293
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (17,745
                                                                                    )Income
      from discontinued operations
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    37
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    86Consolidated
      net loss
                                                                                    
                                                                                    
                                                                                    (71,031
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (23,971
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (93,293
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (17,659
                                                                                    )Income
      attributable to non-controlling interests
                                                                                    
                                                                                    
                                                                                    (165
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (86
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (336
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (86
                                                                                    )Net
      loss attributable to Winthrop Realty Trust
                                                                                    
                                                                                    $
                                                                                    (71,196
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (24,057
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (93,629
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (17,745
                                                                                    )Comprehensive
      lossNet
      loss
                                                                                    
                                                                                    $
                                                                                    (71,031
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (23,971
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (93,293
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (17,659
                                                                                    )Change
      in unrealized loss on available for salesecurities
      arising during the period
                                                                                    
                                                                                    
                                                                                    9
                                                                                    
                                                                                    
                                                                                    
                                                                                    89
                                                                                    
                                                                                    
                                                                                    
                                                                                    11
                                                                                    
                                                                                    
                                                                                    
                                                                                    2,112Change
      in unrealized gain on mortgage-backed securitiesavailable
      for sale arising during the period
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    190Change
      in unrealized gain (loss) on interest rate derivativesarising
      during the period
                                                                                    
                                                                                    
                                                                                    127
                                                                                    
                                                                                    
                                                                                    
                                                                                    401
                                                                                    
                                                                                    
                                                                                    
                                                                                    265
                                                                                    
                                                                                    
                                                                                    
                                                                                    (250
                                                                                    )Change
      in unrealized loss from equity investments
                                                                                    
                                                                                    
                                                                                    26,371
                                                                                    
                                                                                    
                                                                                    
                                                                                    13,920
                                                                                    
                                                                                    
                                                                                    
                                                                                    26,174
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,285Less
      reclassification adjustment from gains includedin
      net income
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    (2,483
                                                                                    )Comprehensive
      loss
                                                                                    
                                                                                    $
                                                                                    (44,524
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (9,561
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (66,843
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (13,805
                                                                                    )Per
      Common Share data - BasicLoss
      from continuing operations attributable toWinthrop
      Realty Trust
                                                                                    
                                                                                    $
                                                                                    (4.50
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.65
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (5.92
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.27
                                                                                    )Income
      from discontinued operations attributable toWinthrop
      Realty Trust
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.01Net
      loss attributable to Winthrop Realty Trust
                                                                                    
                                                                                    $
                                                                                    (4.50
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.65
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (5.92
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.26
                                                                                    )Per
      Common Share data - DilutedLoss
      from continuing operations attributable toWinthrop
      Realty Trust
                                                                                    
                                                                                    $
                                                                                    (4.50
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.65
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (5.92
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.27
                                                                                    )Income
      from discontinued operations attributable toWinthrop
      Realty Trust
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    0.01Net
      loss attributable to Winthrop Realty Trust
                                                                                    
                                                                                    $
                                                                                    (4.50
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.65
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (5.92
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (1.26
                                                                                    )Basic
      Weighted-Average Common Shares
                                                                                    
                                                                                    
                                                                                    15,822
                                                                                    
                                                                                    
                                                                                    
                                                                                    14,564
                                                                                    
                                                                                    
                                                                                    
                                                                                    15,814
                                                                                    
                                                                                    
                                                                                    
                                                                                    13,990Diluted
      Weighted-Average Common Shares
                                                                                    
                                                                                    
                                                                                    15,822
                                                                                    
                                                                                    
                                                                                    
                                                                                    14,564
                                                                                    
                                                                                    
                                                                                    
                                                                                    15,814
                                                                                    
                                                                                    
                                                                                    
                                                                                    13,990Amounts
      attributable to Winthrop RealtyTrust
      Common ShareholdersLoss
      from continuing operations
                                                                                    
                                                                                    $
                                                                                    (71,196
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (24,094
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (93,629
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (17,831
                                                                                    )Income
      from discontinued operations
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    37
                                                                                    
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    86Net
      loss
                                                                                    
                                                                                    $
                                                                                    (71,196
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (24,057
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (93,629
                                                                                    )
                                                                                    
                                                                                    $
                                                                                    (17,745
                                                                                    )





See Notes
to Consolidated Financial Statements.


4





WINTHROP
REALTY TRUST


FORM
10-Q - JUNE 30, 2009





CONSOLIDATED
STATEMENTS OF EQUITY


(Unaudited)





(In
thousands)





Accumulated
                                        
                                        
                                        AccumulatedCommon Shares
                                        
                                        
                                        Additional
                                        
                                        
                                        Distributions
                                        
                                        
                                        Otherof Beneficial Interest
                                        
                                        
                                        Paid-In
                                        
                                        
                                        In Excess of
                                        
                                        
                                        Comprehensive
                                        
                                        
                                        Non-ControllingShares
                                        
                                        
                                        Amount
                                        
                                        
                                        Capital
                                        
                                        
                                        Net Income
                                        
                                        
                                        Income (Loss)
                                        
                                        
                                        Interests
                                        
                                        
                                        TotalBalance,
      December 31, 2008
                                        
                                        
                                        15,754
                                        
                                        
                                        $
                                        15,754
                                        
                                        
                                        $
                                        460,956
                                        
                                        
                                        $
                                        (213,284
                                        )
                                        
                                        $
                                        (15,176
                                        )
                                        
                                        $
                                        10,958
                                        
                                        
                                        $
                                        259,208Net
      loss attributable to Winthrop Realty Trust
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (93,629
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (93,629
                                        )Cumulative
      effect, change in accounting principle
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        11,647
                                        
                                        
                                        
                                        (11,647
                                        )Net
      income attributable to non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        336
                                        
                                        
                                        
                                        336Distributions
      to non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (743
                                        )
                                        
                                        
                                        (743
                                        )Contributions
      from non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        723
                                        
                                        
                                        
                                        723Dividends
      paid or accrued on Common Sharesof
      beneficial interest ($0.50 per share)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (7,910
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (7,910
                                        )Change
      in unrealized gain on available for salesecurities,
      net of reclassification adjustmentfor
      amounts included in net income
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11Change
      in unrealized loss on interest ratederivatives
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        265
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        265Change
      in unrealized loss from equityinvestments
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,174
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,174Stock
      issued pursuant to dividend reinvestmentplan
                                        
                                        
                                        69
                                        
                                        
                                        
                                        69
                                        
                                        
                                        
                                        658
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        727Balance,
      June 30, 2009
                                        
                                        
                                        15,823
                                        
                                        
                                        $
                                        15,823
                                        
                                        
                                        $
                                        461,614
                                        
                                        
                                        $
                                        (303,176
                                        )
                                        
                                        $
                                        (373
                                        )
                                        
                                        $
                                        11,274
                                        
                                        
                                        $
                                        185,162





Accumulated
                                              
                                              
                                              AccumulatedCommon
      Shares
                                              
                                              
                                              Additional
                                              
                                              
                                              Distributions
                                              
                                              
                                              Otherof
      Beneficial Interest
                                              
                                              
                                              Paid-In
                                              
                                              
                                              In
      Excess of
                                              
                                              
                                              Comprehensive
                                              
                                              
                                              Non-ControllingShares
                                              
                                              
                                              Amount
                                              
                                              
                                              Capital
                                              
                                              
                                              Net
      Income
                                              
                                              
                                              Income
                                              
                                              
                                              Interests
                                              
                                              
                                              TotalBalance,
      December 31, 2007
                                              
                                              
                                              66,292
                                              
                                              
                                              $
                                              66,292
                                              
                                              
                                              $
                                              358,145
                                              
                                              
                                              $
                                              (134,531
                                              )
                                              
                                              $
                                              (8,090
                                              )
                                              
                                              $
                                              9,978
                                              
                                              
                                              $
                                              291,794Net
      loss attributable to Winthrop Realty Trust
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (17,831
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (17,831
                                              )Net
      income attributable to non-controlling interests
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              86
                                              
                                              
                                              
                                              86Distributions
      to non-controlling interests
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Contributions
      from non-controlling interests
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Dividends
      paid or accrued on Common Sharesof
      beneficial interest ($0.13 per share)
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (9,508
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (9,508
                                              )Change
      in unrealized gain on available for salesecurities,
      net of reclassification adjustmentfor
      amounts included in net income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              83
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              83Change
      in unrealized gain on mortgage-backedsecurities
      held for sale, net of reclassificationadjustment
      for amounts included in net income
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (264
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (264
                                              )Change
      in unrealized loss on interest ratederivatives
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (250
                                              )
                                              
                                              
                                              -
                                              
                                              
                                              
                                              (250
                                              )Change
      in unrealized loss from equityinvestments
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,285
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              4,285Stock
      issued pursuant to dividend reinvestmentplan
                                              
                                              
                                              526
                                              
                                              
                                              
                                              526
                                              
                                              
                                              
                                              1,951
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              2,477Conversion
      of Series B-1 Preferred Shares toCommon
      Shares
                                              
                                              
                                              2,667
                                              
                                              
                                              
                                              2,667
                                              
                                              
                                              
                                              8,936
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              11,603Issuance
      of Common Shares through rights offering
                                              
                                              
                                              8,845
                                              
                                              
                                              
                                              8,845
                                              
                                              
                                              
                                              28,157
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              37,002Balance,
      June 30, 2008
                                              
                                              
                                              78,330
                                              
                                              
                                              $
                                              78,330
                                              
                                              
                                              $
                                              397,189
                                              
                                              
                                              $
                                              (161,870
                                              )
                                              
                                              $
                                              (4,236
                                              )
                                              
                                              $
                                              10,064
                                              
                                              
                                              $
                                              319,477





See Notes to Consolidated Financial
Statements.


5





WINTHROP
REALTY TRUST


FORM
10-Q - JUNE 30, 2009





CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)





For
      the Six Months EndedJune
      30,2009
                            
                            
                            2008Cash
      flows from operating activitiesNet
      loss
                            
                            $
                            (93,293
                            )
                            
                            $
                            (17,659
                            )Adjustments
      to reconcile net loss to net cash provided by operating
      activitiesDepreciation
      and amortization (including amortization of deferredfinancing costs)
                            
                            
                            3,746
                            
                            
                            
                            4,025Amortization
      of lease intangibles
                            
                            
                            2,461
                            
                            
                            
                            2,829Straight-lining
      of rental income
                            
                            
                            577
                            
                            
                            
                            372Earnings
      of preferred equity investments less than distributions
                            
                            
                            4,784
                            
                            
                            
                            2,099Earnings
      of equity investments less than distributions
                            
                            
                            101,077
                            
                            
                            
                            24,497Restricted
      cash held in escrows
                            
                            
                            (1,003
                            )
                            
                            
                            (65
                            )Gain
      on sale of mortgage-backed securities available for sale
                            
                            
                            -
                            
                            
                            
                            (454
                            )Gain
      on sale of securities carried at fair value
                            
                            
                            (2,598
                            )
                            
                            
                            -Gain
      on sale of available for sale securities
                            
                            
                            -
                            
                            
                            
                            (2,029
                            )Unrealized
      gain on securities carried at fair value
                            
                            
                            (1,432
                            )
                            
                            
                            -Impairment
      loss on real estate loan available for sale
                            
                            
                            203
                            
                            
                            
                            -Gain
      on early extinguishment of debt
                            
                            
                            (5,237
                            )
                            
                            
                            -Impairment
      loss
                            
                            
                            -
                            
                            
                            
                            207Provision
      for loss on loan receivable
                            
                            
                            2,152
                            
                            
                            
                            -Bad
      debt recovery
                            
                            
                            (95
                            )
                            
                            
                            (32
                            )Tenant
      leasing costs
                            
                            
                            (1,806
                            )
                            
                            
                            -Net
      change in interest receivable
                            
                            
                            (480
                            )
                            
                            
                            (60
                            )Net
      change in accounts receivable
                            
                            
                            1,551
                            
                            
                            
                            10,183Net
      change in accounts payable and accrued liabilities
                            
                            
                            (469
                            )
                            
                            
                            (3,394
                            )Net
      change in other assets
                            
                            
                            -
                            
                            
                            
                            (399
                            )Net
      cash provided by operating activities
                            
                            
                            10,138
                            
                            
                            
                            20,120Cash
      flows from investing activitiesInvestments
      in real estate
                            
                            
                            (719
                            )
                            
                            
                            (1,764
                            )Proceeds
      from repayments of mortgage-backed securities available for
      sale
                            
                            
                            -
                            
                            
                            
                            78,318Investment
      in equity investments
                            
                            
                            -
                            
                            
                            
                            (5,087
                            )Investment
      in preferred equity investment
                            
                            
                            -
                            
                            
                            
                            (3,923
                            )Investment
      in real estate loan available for sale
                            
                            
                            (35,000
                            )
                            
                            
                            -Proceeds
      from preferred equity investments
                            
                            
                            60
                            
                            
                            
                            20,179Purchase
      of securities carried at fair value
                            
                            
                            (29,889
                            )
                            
                            
                            -Purchase
      of available for sale securities
                            
                            
                            -
                            
                            
                            
                            (5,055
                            )Proceeds
      from sale of securities carried at fair value
                            
                            
                            16,759
                            
                            
                            
                            -Proceeds
      from sale of available for sale securities
                            
                            
                            -
                            
                            
                            
                            57,699Decrease
      (increase) in restricted cash held in escrows
                            
                            
                            2,597
                            
                            
                            
                            (6
                            )Issuance
      and acquisition of loans receivable
                            
                            
                            (11,147
                            )
                            
                            
                            (4,846
                            )Collection
      of loans receivable
                            
                            
                            6,800
                            
                            
                            
                            1,147Net
      cash (used in) provided by investing activities
                            
                            
                            (50,539
                            )
                            
                            
                            136,662(Continued
      on next page)





See Notes to Consolidated Financial
Statements.


6




WINTHROP
REALTY TRUST


FORM
10-Q - JUNE 30, 2009





CONSOLIDATED
STATEMENTS OF CASH FLOWS


(Unaudited)


(In
thousands)


(Continued
from previous page)





For
      the Six Months EndedJune
      30,2009
                    
                    
                    2008Cash
      flows from financing activitiesRepayment
      of borrowings under repurchase agreements
                    
                    $
                    -
                    
                    
                    $
                    (75,175
                    )Proceeds
      from loan payable
                    
                    
                    19,818
                    
                    
                    
                    -Proceeds
      from revolving line of credit
                    
                    
                    35,000
                    
                    
                    
                    -Proceeds
      from mortgage loans payable
                    
                    
                    49
                    
                    
                    
                    463Restricted
      cash held in escrows
                    
                    
                    3,938
                    
                    
                    
                    60Principal
      payments of mortgage loans payable
                    
                    
                    (3,131
                    )
                    
                    
                    (2,260
                    )Payments
      of note payable
                    
                    
                    (9,800
                    )
                    
                    
                    -Payment
      of revolving line of credit
                    
                    
                    (35,000
                    )
                    
                    
                    -Deferred
      financing costs
                    
                    
                    (61
                    )
                    
                    
                    (24
                    )Dividends
      paid on Common Shares
                    
                    
                    (9,888
                    )
                    
                    
                    (20,659
                    )Issuance
      of Common Shares under dividend reinvestment plan
                    
                    
                    727
                    
                    
                    
                    2,477Issuance
      of Common Shares through rights offering
                    
                    
                    -
                    
                    
                    
                    37,002Contribution
      from non-controlling interest
                    
                    
                    723
                    
                    
                    
                    -Distribution
      to non-controlling interest
                    
                    
                    (743
                    )
                    
                    
                    -Net
      cash provided by (used in) financing activities
                    
                    
                    1,632
                    
                    
                    
                    (58,116
                    )Net
      increase (decrease) in cash and cash equivalents
                    
                    
                    (38,769
                    )
                    
                    
                    98,666Cash
      and cash equivalents at beginning of period
                    
                    
                    59,238
                    
                    
                    
                    36,654Cash
      and cash equivalents at end of period
                    
                    $
                    20,469
                    
                    
                    $
                    135,320Supplemental Disclosure of Cash Flow
      InformationInterest
      paid
                    
                    $
                    8,542
                    
                    
                    $
                    14,324Taxes paid
                    
                    $
                    129
                    
                    
                    $
                    94Supplemental Disclosure of Non-Cash Investing and
      Financing ActivitiesDividends
      accrued on Common Shares
                    
                    $
                    3,956
                    
                    
                    $
                    5,091Capital
      expenditures accrued
                    
                    $
                    222
                    
                    
                    $
                    423Conversion
      of Series B-1 Preferred Shares into Common Shares
                    
                    $
                    -
                    
                    
                    $
                    11,603Redemption
      of Series B-1 Preferred Shares
                    
                    $
                    (17,081
                    )
                    
                    $
                    -Deposit
      on redemption of Series B-1 Preferred Shares
                    
                    $
                    17,081
                    
                    
                    $
                    -





See Notes
to Consolidated Financial Statements.


7


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Organization





Winthrop
Realty Trust (the “REIT”) is an unincorporated association in the form of a
business trust organized in Ohio under a Declaration of Trust dated August 1,
1961, as amended and restated on May 21, 2009, which has as its stated principal
business activity the ownership and management of, and lending to, real estate
and related investments.





The REIT
conducts its business through WRT Realty L.P., a Delaware limited partnership
(the “Operating Partnership”). The REIT is the sole general partner of, and owns
directly and indirectly, 100% of the limited partnership interest in the
Operating Partnership. The transfer of the REIT’s assets and liabilities to the
Operating Partnership had no effect on the REIT’s financial
statements.  All references to the “Trust” refer to the REIT and its
consolidated subsidiaries, including the Operating Partnership.





The Trust
is engaged in the business of owning real property and real estate related
assets which it categorizes into three specific areas:  (i) direct or
indirect ownership of operating properties (“operating properties”); (ii)
origination and acquisition of loans and debt securities secured directly or
indirectly by commercial real property (“loan assets and loan securities”),
including collateral mortgage-backed securities and collateral debt obligation
securities; and (iii) equity and debt interests in other REITs (“REIT
securities”).





2.
            Summary
      of Significant Accounting Policies





Basis of
Presentation





The
accompanying unaudited consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States (“GAAP”) for interim financial statements and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission (the “SEC”). Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements, although management believes that the disclosures presented herein
are adequate to make the accompanying unaudited consolidated interim financial
statements presented not misleading. The accompanying unaudited consolidated
interim financial statements should be read in conjunction with the audited
consolidated annual financial statements and the notes thereto included in the
REIT’s Annual Report on Form 10-K for the year ended December 31, 2008
filed with the SEC.  In the opinion of management, all adjustments
(which include only normal recurring adjustments) considered necessary for fair
statements have been included.  The results of operations for the six
months ended June 30, 2009 are not necessarily indicative of the operating
results for the full year.





The
accompanying unaudited consolidated financial statements represent the
consolidated results of the REIT, its wholly-owned taxable REIT subsidiary, WRT
TRS Management Corp., the Operating Partnership, wholly-owned subsidiaries and
certain partially-owned entities in which the Operating Partnership owns either
(i) a controlling interest or (ii) is the primary beneficiary.  All
significant intercompany amounts have been eliminated.  The Trust accounts
for its investments in companies in which it has the ability to significantly
influence, but does not have a controlling interest, by using the equity method
of accounting.





Reverse
Stock Split





In November 2008the Trusteffecteda1-for-5 reverse stock split(the "ReverseSplit")of its Common Shares of Beneficial
Interest (“Common Shares”) pursuant to which eachfiveCommon Shares issued and outstanding as of the
close ofthemarket on November 28, 2008 were
automatically combined into
one Common Share, subject
to the elimination of fractional shares.Allreferences to CommonSharesoutstanding,perCommonShareamounts and stock option datahave beenrestatedto reflect theeffect of the ReverseSplitfor all periods presented.





Reclassifications





Certain
prior year balances have been reclassified in order to conform to the current
year’s presentation.  Discontinued operations for thethree and sixmonth periodsendedJune 30, 2008include the Trust’s property in Biloxi,
Mississippi.  Alsoduring thethree and six month periodsendedJune 30, 2008, the Trustplaced its St. Louis, Missouri property
back into continuing
operations.


8


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Retrospective
Adjustments Related to Non-Controlling Interests





The consolidated financial statements
reflect certain reclassifications of prior period amounts,resulting fromretrospective adoption of Statement of
Financial Accounting Standards (“SFAS”) No. 160, “Non-Controlling Interests
in Consolidated Financial
Statements, an Amendment to ARB
51.”Therevisions had no impact on previouslyreported net income
attributable to commonshares of beneficial
interest(“Common Shares”)or basic and diluted earnings percommonshare.





Effective January 1, 2009, the Trust
adopted the provisions of SFAS 160,which establishes and expands
accounting and reporting standards for entities that have outstanding minority
interestswhichare
re-characterized as
non-controlling interestsin a subsidiary. It requires consolidated net income to be reported at amounts
that include the amounts attributable to both the parent and the non-controlling
interest. It also requires
disclosureon the face of
the consolidated statementsofoperations and comprehensive incomeof the amounts of
consolidated net income attributable to the parent and to the non-controlling
interest.  Previously, net income attributable to the non-controlling
interest generally was reported as an expense indeterminingconsolidated net income.The adoption of SFAS 160 resulted in (i)
the reclassification of minority interests in consolidated subsidiaries to
non-controlling interests in consolidated subsidiaries, a component of permanent equity on the
Trust’sconsolidated
balance sheets, (ii) the reclassification of minority interest expense to net
income attributable to non-controlling interests onthe Trust’sconsolidated statementsof operations and comprehensive
income, and (iii)
additional disclosures, including a consolidated statement of changesinequity.




Variable Interest
Entities




The Trust
has evaluated its investments to determine whether they constitute a variable
interest in a variable interest entity (“VIE”).  FIN 46 requires a VIE
to be consolidated by its primary beneficiary.  The primary
beneficiary is the party that absorbs a majority of the VIE’s anticipated losses
and/or a majority of the expected returns.





In
December 2008 the Trust adopted FASB Staff Position FAS 140-4 (“FSP FAS
140-4”) and FIN 46(R)-8 (“FIN 46R-8”),Disclosures
byPublic Entities (Enterprises) About Transfers of
Financial Assets and Interests in Variable Interest Entities.Among other things FSP FAS 140-4 and
FIN 46(R)-8 require enhanced disclosure with respect to variable interest
entities to providefinancial statements users with an understanding of
the significant judgments and assumptions made by the Trust in its determination
of whether it must consolidate variable interest
entities.





At June
30, 2009, the Trust has identified four convertible mezzanine loans related to
the Marc Realty portfolio to be variable interests in a VIE.  The
Trust has determined that it is not the primary beneficiary of the underlying
borrowing entities of the four mezzanine loans as it does not anticipate
absorbing a majority of the expected losses due to its preferred return
position.  These loans, with a carrying value of $3,923,000 net of
other-than-temporary impairment charges of $3,331,000, are accounted for as
preferred equity in the Trust’s consolidated balance sheet as of June 30,
2009.





Earnings Per
Share





The Trust
has calculated earnings per share in accordance with SFAS No.128, “Earnings Per Share,”and EITF 03-06“Participating Securities and the Two
Class Method Under FASB Statement No. 128 Earnings Per
Share.”  SFAS No.128 requires that Common Share equivalents be
excluded from the weighted-average shares outstanding for the calculation of
basic earnings per share.  EITF 03-06 requires that computation of
earnings per share reflect the impact of participating
securities.  The holders of the Series B-1 Cumulative Convertible
Redeemable Preferred Shares (“Series B-1 Preferred Shares”) are entitled to
receive cumulative preferential dividends equal to the greater of (i) 6.5% of
the liquidation preference or (ii) cash dividends paid on the Common
Shares.


9


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The
reconciliation of Common Shares outstanding for the basic and diluted earnings
per share calculation is as follows (in thousands, except per share
data):





Three Months Ended
                        June 30,
                      
                      
                      Six Months Ended
                        June 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008BasicLoss
      from continuing operationsattributable
      to Winthrop Realty Trust
                      
                      $
                      (71,196
                      )
                      
                      $
                      (24,094
                      )
                      
                      $
                      (93,629
                      )
                      
                      $
                      (17,831
                      )Allocation
      of undistributed earnings toSeries
      B-1 Preferred Shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Income
      from discontinued operationsattributable
      to Winthrop Realty Trust
                      
                      
                      -
                      
                      
                      
                      37
                      
                      
                      
                      -
                      
                      
                      
                      86Net
      loss attributable to WinthropRealty
      Trust applicable to CommonShares
      for earnings per share purposes
                      
                      $
                      (71,196
                      )
                      
                      $
                      (24,057
                      )
                      
                      $
                      (93,629
                      )
                      
                      $
                      (17,745
                      )Basic
      weighted-average Common Shares
                      
                      
                      15,822
                      
                      
                      
                      14,564
                      
                      
                      
                      15,814
                      
                      
                      
                      13,990Loss
      from continuing operationsattributable
      to Winthrop Realty Trust
                      
                      $
                      (4.50
                      )
                      
                      $
                      (1.65
                      )
                      
                      $
                      (5.92
                      )
                      
                      $
                      (1.27
                      )Income
      from discontinued operationsattributable
      to Winthrop Realty Trust
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      0.01Net
      loss attributable to WinthropRealty
      Trust per Common Share
                      
                      $
                      (4.50
                      )
                      
                      $
                      (1.65
                      )
                      
                      $
                      (5.92
                      )
                      
                      $
                      (1.26
                      )DilutedLoss
      from continuing operationsattributable
      to Winthrop Realty Trust
                      
                      $
                      (71,196
                      )
                      
                      $
                      (24,094
                      )
                      
                      $
                      (93,629
                      )
                      
                      $
                      (17,831
                      )Allocation
      of undistributed earnings toSeries
      B-1 Preferred Shares
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Income
      from discontinued operationsattributable
      to Winthrop Realty Trust
                      
                      
                      -
                      
                      
                      
                      37
                      
                      
                      
                      -
                      
                      
                      
                      86Net
      loss attributable to WinthropRealty
      Trust applicable to CommonShares
      for earnings per share purposes
                      
                      $
                      (71,196
                      )
                      
                      $
                      (24,057
                      )
                      
                      $
                      (93,629
                      )
                      
                      $
                      (17,745
                      )Basic
      weighted-average Common Shares
                      
                      
                      15,822
                      
                      
                      
                      14,564
                      
                      
                      
                      15,814
                      
                      
                      
                      13,990Series
      B-1 Preferred Shares (1)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Stock
      options (2)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Diluted
      weighted-average Common Shares
                      
                      
                      15,822
                      
                      
                      
                      14,564
                      
                      
                      
                      15,814
                      
                      
                      
                      13,990Loss
      from continuing operationsattributable
      to Winthrop Realty Trust
                      
                      $
                      (4.50
                      )
                      
                      $
                      (1.65
                      )
                      
                      $
                      (5.92
                      )
                      
                      $
                      (1.27
                      )Income
      from discontinued operationsattributable
      to Winthrop Realty Trust
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      0.01Net
      loss attributable to WinthropRealty
      Trust per Common Share
                      
                      $
                      (4.50
                      )
                      
                      $
                      (1.65
                      )
                      
                      $
                      (5.92
                      )
                      
                      $
                      (1.26
                      )





(1)
            The
      Trust’s Series B-1 Preferred Shares were anti-dilutive for the three and
      six months ended June 30, 2009 and 2008 and are not included in the
      weighted-average shares outstanding for the calculation of diluted
      earnings per Common Share.


(2)
            The
      Trust’s outstanding stock options were anti-dilutive for the three and six
      months ended June 30, 2009 and 2008 and are not included in the weighted
      average shares outstanding for the calculation of diluted earnings per
      Common Share.


10


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Recently Issued Accounting
Standards





In June 2009Financial Accounting
Standards Board (“FASB”) Statement No.168, “The FASB Accounting
Standards CodificationTMand the Hierarchy
of Generally Accepted Accounting
Principles, A Replacement of FASB
Statement No. 162,”(“SFAS 168”) was issued.  SFAS 168 identifies
the sources of accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles in the
United States.  The objective of this Statement is to replace
Statement162 and to establish the FASB
Accounting Standards Codification TM (Codification) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity withaccounting principles generally
acceptedin the United States of America
(“GAAP”).Rules and interpretive releases of
theSECunder authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants.  This
statement iseffective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The Trust is evaluating the impact of SFAS 168 on its
consolidated financial statements.




In June 2009FASB Statement No.167, “Amendments to FASB
Interpretation
No. 46(R),”(“SFAS 167”) was issued, which amends the
consolidation guidance applicable to variable interest entities. The amendments
will affect the overall consolidation analysis under FASB Interpretation
No. 46(R). This statement is effective as of the beginning of the first
fiscal year that begins after November 15, 2009. This statement will be
effective for the Trust beginning in fiscal 2010. The Trust is evaluating the
impact of SFAS 167 on its consolidated financial statements.




In June 2009FASB Statement No.166, “Accounting
For
Transfers of Financial
Assets - An Amendment of FASB
Statement No. 140,”(“SFAS 166”) was issued.  SFAS 166 is intended
to improve the relevance, representational faithfulness, and comparability of
the information that a
reporting entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position, financial
performance, and cash flows; and a transferor’s continuing involvement, if any, in
transferred financial assets.   SFAS 166
must be applied as of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009. Earlier application is prohibited. The
Trust is evaluating the impact of SFAS 166 on its consolidated financial
statements.




In May 2009FASB Statement No.165, “Subsequent
Events,”(“SFAS 165”) was issued.  SFAS 165 is intended
to establish general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued
or are available to be issued.  It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date—that is, whether that date represents
the date the financialstatements were issued or were
available to be issued.  This disclosure should alert all users of
financial statements that an entity has not evaluated subsequent events after
that date in the set of financial statements being presented.  SFAS 165 is
effective for interim and annual periods
ending after June 15, 2009.  The Trusthasadopted SFAS 165, which did not have a
material impacton its
consolidated financial statements.





In April 2009 the FASB issued FSP SFAS
141(R)-1, “Accounting
For
Assets Acquired and Liabilities
Assumed in a Business Combination
That Arise From
Contingencies,”(“FSP No. SFAS 141(R)-1”)which amends the accounting for
acquired contingencies under FAS No. 141 (Revised 2007), “Business Combinations,” (“FAS
141(R)”) previously adopted by the Trust. FSP FAS No. 141-1(R)-1 applies to all
assets acquired and all liabilities assumed in a business combination that arise
from contingencies. The FSP FAS states that the acquirer will recognize such an
asset or liabilityif the
acquisitiondate fair value of that asset or liability
can be determined during the measurement period. If it cannot be determined
during the measurement period, then the asset or liability should be recognized
at the acquisition date if the following criteria, consistent with FAS No. 5, “Accounting for
Contingencies,”are met:
(1) information available before the end of the measurement period indicates
that it is probable that an asset existed or that a liability had been incurred
at the acquisition date, and (2) the amount of the asset or liability can be
reasonably estimated. This FSP is effective for all business acquisitions
occurring on or after the beginning of the first annual reporting period
beginning on or after December 15, 2008. The Trusthasadopted the provisions of SFAS No. 141(R) and FSP No.
SFAS 141(R)-1 9,which didnot have amaterial impacton itsconsolidated financial
statements.


11


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In April
2009 FASB Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments,” (“FSP FAS 115-2” and “FAS 124-2”) was
issued.  Additionally, this FSP expands and increases the frequency of
existing disclosures about other-than-temporary impairments for debt. It
requires a more detailed, risk-oriented breakdown of major security types and
related information currently required by SFAS No. 115. In addition, FSP 115-2
and 124-2 requires that the annual disclosures in SFAS No. 115 and FSP FAS 115-1
and FAS 124-1, “The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain
Investments,” be made for interim periods (including the aging of
securities with unrealized losses). This FSP also requires new disclosures to
help users of financial statements understand the significant inputs used in
determining a credit loss, as well as a rollforward of that amount each period.
FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009.  The FSP requires the difference between
the security’s amortized cost basis and fair value on debt securities that the
Trust intends to sell or would more-likely-than-not be required to sell before
the expected recovery of the amortized costs basis be recognized in the Trust’s
consolidated statement of income.  For available for sale and held to
maturity debt securities that the Trust has no intent to sell and believes that
it is more-likely-than-not will not be required to be sold prior to recovery,
only the credit loss component of the impairment is recognized in earnings,
while the rest of the fair value loss is recognized in Accumulated Other
Comprehensive Income.  The credit loss component recognized in
earnings is identified as the amount of principal cash flows not expected to be
received over the remaining term of the security as projected based on the
Trust’s cash flow projections utilizing its base assumptions.  The
cumulative effect of the adoption of the FSP included an increase in the opening
balance of accumulated distributions in excess of net income at April 1, 2009 of
$11,647,000 primarily as a result of the Trust’s investment in Lex-Win Concord
LLC (See Note 8).





In April
2009 FSP FAS 157-4,“Determining Fair
Value When the Volume and Level
of Activity For the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly,”(“FSP FAS 157-4”)was issued.  This FSP provides additional
guidance for estimating fair value in accordance with SFAS No. 157,“Fair Value
Measurements,”when the volume and level of activity
for the asset or liability have significantly decreased. FSP FAS 157-4 includes
guidance on identifying circumstances that indicate a transaction is not
orderly.  This FSP emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same–that is, the price that would be
received to sell an asset orpaid to transfer a liability in an
orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants at the measurement date under current market
conditions. Accordingly, this FSP does not apply to quoted prices for an
identical asset or liability in an active market (that is, a Level 1 input – See
Note 3, “Fair Value Measurement”). This FSP is effective for interim and annual
reporting periods ending after June 15, 2009, early adoption is permitted for
periods ending after March 15, 2009. The Trust has adopted FSP FAS 157-4, which
did not have a material impact on its consolidated financial
statements.





In April
2009 FASB Staff Position No. FAS
107-1 and APB 28-1,“Interim Disclosures
About
Fair Value of Financial Instruments,”(“FSP FAS 107-1 and APB 28-1”), was issued.  This FSP amends SFAS No. 107,“DisclosuresAbout
FairValue of Financial Instruments,”to require disclosures about fair value
of financial instruments for interim reporting periods of publicly traded
companies as well as in
annual financial statements. This FSP also amends APB Opinion No. 28,“Interim Financial
Reporting,”to require those disclosures in
summarized financial information at interim reporting periods.  FSP FAS
107-1 and APB 28-1 applies toall financial instruments within the
scope of SFAS No. 107 held by publicly traded companies.  FSP
FAS107-1 and APB 28-1
requiredisclosure in
interim reporting periods and annual reporting periods of the fair value of all
financial instruments for whichit is practicable to estimate that
value, whether recognized or not recognized in the statement of financial
position, as required under SFAS No. 107, including disclosure of the method(s)
and significant assumptions used to estimate the fair value of financial instruments, including any changes
therein.  This FSP is effective for interim reporting periods ending after
June 15, 2009, with early adoption permitted for periods ending after March 15,
2009 and does not require disclosures for earlier periods presented for comparative purposes at
initial adoption. In periods after initial adoption, this FSP requires
comparative disclosures only for periods ending after initial adoption.The Trust has adopted FAS 107-1 and APB 28-1, which did not have a
material impact on its consolidated financial statements.


12


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In
November 2008 EITF Issue No. 08-6, “Equity Method Investment Accounting
Considerations,”(“EITF 08-6”) was ratified.  EITF 08-6
addresses questions about the potential effect of FASB Statement No. 141R,
“Business Combinations,”and FASB Statement No. 160, “Non-Controlling Interests in
Consolidated Financial Statements – An Amendment of ARB No. 51, on Equity Method
Accounting Under APB 18.”EITF 08-6 generally continues
existing practices under APB 18, including the use of a cost-accumulation
approach to initial measurement of the investment.  EITF 08-6 does not
require the investor to perform a separate impairment test on the underlying
assets of an equity method investment.  However, an equity method
investor is required to recognize its proportionate share of impairment charges
recognized by the investee, adjusted for basis differences, if any, between the
investee’s carrying amount for the impaired assets and the cost allocated to
such assets by the investor.  The investor is also required to perform
an overall other-than-temporary impairment test of its investment in accordance
with APB 18.  EITF 08-6 was effective for fiscal years beginning on or
after December 15, 2008 and interim periods within those fiscal years, and is
applied prospectively.  The Trust has adopted EITF 08-6, which did not
have a material impact on its consolidated financial statements.





In June
2008 EITF Issue 07-5, “Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock,” (“EITF 07-5”)
was ratified.  Paragraph 11(a) of SFAS 133 specifies that a contract
that would otherwise meet the definition of a derivative but is both (a) indexed
to the company’s own stock and (b) classified in shareholder’s equity in the
statement of financial position would not be considered a derivative financial
instrument.  EITF 07-5 provides a new two-step model to be applied in
determining whether a financial instrument or an embedded feature is indexed to
an issuer’s own stock and thus able to qualify for the SFAS 133 paragraph 11(a)
scope exception.  EITF 07-5 was effective on January 1,
2009.  The Trust has adopted EITF 07-5, which did not have a material
impact on its consolidated financial statements.





3.
            Fair
      Value Measurement





On
January 1, 2008 the Trust adopted Statement of Financial Accounting Standards
No. 157, “Fair Value
Measurements,” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. SFAS No. 157 applies to reported balances that are
required or permitted to be measured at fair value under existing accounting
pronouncements. Accordingly, the standard does not require any new fair value
measurements of reported balances.  Cash equivalents, derivative
financial instruments, available for sale securities, and securities carried at
fair value are reported at fair value.





SFAS No.
157 emphasizes that fair value is a market-based measurement, not an
entity-specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, SFAS No. 157 establishes a fair value
hierarchy that distinguishes between market participant assumptions based on
market data obtained from sources independent of the reporting entity
(observable inputs that are classified within Levels 1 and 2 of the hierarchy)
and the reporting entity’s own assumptions about market participant assumptions
(unobservable inputs classified within Level 3 of the hierarchy).





Level 1
inputs utilize unadjusted quoted prices in active markets for identical assets
or liabilities that the Trust has the ability to access. Level 2 inputs are
inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 2 inputs may include
quoted prices for similar assets and liabilities in active markets, as well as
inputs that are observable for the asset or liability other than quoted prices,
such as interest rates, foreign exchange rates, and yield curves that are
observable at commonly quoted intervals. Level 3 inputs are unobservable inputs
for the asset or liability which are typically based on an entity’s own
assumptions, as there is little, if any, related market activity. In instances
where the determination of the fair value measurement is based on inputs from
different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the entire fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its
entirety. The Trust’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.





Level 1
securities include highly liquid government bonds, mortgage products and
exchange-traded equities. If quoted market prices are not available, then fair
values are estimated by using pricing models, quoted prices of securities with
similar characteristics, or discounted cash flows, which would generally be
classified within Level 2 of the valuation hierarchy.  Examples of
such instruments include certain derivative financial instruments. In cases
where there is limited activity or less transparency around inputs to the
valuation, securities are classified within Level 3 of the valuation hierarchy.
Securities classified within Level 3 include, for example, residual interests in
securitizations and other less liquid securities.


13


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS




In
October 2008 FASB Staff Position FAS 157-3 ("FSP FAS 157-3"), “Determining the Fair Value of a
Financial Asset When the Market For That Asset is Not Active,” was
adopted which provides clarification that determination of fair value in an
inactive market depends on facts and circumstances and may require the use of
significant judgment to determine whether certain individual transactions are
forced liquidations or distressed sales. In cases where the volume and level of
trading activity for an asset has declined substantially, the available prices
vary significantly over time or among market participants, or the prices are not
current, observable inputs might not be relevant and could require material
adjustment. In addition, FSP FAS 157-3 also clarifies that broker or pricing
service quotes may be appropriate inputs when measuring fair value, but are not
necessarily determinative if an active market does not exist for the financial
asset. Regardless of the valuation techniques used, FSP FAS 157-3 requires that
an entity include appropriate risk adjustments that market participants would
make for nonperformance and liquidity risks. The Trust has always considered
nonperformance and liquidity risks in its analysis of loans and collateral
underlying its securities and the adoption of FSP FAS 157-3 did not have a
material impact on its consolidated financial statements.





The
following is a description of the valuation methodologies used for instruments
measured at fair value, as well as the general classification of such
instruments pursuant to the valuation hierarchy.





Recurring
Measurements





Cash
Equivalents





The
Trust’s cash equivalents are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices. The types of
instruments that are valued based on quoted market prices in active markets
include most U.S. government treasury bills with original maturities of less
than 90 days and money market securities acquired through overnight
sweeps.





Available
for Sale Securities





Where
quoted prices are available in an active market, securities are classified
within Level 1 of the valuation hierarchy. At June 30, 2009 all of the Trust’s
available for sale securities are classified within Level 1 of the valuation
hierarchy.




Securities
Carried at Fair Value





At June
30, 2009 all but one of the Trust’s securities carried at fair value are
classified within Level 1 of the fair value hierarchy. One of
the securities is not actively traded and is classified within Level 3 of the
fair value hierarchy.




Real
Estate Loan Available for Sale





The
Trust’s real estate loan available for sale was sold in July
2009.  The Trust’s real estate loan available for sale is classified
within Level 3 of the fair value hierarchy at June 30, 2009.





Derivative
Financial Instruments





The Trust
uses interest rate swaps to manage its interest rate risk. The valuation of
these instruments is determined using both quantitative and qualitative
valuation techniques including discounted cash flow analysis on the expected
cash flows of each derivative as well as potential credit risks with the swap
counterparty. This analysis reflects the contractual terms of the derivatives,
including the period to maturity, and uses observable market-based inputs,
including interest rate curves, and implied volatilities. The fair values of
interest rate swaps are determined using the market standard methodology of
netting the discounted future fixed cash receipts (or payments) and the
discounted expected variable cash payments (or receipts). The variable cash
payments (or receipts) are based on an expectation of future interest rates
(forward curves) derived from observable market interest rate
curves.


14


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


To comply
with the provisions of SFAS No. 157, the Trust incorporates credit valuation
adjustments to appropriately reflect both its own nonperformance risk and the
respective counterparty’s nonperformance risk in the fair value measurements. In
adjusting the fair value of its derivative contracts for the effect of
nonperformance risk, the Trust has considered the impact of netting as well as
any applicable credit enhancements, such as collateral postings, thresholds,
mutual puts and guarantees.





Although
the Trust has determined that the majority of the inputs used to value its
derivatives fall within Level 2 of the fair value hierarchy, the credit
valuation adjustments associated with its derivatives utilize Level 3 inputs,
such as estimates of current credit spreads, to evaluate the likelihood of
default by itself and its counterparties. However, as of June 30, 2009, the
Trust assessed the significance of the impact of the credit valuation
adjustments on the overall valuation of its derivative positions and has
determined that the credit valuation adjustments are not significant to the
overall valuation of its derivatives. As a result, the Trust has determined that
the derivative valuations in their entirety should be classified in Level 2 of
the fair value hierarchy.





The table
below presents the Trust’s assets and liabilities as of June 30,
2009,  measured at fair value, according to the level in the fair
value hierarchy within which those measurements fall(in
thousands):





Recurring Basis
                  
                  Quoted Prices in Active
                    Markets for Identical Assets
                    and Liabilities (Level 1)
                  
                  
                  Significant Other
                    Observable Inputs
                    (Level 2)
                  
                  
                  Significant
                    Unobservable
                    Inputs (Level 3)
                  
                  
                  TotalAssetsCash
      equivalents (1)
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Available
      for sale securities
                  
                  
                  195
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  195Real
      estate loan available for sale
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  34,797
                  
                  
                  
                  34,797Securities
      carried at fair value
                  
                  
                  53,077
                  
                  
                  
                  -
                  
                  
                  
                  599
                  
                  
                  
                  53,676$
                  53,272
                  
                  
                  $
                  -
                  
                  
                  $
                  35,396
                  
                  
                  $
                  88,668LiabilitiesDerivative
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  424
                  
                  
                  $
                  -
                  
                  
                  $
                  424





(1)
            Does
      not include cash on hand of approximately $20,469 at June 30,
      2009.





The table
below presents the Trust’s assets and liabilities measured at fair value on a
recurring basis as of December 31, 2008, according to the level in the fair
value hierarchy within which those measurements fall(in
thousands):





Recurring Basis
                
                Quoted Prices in Active
                  Markets for Identical Assets
                  and Liabilities (Level 1)
                
                
                Significant Other
                  Observable Inputs
                  (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs (Level 3)
                
                
                TotalAssetsCash
      equivalents (1)
                
                $
                43,272
                
                
                $
                -
                
                
                $
                -
                
                
                $
                43,272Available
      for sale securities
                
                
                184
                
                
                
                -
                
                
                
                -
                
                
                
                184Securities
      carried at fair value
                
                
                36,516
                
                
                
                -
                
                
                
                -
                
                
                
                36,516$
                79,972
                
                
                $
                -
                
                
                $
                -
                
                
                $
                79,972LiabilitiesDerivative
      liabilities
                
                $
                -
                
                
                $
                765
                
                
                $
                -
                
                
                $
                765





(1)
            Does
      not include cash on hand of approximately $15,966 at December 31,
      2008.




The table
below includes a roll forward of the balance sheet amounts from January 1, 2009
to June 30, 2009, including the change in fair value, for financial instruments
classified by the Trust within Level 3 of the valuation
hierarchy.  When a determination is made to classify a financial
instrument within Level 3 of the valuation hierarchy, the determination is based
upon the significance of the unobservable factors to the overall fair value
measurement.




Six
      Months Ended June 30, 2009
                  
                  Real
      Estate Loan
                    Available
      For Sale
                  
                  
                  Securities
      Carried
                    at
      Fair Value(in
      thousands)Fair
      value, January 1, 2009
                  
                  $
                  -
                  
                  
                  $
                  -Purchases,
      issuances and settlements , net
                  
                  
                  34,797
                  
                  
                  
                  599Transfers
      in/and or out of Level 3
                  
                  
                  -
                  
                  
                  
                  -Fair
      value, June 30, 2009
                  
                  $
                  34,797
                  
                  
                  $
                  599


15


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Non-Recurring
Measurements





Preferred
Equity and Equity Investments





The valuation of preferred equity and
equity investments is determined using widely accepted valuation techniques
including discounted cash flow analysis on the expected cash flows of each asset
as well as the income capitalization approach considering prevailing market
capitalization rates.  The Trust reviews each investment based on the
highest and best use of the investment and market participation
assumptions.  The significant assumptions used in this analysis
include the discount rate used in the income capitalization valuation and
interest rate volatility.  The Trust has determined that the
significant inputs used to value its equity investment in Lex-Win Concord fall
within Level 3.  The Trust recognized valuation adjustments of
$31,670,000 on this asset during the three and six months ended June 30,
2009. The Trust has
determined that the significant inputs used to value certain of its preferred
equity investments fall within Level 3.  The Trust recorded valuation
adjustments of $2,186,000 on these preferred equity investments during the three
and six months ended June 30, 2009.





As of
June 30, 2009, the table below presents the Trust’s assets and liabilities
measured at fair value as events dictate, according to the level in the fair
value hierarchy within which those measurements fall (in
thousands):





Non-Recurring Basis
                
                Quoted Prices in
                  Active Markets for
                  Identical Assets and
                  Liabilities (Level 1)
                
                
                Significant Other
                  Observable
                  Inputs (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs (Level 3)
                
                
                TotalEquity
      investments (1)
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Preferred
      equity investments
                
                
                -
                
                
                
                -
                
                
                
                3,305
                
                
                
                3,305$
                -
                
                
                $
                -
                
                
                $
                3,305
                
                
                $
                3,305




(1)
            The carrying value
      of the Equity Investment was $0 as of June 30,
  2009.




As of
December 31, 2008, the table below presents the Trust’s assets and liabilities
measured at fair value as events dictate, according to the level in the fair
value hierarchy within which those measurements fall (in
thousands):





Non-Recurring Basis
                
                Quoted Prices in
                  Active Markets for
                  Identical Assets and
                  Liabilities (Level 1)
                
                
                Significant Other
                  Observable
                  Inputs (Level 2)
                
                
                Significant
                  Unobservable
                  Inputs (Level 3)
                
                
                TotalEquity
      investments
                
                $
                -
                
                
                $
                -
                
                
                $
                73,061
                
                
                $
                73,061Preferred
      equity investments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                -
                
                
                $
                -
                
                
                $
                73,061
                
                
                $
                73,061





Fair
Value Option





SFAS No.
159, “The Fair Value Option
For Financial Assets and Financial Liabilities,”(“SFAS 159”)
provides a fair value option election that allows companies to irrevocably elect
fair value as the initial and subsequent measurement attribute for certain
financial assets and liabilities. Changes in fair value for assets and
liabilities for which the election is made will be recognized in earnings on a
quarterly basis based on the then market price regardless of whether such assets
or liabilities have been disposed of at such time.  SFAS 159
permits the fair value option election on an instrument by instrument basis at
initial recognition of an asset or liability or upon an event that gives rise to
a new basis of accounting for that instrument.  The Trust elected the
fair value option for all securities acquired subsequent to September 30,
2008.





For the
three and six months ended June 30, 2009, the Trust recognized a net unrealized
gain of $12,580,000 and $1,432,000, respectively, as a result of the change in
fair value of the securities for which the fair value option was elected, which
is recorded as an unrealized gain in the Trust’s statement of
operations.  Income related to securities carried at fair value is
recorded as interest and dividend income.


16


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


The
following table presents the Trust's financial assets for which the fair value
option was elected (in thousands):





Financial instruments, at fair value
                  
                  June 30, 2009AssetsSecurities
      carried at fair value:Senior
      debentures
                  
                  $
                  23,749Preferred
      shares
                  
                  
                  16,975Common
      shares
                  
                  
                  12,95253,676Real
      estate loan available for sale
                  
                  
                  34,797$
                  88,473





The
following table presents the difference between fair values and the aggregate
contractual amounts due (senior debentures) for which the fair value option has
been elected (in thousands):





Fair Value at
                    June 30, 2009
                  
                  
                  Amount Due
                    Upon Maturity
                  
                  
                  DifferenceAssetsSecurities
      carried at fair value:Senior
      debentures
                  
                  $
                  23,749
                  
                  
                  $
                  29,191
                  
                  
                  $
                  5,442




4.
            Acquisitions,
      Loan Originations, Dispositions and
Financings





Preferred
Stock





In
January 2009 the Trust acquired 917,105 Series B-1 Preferred Shares for
$17,081,000 at a discount from their liquidation value of $25 per
share.  The Trust determined that the repurchase of the Series B-1
Preferred Shares qualified as extinguishment of debt pursuant to the guidance of
SFAS 140, “Accounting For the
Transfer and Servicing of Financial Assets and Liabilities,” and recorded
a gain from the early extinguishment of debt pursuant to APB 26 of approximately
$5,237,000, net of unamortized issuance costs of $609,000.





In July
2009 the Trust acquired an additional 100,000 Series B-1 Preferred Shares at a
discounted price of $2,000,000.  The Trust expects to record a gain
from the early extinguishment of debt of approximately $444,000, net of
unamortized issuance costs of $56,000, during the third quarter of
2009.  Subsequent to this repurchase, there are 1,396,000 Series B-1
Preferred Shares outstanding.





Acquisitions &
Dispositions of REIT Securities





During
the six months ended June 30, 2009 the Trust acquired senior debentures with a
face value of approximately $29,490,000 at a cost of approximately $19,665,000,
preferred shares at a cost of approximately $9,361,000 and common shares at a
cost of approximately $863,000.





During
the six months ended June 30, 2009 the Trust sold senior debentures with an
original cost basis of $8,634,000 and a fair value as reported on the balance
sheet of the last reporting period prior to the sale of $8,800,000 and received
net proceeds of approximately $9,572,000.  In addition, during the six
months ended June 30, 2009, the Trust sold preferred shares with an original
cost basis of $3,913,000 and a fair value as reported on the balance sheet of
the last reporting period prior to the sale of $3,989,000 for net proceeds of
approximately $5,602,000.  Also during the period, the Trust sold
common shares with an original cost basis of $1,294,000 and a fair value as
reported on the balance sheet of the last reporting period prior to the sale of
$1,372,000 for net proceeds of approximately $1,585,000.  The
difference between the original cost basis and the fair value represents the
unrealized gain or loss recognized pursuant to SFAS 159 during the holding
period of the securities.  For the three and six months ended June 30,
2009, the Trust recognized a net gain on the sale of these securities of
approximately $2,685,000 and $2,598,000, respectively, exclusive of any interest
or dividends earned.


17


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


River
City





The Trust
extended its $9,500,000 mortgage loan secured by its River City property for a
period of one year.  The terms of the extension require monthly
payments of interest only at a fixed rate of 6% with a new maturity of March 28,
2010.  The renewal was subject to a $200,000 principal payment which
was made in April.





Note Payable
Payoff





At
December 31, 2008, the Trust had a $9,800,000 note payable to Citibank, which
bore interest at LIBOR plus 2.5% and matured in December 2011.  The
note was made in connection with the Trust’s purchase during 2008 of 3,500,000
common shares of Lexington Realty Trust (“Lexington”).  The note
required monthly payments of interest only and was subject to margin calls if at
any time the note balance compared to the fair value of the common shares
exceeded 57.5%.  The Trust paid the note off in full in March
2009.





KeyBank Loan
Extension





The Trust
exercised its one-year extension option of its $24,372,000 mortgage loan payable
to KeyBank which is collateralized by 14 properties and now matures on June 30,
2010.  In accordance with the terms of the loan agreement, as a
condition to the extension, the Trust pledged $1,373,000 as cash collateral on
the loan and paid a $61,000 extension fee.





Real Estate Loan
Acquisitions





On June
1, 2009, the Trust acquired from Concord Debt
Holdings, LLC (“Concord”) for $5,500,000, a $7,219,000 first mortgage
loan collateralized by a two building four story complex containing 116,000
square feet in Phoenix, Arizona.  The loan bears interest at a rate of
9.8375%, requires monthly payments of interest only and matures on June 9,
2012.  The borrower has the right to prepay the loan at any time for a
discounted payoff amount of $5,500,000.  The Trust has recorded this
investment as a loan receivable and is carried at
amortized cost.


On June
1, 2009, the Trust acquire from Concord, for $38,500,000, a $73,796,000 first
mortgage loan collateralized by a 19 story, 289,000 square foot office building
located at 160 Spear Street, San Francisco, California (“160 Spear
Street”).  The loan bears interest at a rate of 6.48215%, requires
monthly payments of interest only and matures on June 9, 2012, subject to a
one-year extension which extension requires the payment of an $850,000 extension
fee.  The borrower has the right to prepay the loan at any time for a
discounted payoff amount of $50,000,000 plus any additional advances made by the
Trust to the borrower.  The Trust has agreed to make additional
advances to the borrower in equal quarterly installments of $600,000 over the
next two years up to a maximum of $4,800,000.  The additional advances
will bear interest at a rate of 15%, will be collateralized by the property and
will be coterminus with the existing loan.





On July
14, 2009, the Trust sold to an unrelated third party a $35,000,000 9.75% A Note
at par with respect to the first mortgage loan collateralized by the office
building located at 160 Spear Street as discussed above.  As a result
of this sale, and the Trust’s intention to hold the remaining portion of this
loan to maturity, the Trust has recorded $35,000,000 as a real estate loan
available for sale, which is carried at the lower of cost or fair value at June
30, 2009, and the remaining $3,500,000 investment has been recorded as a loan
receivable and is carried at cost at June 30, 2009.




18


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Loan
Payable





On June
24, 2009, the Trust obtained a margin loan from JP Morgan in the amount of
$19,818,000, bearing interest at LIBOR plus 0.5%.  The loan is
collateralized by the securities carried at fair value.  The funds
were used to pay off borrowings under the Trust’s revolving line of credit with
KeyBank, and the balance outstanding at June 30, 2009 was repaid on July 15,
2009 in connection with the sale of the 160 Spear Street A Note.





Preferred Equity
Restructuring





During
July 2009 the Trust restructured its preferred equity investment in Marc Realty
as discussed in Note 7.





Lease
Extension





In April
2009 the Trust entered into a lease extension and modification agreement with
respect to its 133,000 square foot Plantation, Florida office property which is
net leased to BellSouth Telecommunications Inc.  Pursuant to the
agreement, the lease term was extended for ten years through March 31, 2020, and
the current annual rent was reduced to approximately $1,740,000 for the final
year of the current lease term.  Thereafter, annual rent will be
approximately $1,450,000 from April 1, 2010 through March 31, 2015 and
approximately $1,500,000 from April 1, 2015 through March 31, 2020. In addition,
existing lease intangibles of $1,733,000 will be amortized ratably over the
revised remaining lease term.





5.
            Loans
      Receivable





All of
the Trust’s loans identified as being impaired under the provisions of SFAS No.
114 are collateral dependent loans and are evaluated for impairment by comparing
(i) the fair value of the underlying collateral less costs to sell and (ii) the
carrying value of each loan.  Due to the unique nature of each
individual property collateralizing the Trust’s loans, the Trust uses the income
approach through internally developed valuation models to estimate the fair
value of the collateral.  This approach requires the Trust to make
significant judgments with respect to discount rates and the timing and amounts
of estimated future cash flows which are considered Level 3 inputs in accordance
with SFAS No. 157.  These cash flows include operating costs and,
where applicable, costs of completion and  lot and unit sale
prices.





The
following table summarizes the Trust’s loans receivable at June 30, 2009 and
December 31, 2008 (in thousands):





Carrying Amount (7)June 30,
                            
                            
                            December 31,Property
                            
                            Location
                            
                            Interest Rate
                            
                            
                            Maturity
                            
                            
                            2009
                            
                            
                            2008Marc
      Realty – Various (1) (2)
                            
                            Chicago,
      IL
                            
                            
                            8.5
                            %
                            
                            (1)
                            
                            
                            $
                            17,848
                            
                            
                            $
                            17,547Loan
      loss reserve
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,538
                            )
                            
                            
                            (1,179
                            )Lex-Win
      Concord LLC (3)
                            
                            Various
                            
                            
                            0.8
                            %
                            
                            Dec 2009
                            
                            
                            
                            -
                            
                            
                            
                            5,000600
      West Jackson LLC (4)
                            
                            Chicago,
      IL
                            
                            
                            6.5
                            %
                            
                            June 2009
                            
                            
                            
                            -
                            
                            
                            
                            1,508160
      Spear (5)
                            
                            San
      Francisco, CA
                            
                            
                            (6
                            )
                            
                            June 2012
                            
                            
                            
                            3,776
                            
                            
                            
                            -Siete
      Square (5)
                            
                            Phoenix,
      AZ
                            
                            
                            9.8
                            %
                            
                            June 2012
                            
                            
                            
                            5,505
                            
                            
                            
                            -Vision
      Term Loan (8)
                            
                            
                            
                            
                            15.0
                            %
                            
                            
                            Dec
      2011
                            
                            
                            
                            -
                            
                            
                            
                            1,266Loan
      loss reserve
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            (1,266
                            )$
                            25,591
                            
                            
                            $
                            22,876





(1)
            Represents
      tenant improvement and capital expenditure loans for properties in the
      Marc Realty portfolio. These loans mature on May 1,
      2016.  Effective July 1, 2009, the interest rate on these loans
      has been increased to 10%.


(2)
            Collateralized
      by a subordinate mortgage or the ownership interests in the property
      owner.


(3)
            The
      Trust made an unsecured working capital loan of $5,000 to Lex-Win Concord
      in December 2008.  This amount was repaid in January
      2009.


(4)
            Represents
      a second mortgage on the property.  The loan was repaid on June
      30, 2009.


(5)
            Represents
      first mortgage loans secured by the
properties.


(6)
            The
      Trust holds a B Note in this loan.  Interest on the B Note
      equals the difference between (i) interest on the entire outstanding loan
      principal balance ($73,796 at June 30, 2009) at a rate of 6.48215% per
      annum less (ii) interest payable on the outstanding principal balance of
      the A Note ($35,000) at a rate of 9.75% per annum.  Accordingly,
      the stated interest rate on the B Note at June 30, 2009 was
      3.583%.


(7)
              The
      carrying amount includes accrued interest of $603 and $123 at June 30,
      2009 and December 31, 2008, respectively.(8)
              In
      April 2009, the Trust wrote off this
reserve.


19


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


During
the three and six months ended June 30, 2009, the Trust recorded a provision for
loan loss of $1,724,000 and $2,152,000, respectively, related to loans on
several properties in the Marc Realty portfolio.  In addition, during
the three and six months ended June 30, 2009, the Trust wrote off $1,793,000 of
which $1,258,000 related to the Marc Realty restructuring (see Note 7) and
$535,000 of which was previously reserved related to a property in the Marc
Realty portfolio which was foreclosed on in May 2009.





For the
three and six months ended June 30, 2009, the Trust did not recognize any
interest income on impaired loans subsequent to the date of their
impairment.  Cash payments received on impaired loans were classified
as cost recovery.  As of June 30, 2009, the Trust has received
$9,000 which was recorded as a recovery on impaired loans which had a carrying
value of $0 at June 30, 2009.





6.
            Securities





Securities Carried at Fair
Value





Securities
carried at fair value represents senior debentures, preferred shares, and common
shares for which the Trust has elected the fair value option of SFAS
159.





Securities
carried at fair value at June 30, 2009 are summarized in the table below (in
thousands):





Cost
                  
                  
                  Fair ValueSenior
      debentures
                  
                  $
                  19,252
                  
                  
                  $
                  23,749Preferred
      shares
                  
                  
                  12,778
                  
                  
                  
                  16,975Common
      shares
                  
                  
                  20,509
                  
                  
                  
                  12,952$
                  52,539
                  
                  
                  $
                  53,676





For the
three and six months ended June 30, 2009, the Trust recognized an unrealized
gain on securities carried at fair value of $12,580,000 and $1,432,000,
respectively.





Securities
carried at fair value at December 31, 2008 are summarized in the table below (in
thousands):





Cost
                  
                  
                  Fair ValueSenior
      debentures
                  
                  $
                  8,221
                  
                  
                  $
                  8,631Preferred
      shares
                  
                  
                  7,405
                  
                  
                  
                  8,352Common
      shares
                  
                  
                  20,866
                  
                  
                  
                  19,533$
                  36,492
                  
                  
                  $
                  36,516





For the
year ended December 31, 2008, the Trust recognized an unrealized gain on
securities carried at fair value of $24,000.





Available for Sale
Securities





Available
for sale securities represents securities for which the Trust has not elected
the fair value option of SFAS 159.  These securities are accounted for
pursuant to Statement of Financial Accounting Standards No. 115, “Accounting For Certain Investments
in Debt and Equity Securities.”





Available
for sale securities at June 30, 2009 are summarized in the table below (in
thousands):





Cost
                  
                  
                  Fair
                    ValuePreferred
      shares
                  
                  $
                  204
                  
                  
                  $
                  195


20


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


For the
three and six months ended June 30, 2009, the Trust recognized an unrealized
gain in other comprehensive income of $9,000 and $11,000,
respectively.  As of June 30, 2009, there was a cumulative unrealized
loss in other comprehensive income of $10,000 related to these
securities.





Available
for sale securities at December 31, 2008 are summarized in the table below (in
thousands):





Cost
                  
                  
                  Fair
                    ValuePreferred
      shares
                  
                  $
                  204
                  
                  
                  $
                  184





For the
year ended December 31, 2008, the Trust recognized an unrealized loss in other
comprehensive income of $20,000.





During
the six months ended June 30, 2009 and June 30, 2008, securities were sold for
total proceeds of approximately $16,759,000 and $57,699,000,
respectively.  The Trust recognized a gross realized gain of
$2,685,000 and $2,598,000 on the sale of these securities during the three and
six months ended June 30, 2009, respectively.  The Trust recognized a
gross realized gain of $0 and $2,029,000 on the sale of these securities during
the three and six months ended June 30, 2008, respectively.  The Trust
utilizes the specific identification method for calculating gain or loss on the
sale of securities.





7.
            Preferred Equity Investments –
      Marc Realty





As a
result of the restructuring and foreclosure discussed below, at June 30, 2009,
the Marc Realty portfolio consisted of two participating second mortgage loans
and 15 convertible mezzanine loans, together with an equity investment in each
mezzanine borrower, in the aggregate amount of approximately $44,648,000, net of
impairments of $7,111,000.  The second mortgage and mezzanine loans
contain conversion rights, and each loan is collateralized by the applicable
borrower's ownership interest in a limited liability company (each a "Property
Owner") that in turn owns an office building or complex primarily in the Chicago
business district or suburban area.  Each borrower holds a 100%
interest in the applicable Property Owner.





Foreclosure





In May
2009 the property located in Lansing, Michigan was foreclosed on by the lender
who held the first mortgage.  The Trust had fully impaired its
investment in this property prior to the foreclosure.  As such, the
Trust had no gain or loss recognition in 2009 related to the
foreclosure.





Restructuring





During
July 2009 the Trust restructured its preferred equity investment in Marc
Realty.  Prior to the restructuring, and subsequent to the
foreclosure, the Trust held loans and equity investments in 20 properties with
Marc Realty.  The restructuring does not apply to five of the
properties (the “Excluded Properties”) in which the Trust held preferred equity
investments.  Of the five Excluded Properties, four are suburban
properties, for which both Marc Realty and the Trust have determined are worth
less than the debt, have ceased making debt service payment and expect the
lender to foreclose.  The debt on these properties
is non-recourse to the Trust.  The Trust has fully impaired their
investments in these four properties as of June 30, 2009.  The other
Excluded Property is a downtown property, in which the Trust invested in 2007
subsequent to the initial 2005 Marc investment and in which the Trust owns a 70%
interest.  The restructuring is applicable to the remaining 15
properties (the “Included Properties”) classified as preferred equity
investments.  The restructuring effectively eliminates approximately
$12,500,000 of a deferred return due to Marc Realty on the Included Properties
in exchange for the Trust transferring all of its interest in two of the
suburban, and one of the downtown, properties to Marc Realty.  The
Trust’s transfer of its interest in the properties is effective as of May 1,
2009.  Subsequent to the transfer and the foreclosure, the Trust had a
preferred equity investment in 17 properties – 12 Included Properties and five
Excluded Properties.


21


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





In
addition, the Trust made an additional aggregate advance of $684,000 in July
2009 which resulted in the equalization of interests to 50%-50% between the
Trust’s preferred equity investment and the Marc Realty principals deemed equity
in all but one of the remaining Included Properties.  In eight
properties the Trust’s interest was increased and in three properties the
Trust’s interest was decreased.  The tenant improvement and capital
expenditure loans made by the Trust are also now equivalent to the loans made by
the Marc Realty principals on the Included Properties.





As a
result of the transfer of all of its interests in the mezzanine loans on the two
suburban properties and the one downtown property, the Trust has recognized a
loss from preferred equity investment of $2,664,000 during the three months
ended June 30, 2009.  In addition, the Trust recognized a $1,636,000
impairment loss during the three months ended June 30, 2009 in connection with
the transfer of a portion of its interests on three of the suburban Included
Properties.  There was no gain or loss recognized on the eight
Included Properties in which the Trust increased its interest.





For the
Included Properties, the agreement also modifies the priority of payments
between the Trust and Marc Realty so that all cash returns are now effectively
pari passu.  The interest rate on our mezzanine loans has been
increased to 9% from 7.65% and the interest rate on the tenant improvement and
capital expenditure loans made by the Trust and Marc Realty has been increased
to 10% from 8.5% effective July 1, 2009.  The return payable to Marc
Realty on their equity investment has also increased to 9% from
7.65%.  The mezzanine loans require monthly payments of interest only
and the maturity date for each of the loans has been extended to April 17,
2016.  If cash flow from property operations is not sufficient to pay
both the Trust and Marc Realty, then the return payable to both parties will be
deferred.  As a result of the modification, the Trust’s mezzanine
loans on the Included Properties will be reclassified from preferred equity
investments to equity investments effective July 1, 2009 and the Trust will
recognize its pro rata share of the underlying properties’ income or
loss.





The Trust
is also entitled to participate on a pari passu basis in capital proceeds
derived from the sale or refinancing of the applicable property (the
“Participating Interest”), to the extent that such proceeds exceed all of the
debt encumbering the property, including a return to the Trust and Marc Realty
of their equity plus a 9% return thereon.





Impairments/Earnings





The Trust
recognized earnings from preferred equity investments, exclusive of
Participating Interest payments and impairments, of $906,000 and $1,921,000 for
the three and six months ended June 30, 2009, respectively, and $1,115,000 and
$2,486,000 for the three and six months ended June 30, 2008,
respectively.  Earnings from preferred equity investments for the
three and six months ended June 30, 2009 include an impairment loss of
approximately $550,000 taken on one of the Excluded Properties and earnings for
the three and six months ended June 30, 2008 included a loss of approximately
$2,000,000 attributable to an impairment recorded at the underlying entity which
held a property in Lansing, Michigan and was foreclosed on in May
2009.





Sales





One of
the properties in the Marc Realty portfolio, 600 West Jackson, Chicago,
Illinois, in which the Trust held a 7.65% convertible mezzanine loan and a
preferred interest, was sold on June 12, 2008 to an unaffiliated third
party.  The Trust received $2,530,000, exclusive of interest, on its
original investment of $1,736,000.  Further to this transaction, the
selling entity, of which the Trust owns 60%, made a $1,500,000 second mortgage
loan to the buyer.  The loan bore interest at 6.5%, matured on June
30, 2009, and required monthly payments of interest only.  In
connection with the sale of the property, the Trust received additional equity
income totaling $795,000 which was deferred until repayment of the second
mortgage loan made to the borrower.  On June 30, 2009, the second
mortgage loan was paid in full and the Trust recorded earnings from preferred
equity investments in the form of a Participating Interest payment of
$795,000.


22


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Summary
financial information for the Property Owner entities on a combined basis is as
follows (in thousands):





As
      of
                    
                    
                    As
      ofJune
      30, 2009
                    
                    
                    December
      31, 2008Condensed
      Balance SheetsInvestment
      in real estate, net
                    
                    $
                    124,389
                    
                    
                    $
                    167,386Prepaid
      expenses and deposits
                    
                    
                    5,487
                    
                    
                    
                    7,239Cash
      and cash equivalents
                    
                    
                    2,355
                    
                    
                    
                    3,371Receivables
      and other assets
                    
                    
                    22,240
                    
                    
                    
                    30,485Assets
      of discontinued operations
                    
                    
                    25,183
                    
                    
                    
                    -Total
      Assets
                    
                    $
                    179,654
                    
                    
                    $
                    208,481Nonrecourse
      mortgage debt
                    
                    $
                    193,044
                    
                    
                    $
                    285,524Other
      liabilities
                    
                    
                    19,992
                    
                    
                    
                    24,481Liabilities
      of discontinued operations
                    
                    
                    68,701
                    
                    
                    
                    -Total
      Liabilities
                    
                    
                    281,737
                    
                    
                    
                    310,005Partners’
      Deficit
                    
                    
                    (102,083
                    )
                    
                    
                    (101,524
                    )Total
      Liabilities and Partners’ Deficit
                    
                    $
                    179,617
                    
                    
                    $
                    208,481On
      the Trust’s Consolidated Balance Sheets:Preferred
      Equity Investment
                    
                    $
                    45,780
                    
                    
                    $
                    50,624





A basis
difference exists between the carrying value of the Trust’s preferred equity
investment and its share of the Property Owner’s reported net assets as a result
of (i) the acquisition of its investment in Marc Realty at the then determined
fair value which was different from its share of the net depreciated assets as
recorded by the Property Owners on the historical books of the venture and (ii)
other-than-temporary impairment charges of $9,698,000.




For
      the Three Months Ended
                            
                            
                            For
      the Six Months EndedJune
      30, 2009
                            
                            
                            June
      30, 2008
                            
                            
                            June
      30, 2009
                            
                            
                            June
      30, 2008Condensed
      Statements of OperationsRevenues
                            
                            $
                            10,669
                            
                            
                            $
                            11,641
                            
                            
                            $
                            22,331
                            
                            
                            $
                            23,020Operating
      expense
                            
                            
                            (5,046
                            )
                            
                            
                            (5,589
                            )
                            
                            
                            (9,744
                            )
                            
                            
                            (11,726
                            )Interest
      expense
                            
                            
                            (2,999
                            )
                            
                            
                            (3,111
                            )
                            
                            
                            (5,963
                            )
                            
                            
                            (5,970
                            )Real
      estate taxes
                            
                            
                            (1,690
                            )
                            
                            
                            (1,733
                            )
                            
                            
                            (3,380
                            )
                            
                            
                            (3,465
                            )Depreciation
      and amortization
                            
                            
                            (2,417
                            )
                            
                            
                            (2,248
                            )
                            
                            
                            (4,833
                            )
                            
                            
                            (4,604
                            )Other
      expenses, net
                            
                            
                            (551
                            )
                            
                            
                            (498
                            )
                            
                            
                            (1,070
                            )
                            
                            
                            (946
                            )Loss
      from continuing operations
                            
                            
                            (2,034
                            )
                            
                            
                            (1,538
                            )
                            
                            
                            (2,659
                            )
                            
                            
                            (3,691
                            )Discontinued
      operationsIncome
      (loss) from discontinuedoperations
                            
                            
                            3,002
                            
                            
                            
                            352
                            
                            
                            
                            1,392
                            
                            
                            
                            (2,366
                            )Gain
      (loss) on sale of property
                            
                            
                            (1,119
                            )
                            
                            
                            9,389
                            
                            
                            
                            (1,119
                            )
                            
                            
                            12,733Income
      from discontinued operations
                            
                            
                            1,883
                            
                            
                            
                            9,037
                            
                            
                            
                            273
                            
                            
                            
                            10,367Net
      loss
                            
                            $
                            (151
                            )
                            
                            $
                            7,499
                            
                            
                            $
                            (2,386
                            )
                            
                            $
                            6,676On
      the Trust’s Consolidated Statementsof
      Operations and ComprehensiveIncome:Equity
      in earnings (loss) ofPreferred
      Equity Investment
                            
                            $
                            (3,209
                            )
                            
                            $
                            (912
                            )
                            
                            $
                            (2,194
                            )
                            
                            $
                            1,418
  23




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Discontinued
operations for 2009 includes the results of operations for the three Included
Properties in which the Trust transferred all of its interests effective May 1,
2009, the four Excluded Properties which are pending foreclosure and the
Lansing, Michigan property which was foreclosed on in May
2009.  Discontinued operations for 2008 also include the results of
operations for two additional properties which were sold during
2008.





8.
            Equity
      Investments





The
Trust’s equity investments at June 30, 2009 and December 31, 2008 are summarized
below (in thousands):





Lex-Win
                Concord
              
              
              Sealy
                Northwest
                Atlanta
              
              
              Sealy
                Airpark
                Nashville
              
              
              Sealy
                Newmarket
              
              
              Lex-Win
                Acquisition
              
              
              TotalBalance
      December 31, 2008
              
              $
              73,061
              
              
              $
              3,780
              
              
              $
              6,510
              
              
              $
              8,756
              
              
              $
              95
              
              
              $
              92,202Investments
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Distributions/capital
      returns
              
              
              -
              
              
              
              (134
              )
              
              
              (418
              )
              
              
              (113
              )
              
              
              -
              
              
              
              (665
              )Equity
      in other comprehensiveincome
              
              
              21,479
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              21,479Other
      comprehensive income reclassification
              
              
              4,695
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,695Equity
      in loss
              
              
              (99,235
              )
              
              
              (242
              )
              
              
              (572
              )
              
              
              (363
              )
              
              
              -
              
              
              
              (100,412
              )Balance
      June 30, 2009
              
              $
              -
              
              
              $
              3,404
              
              
              $
              5,520
              
              
              $
              8,280
              
              
              $
              95
              
              
              $
              17,299





Concord





General





In March
2006 the Trust together with Newkirk Realty Trust, Inc. (“Newkirk”) formed
Concord Debt Holdings, LLC (“Concord”) for the purpose of acquiring and
originating a diversified portfolio of real estate loans and
securities.  In connection with the merger of Newkirk into Lexington,
Lexington acquired Newkirk’s interest in Concord.  Both the Trust and
Lexington committed to invest $162,500,000 in Concord, all of which was
contributed as of June 30, 2009.





Lex-Win
Concord LLC (“Lex-Win Concord”) was created on August 2, 2008.  In
connection with the formation of Lex-Win Concord, both the Trust and Lexington
contributed to Lex-Win Concord their 50% interests in Concord and WRP Management
LLC (“WRP Management”), the entity that provides management services to Concord
Real Estate CDO 2006-1, Ltd. (“CDO-1”).  In conjunction with this
formation, the limited liability company agreement of Concord was amended and
restated to admit Inland America Concord Sub LLC (“Inland”) with a redeemable
preferred membership interest in Concord.  Inland has committed to
invest up to $100,000,000 in Concord over a 12-18 month period, subject to
certain conditions, of which $76,000,000 was contributed as of June 30,
2009.  Lex-Win Concord holds 100% of the common membership interests
in Concord and serves as its managing member.





Lex-Win
Concord has determined that, at the time of its formation and transfer of
interests from the Trust and Lexington to Lex-Win Concord, both Concord and
Lex-Win Concord were under the common control of the Trust and
Lexington.  Accordingly, Lex-Win Concord accounted for the formation
of and the related transfer of membership interests under the guidance of FASB
Statement No. 141, “Business
Combinations,”(“SFAS 141”) for entities under common
control.  Among other things, SFAS 141 requires that Lex-Win Concord,
as the entity receiving equity interests, initially recognize the assets and
liabilities at their carrying amounts at the date of transfer and report results
of operations as though the transfer occurred at the beginning of the
period.  In addition, SFAS 141 requires that financial statements for
prior years be restated to present comparative
information.  Accordingly, the results of operations presented herein
comprise those of Lex-Win Concord and Concord for the three and six months ended
June 30, 2009 and 2008.


24


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





With
respect to the Trust's investment in Lex-Win Concord, the Trust determined at
the time of formation  that Lex-Win Concord is not a VIE pursuant to
FIN 46(R). The Trust further evaluated its investment in Lex-Win Concord
pursuant to the requirements of EITF 04-5 and SOP 78-9, “ Accounting for Investments in Real
Estate Ventures,” ("SOP 78-9") and determined that it and Lexington share
equally in the control of Lex-Win Concord and in Concord's operations.
Accordingly, the Trust accounts for its investment under the equity
method.





At June
30, 2009, the Trust has responded to market trends, including accelerating CDO
and CMBS rating downgrades, increasing default probability assumptions, market
interest rate fluctuations, the short-term nature of Concord’s repurchase
agreement financing and an overall lack of clarity on future recovery of the
underlying collateral in these assets.  These factors along with the
recent failure by Inland American Real Estate Trust, Inc. (“Inland”) to make its
capital call, the litigation initiated by Inland, the expectation that there
will not be any distributions received in the near term and the non-controlling
nature of the Trust’s investment in Lex-Win have resulted in the Trust’s
determination that an other-than-temporary-impairment exists and an additional
impairment related to its investment in Concord was warranted in the second
quarter.  The aggregate impairments consist of both a proportionate
share of Concord’s operating losses plus a decline in the fair value that
management has assigned to the remaining equity in the investment. The Trust
determined the fair value of its investment in Lex-Win by calculating its share
of net asset value, as adjusted for various risks.  The fair value of
Lex-Win’s assets and liabilities was determined using the income approach based
upon the expected future cash flows of each asset and liability discounted at
market rates of return in accordance with SFAS 157. Accordingly,
the Trust recognized an impairment loss of $31,670,000.





On
December 31, 2008, the Trust and Lexington each advanced proceeds of $5,000,000
to Lex-Win Concord pursuant to short-term demand notes bearing interest at
1.36%.  These notes were subsequently repaid to each of the Trust and
Lexington in January 2009.





Litigation





On May
22, 2009, Inland American (Concord) Sub, LLC (“Inland-Concord”), a wholly-owned
subsidiary of Inland filed an action in the Delaware Chancery Court against
Lex-Win Concord and Concord, seeking (i) reformation of the Second Amended and
Restated Limited Liability Company Joint Venture Agreement (the “Joint Venture
Agreement”) of Concord to modify the provision relating to distributions of
proceeds from capital transactions, (ii) a declaration that Inland Sub is not
required to make any additional capital contributions for the purpose of
satisfying amounts due to Concord’s lenders under certain of its existing credit
facilities (the “Credit Facilities”), and (iii) a declaration that Inland Sub
not be required to satisfy the May 11, 2009 capital call (the “Capital Call”)
made by Concord in the amount of $24,000,000 the proceeds of which are to be
used for “Permitted Investments” (as defined in the Joint Venture
Agreement).  The Trust believes that the language of the Joint Venture
Agreement speaks for itself with respect to Inland Concord’s claims and that
Inland’s action is without merit.  Lex-Win filed its answer with the
Chancery Court of the State of Delaware in this action on July 21, 2009 denying
the claims raised by Inland Concord and bringing counterclaims seeking
declaration that (i) Inland Concord is required to fund the Capital Call, (ii)
Concord can recoup the unmade Capital Call by setting it off against any
distributions otherwise payable to Inland Concord, and (iii) Inland Concord’s
failure to fund the Capital Call is a material breach of the Joint Venture
Agreement and that Lex-Win will seek to recover all losses incurred by it as a
result of such breach.




With
respect to one of the loans that is held by Concord, there is a future funding
obligation relating to tenant improvements, leasing commissions and debt service
payments totaling approximately $8,100,000 (the “Future Funding Amount”). 
The Future Funding Amount was to have been forwarded on June 19, 2009. 
However, Concord is disputing its obligation to fund the Future Funding Amount
due to alleged breaches of the loan documents by the borrower and the
guarantor.  In this regard, Concord has brought an action in California
State Court seeking, among other things, declaratory relief as to whether
Concord is required to fund the Future Funding Amount.


25


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Loan
Securities





Concord
has a portfolio of loan securities which includes investments in CDO
securities, CMBS, and rake bonds. Such bonds are accounted for as available for
sale securities and, accordingly, are marked to market on a quarterly basis
based upon management’s assessment of fair value.





In April
2009, as a result of the issuance of FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments” (“FSP FAS 115-2”), recognition guidance for
other-than-temporary impairments (“OTTI”) of debt securities was
amended.  The FSP requires the difference between the amortized cost
basis and fair value on debt securities that Concord intends to sell or would
more-likely-than-not be required to sell before the expected recovery of the
amortized costs basis be recognized in Concord’s consolidated statement of
income.  For available for sale and held to maturity debt securities
that Concord has no intent to sell and believes that it is not
more-likely-than-not it will be required to be sold prior to recovery, only the
credit loss component of the impairment is recognized in earnings, while the
rest of the fair value loss is recognized in Accumulated Other Comprehensive
Income.  The difference between the present value of the cash flow
expected to be collected and the amortized cost basis is the credit
loss.  The cumulative effect of the adoption of the FSP included an
increase in the opening balance of members’ capital and a reduction in other
comprehensive income at April 1, 2009 of $23,294,000.





Due to
the persistent lack of liquidity in the credit markets over the past two years,
Concord experienced continued declines in the fair value of its available for
sale securities.  Through December 31, 2008, Concord had recorded
other-than-temporary impairment on its loan securities of
$84,860,000.  Management has identified additional declines in fair
value of $12,856,000 on its loan securities for the quarter ended June 30,
2009.  Based on its analysis of FSP FAS 115-2, Concord has recognized
an impairment loss of $7,674,000 for the three months ended June 30,
2009.  The remaining decline of $5,182,000 is considered temporary and
such amounts have been included in other comprehensive
income.  Concord has recognized $8,555,000 of other-than-temporary
impairment losses and $7,232,000 of temporary impairment charges for the six
months ended June 30, 2009.




Concord
recognizes income on its portfolio of loan securities in accordance with EITF
99-20, “Recognition of
Interest Income and Impairment on Purchased Beneficial Interests and Beneficial
Interests That Continue to Be Held by a Transferor in Securitized Financial
Assets,” ("EITF 99-20") and FASB Staff Position EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20”(“FSP 99-20-1”).  Subject to
various requirements, discounts attributable to previously recognized
other-than-temporary impairment charges are recognized in interest income on the
effective interest method based upon the excess of all estimated prospective
cash flows over the investment balance in the loan security at the measurement
date.  For these securities, Concord will accrete the impairment
discount over the remaining life of the securities using the effective interest
method, resulting in income recognition of $478,000 and $1,117,000 for the three
and six months ended June 30, 2009, respectively.  Concord did not
recognize in earnings any material amounts relating to the accretion of
other-than-temporary impairment charges for the three and six months ended June
30, 2008.





Real Estate Debt
Investments





Concord
has historically considered its real estate debt investments as held to
maturity.  Such investments are recorded at cost.  Discounts
and premiums on purchased assets are amortized over the life of the investment
using the effective interest method.  The amortization is reflected as
an adjustment to interest income.  Other costs incurred in connection
with acquiring loans, such as marketing and administrative costs, are charged to
expense as incurred.





Concord
considers a real estate debt investment (“loan”) impaired when, based upon
current information and events, it is probable that it will be unable to collect
all amounts due for both principal and interest according to the contractual
terms of the loan agreement. Concord recognizes loan impairments in accordance
with the guidance under SFAS No. 114, “Accounting By Creditors For
Impairment of a Loan,”(“SFAS 114”)which requires that a
creditor recognize impairment of a loan if the present value of expected future
cash flows discounted at the loan's effective interest rate or, alternatively,
the observable market price of the loan or the fair value of the collateral is
less than the recorded investment in the loan.  Concord believes its
loans are collateral dependent and, accordingly, utilizes the fair value of the
loan collateral when assessing its loans for impairment.  If the fair
value of the collateral is equal to or greater than the recorded investment in
the loan, no impairment is recognized.  Specific valuation allowances
are established for impaired loans based on the fair value of collateral on an
individual loan basis. The fair value of the collateral is determined by
selecting the most appropriate valuation methodology. The methodologies include
the evaluation of operating cash flow from the collateral during the projected
holding period and the estimated sales value of the collateral computed by
applying an expectedcapitalization rate to the
stabilized net operating income of the specific property, less selling costs,
discounted at market discount rates.


26


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





If upon
completion of the valuation, the fair value of the underlying collateral
securing the impaired loan is less than the net carrying value of the loan, a
loss contingency is created with a corresponding charge to the provision for
loan losses. The loss contingency for each loan is maintained at a level
believed adequate to absorb probable losses.





In
addition, an unallocated loss contingency is established to cover performing
loans and loan losses are recorded when (i) available information indicates that
it is probable a loss has occurred in the portfolio and (ii) the amount of the
loss can be reasonably estimated in accordance with SFAS No. 5, “Accounting for Contingencies”
(“SFAS 5”). Required loss contingency balances for the performing loan portfolio
are derived from probabilities of principal loss and loss given default
estimates assigned to the portfolio as part of Concord’s quarterly internal risk
rating assessment. Probabilities of principal loss and severity factors are
based on industry and/or internal experience and may be adjusted for significant
factors that, based on management’s judgment, impact the collectability of the
loans. Pursuant to SFAS 114 and SFAS 5, Concord recognized a provision for loan
losses for the three and six months ended June 30, 2009 of $41,192,000 and
$43,692,000, respectively, increasing the loss contingency on real estate debt
investments to $74,405,000 at June 30, 2009.  Concord recognized a
loan loss provision of $2,200,000 for the three and six months ended June 30,
2008.





In March
2009 Concord received an approximate $35,000,000 margin call from Column
Financial, Inc. (“Column”).  On April 14, 2009, Concord restructured
its repurchase agreement with Column such that (i) no additional loans may be
obtained under the facility, (ii) Column withdrew its March 2009 margin call and
is not permitted to make a margin call except in a limited instance until March
31, 2010, (iii) the agreement terminates on December 31, 2010, and (iv) Concord
is required to maintain certain financial ratios.  The modification
also required Concord to reduce the outstanding loan balance by $10,700,000 in
April 2009 and by an additional $47,500,000 by May 31,
2009.  Additionally, Concord must reduce the outstanding balance under
the repurchase agreement to $80,000,000 by September 30, 2009 and to $60,000,000
by December 31, 2009.  In order to comply with the required reductions
of the outstanding balance, Concord has sold and expects to sell certain assets
pledged under the Column agreement.  Accordingly, Concord identified
eight loans to be sold.  In accordance with Financial Accounting
Standards No. 65, “Accounting
For Certain Mortgage Banking Activities,” Concord has reported these
loans as held for sale at the lower of cost or fair value and has recorded an
impairment loss on real estate debt investments held for sale of $27,505,000 and
$64,413,000 during the three and six months ended June 30, 2009,
respectively.





During
April 2009, in conjunction with the restructuring of its repurchase agreement,
Concord sold a real estate debt investment with an adjusted carrying value of
$10,700,000 for $10,677,000 and recognized a loss of $23,000.  The net
proceeds of $10,677,000 from the sale were used to reduce the amount due on the
Column repurchase agreement.





On June
1, 2009, Concord sold to the Trust two real estate debt investments with an
adjusted carrying value of $61,516,000 for $45,019,000 and recognized a loss of
$16,497,000.  The net proceeds from the sale of $45,019,000 went to
pay down the Column facility.   As of June 30, 2009 Concord has
six loans classified as real estate debt investments held for sale with a fair
value of $79,906,000.





In July
2009 Concord sold a real estate debt investment with an adjusted carrying value
of $17,000,000 for $16,985,000 and will recognize a loss of
$15,000.  The net proceeds of $16,985,000 went to pay down the Column
facility.






27


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Summary
financial information of Lex-Win Concord is as follows (in
thousands):





As
      of
                          June
      30, 2009
                        
                        
                        As
      of
                          December
      31, 2008Condensed
      Consolidated Balance SheetsCash
      and restricted cash
                        
                        $
                        5,067
                        
                        
                        $
                        15,134Real
      estate debt investments, net of loss contingencies
                        
                        
                        606,192
                        
                        
                        
                        863,144Real
      estate debt investments held for sale
                        
                        
                        79,906
                        
                        
                        
                        -Available
      for sale securities, net
                        
                        
                        107,399
                        
                        
                        
                        118,491Other
      assets
                        
                        
                        8,387
                        
                        
                        
                        10,353Total
      assets
                        
                        $
                        806,951
                        
                        
                        $
                        1,007,122Repurchase
      agreements
                        
                        $
                        184,192
                        
                        
                        $
                        240,604Revolving
      credit facility
                        
                        
                        79,300
                        
                        
                        
                        80,000Collateralized
      debt obligations
                        
                        
                        347,525
                        
                        
                        
                        347,525Contingent
      collateral support obligation
                        
                        
                        9,600
                        
                        
                        
                        -Accounts
      payable and other liabilities
                        
                        
                        22,620
                        
                        
                        
                        43,230Non-controlling
      redeemable preferred interest
                        
                        
                        36,570
                        
                        
                        
                        76,441Members’
      capital
                        
                        
                        136,426
                        
                        
                        
                        248,262Accumulated
      other comprehensive loss
                        
                        
                        (9,390
                        )
                        
                        
                        (29,054
                        )Non-controlling
      interest
                        
                        
                        108
                        
                        
                        
                        114Total
      liabilities and members’ capital
                        
                        $
                        806,951
                        
                        
                        $
                        1,007,122On
      the Trust’s Consolidated Balance Sheets:Equity
      investment in venture
                        
                        $
                        -
                        
                        
                        $
                        73,061





For
      the Three Months Ended
                  
                  
                  For
      the Six Months EndedJune
      30, 2009
                  
                  
                  June
      30, 2008
                  
                  
                  June
      30, 2009
                  
                  
                  June
      30, 2008Condensed
      Consolidated Statement of OperationsInterest
      and other income
                  
                  $
                  10,227
                  
                  
                  $
                  17,170
                  
                  
                  $
                  22,775
                  
                  
                  $
                  37,209Interest
      expense
                  
                  
                  (4,226
                  )
                  
                  
                  (7,958
                  )
                  
                  
                  (8,858
                  )
                  
                  
                  (18,811
                  )Impairment
      loss on available forsale
      securities
                  
                  
                  (7,674
                  )
                  
                  
                  (50,438
                  )
                  
                  
                  (8,555
                  )
                  
                  
                  (55,816
                  )Provision
      for loss contingencies on realestate
      debt investments
                  
                  
                  (41,192
                  )
                  
                  
                  (2,200
                  )
                  
                  
                  (43,692
                  )
                  
                  
                  (2,200
                  )Impairment
      loss on real estate debtinvestments
      held for sale
                  
                  
                  (27,505
                  )
                  
                  
                  -
                  
                  
                  
                  (64,413
                  )
                  
                  
                  -Gain
      on extinguishment of debt
                  
                  
                  -
                  
                  
                  
                  2,552
                  
                  
                  
                  -
                  
                  
                  
                  7,702Realized
      loss on sale ofinvestments
      held for sale
                  
                  
                  (16,520
                  )
                  
                  
                  -
                  
                  
                  
                  (16,520
                  )
                  
                  
                  -Collateral
      support agreement obligation
                  
                  
                  (9,600
                  )
                  
                  
                  -
                  
                  
                  
                  (9,600
                  )
                  
                  
                  -General
      and administrative
                  
                  
                  (1,381
                  )
                  
                  
                  (983
                  )
                  
                  
                  (2,492
                  )
                  
                  
                  (1,791
                  )Consolidated
      net loss
                  
                  
                  (97,871
                  )
                  
                  
                  (41,857
                  )
                  
                  
                  (131,355
                  )
                  
                  
                  (33,707
                  )Income
      attributable to non-controlling
                    redeemable
      preferred interest
                  
                  
                  (1,895
                  )
                  
                  
                  -
                  
                  
                  
                  (3,769
                  )
                  
                  
                  -Income
      attributable to non-controllinginterest
                  
                  
                  (3
                  )
                  
                  
                  (6
                  )
                  
                  
                  (6
                  )
                  
                  
                  (6
                  )Net
      loss attributable to Lex-Win Concord
                  
                  $
                  (99,769
                  )
                  
                  $
                  (41,863
                  )
                  
                  $
                  (135,130
                  )
                  
                  $
                  (33,713
                  )Equity
      in loss of equity investment
                  
                  $
                  (49,884
                  )
                  
                  $
                  (20,933
                  )
                  
                  $
                  (67,565
                  )
                  
                  $
                  (16,857
                  )Other-than-temporary
      impairment
                  
                  
                  (31,670
                  )
                  
                  
                  -
                  
                  
                  
                  (31,670
                  )
                  
                  
                  -On
      the Trust’s Consolidated Statementof
      Operations and ComprehensiveIncome
                  
                  $
                  (81,554
                  )
                  
                  $
                  (20,933
                  )
                  
                  $
                  (99,235
                  )
                  
                  $
                  (16,857
                  )


28


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





The net
income attributable to the non-controlling redeemable preferred interest of
$3,769,000 for the six months ended June 30, 2009 consists of Inland’s 10%
preferred interest allocation.





In June
2008, Concord purchased $4,200,000 of its CDO-1 notes, at a discount, for
$1,648,000 and recognized a gain on the extinguishment of debt totaling
$2,552,000.





On March
31, 2008, Concord purchased from the Trust $10,000,000 of its CDO-1 notes at a
discount for $4,850,000 and recognized a gain, net of deferred costs, on the
extinguishment of debt totaling $5,150,000 after writing off a pro-rata share of
deferred financing costs.  The Trust had purchased the debt from an
unaffiliated third party for $4,850,000 on March 24, 2008.





Information
pertaining to Concord’s credit facilities collateralized by the real estate debt
investments and available for sale securities as of June 30, 2009 and December
31, 2008 is as follows (in thousands):




June
      30, 2009
                      
                      
                      December
      31, 2008Debt
                        Carrying
                        Value
                      
                      
                      Collateral
                        Carrying
                        Value
      (3)
                      
                      
                      Debt
                        Carrying
                        Value
                      
                      
                      Collateral
                        Carrying
                        Value(3)(in
      thousands)Royal
      Bank of Scotland, PLC, successor in interest to Greenwich Capital
      Financial Products, Inc., matures on February 1, 2012, interest is
      variable based on 1-month LIBOR rate plus 1%; 1.32% and 2.04% at June 30,
      2009 and December 31, 2008, respectively.
                      
                      $
                      59,613
                      
                      
                      $
                      71,530
                      
                      
                      $
                      59,613
                      
                      
                      $
                      71,417Royal
      Bank of Scotland, PLC, successor in interest to Greenwich Capital
      Financial Products, Inc., matures on December 15, 2009, interest is
      variable based on 1-month LIBOR rate plus 1%; 1.32% and 1.51% at June 30,
      2009 and December 31, 2008, respectively.
                      
                      
                      21,516
                      
                      
                      
                      32,952
                      
                      
                      
                      21,516
                      
                      
                      
                      36,452Column
      Financial, Inc., variable interest based on 1-month LIBOR plus 1%, the
      rate was 1.47% at December 31, 2008. (1)
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      15,000
                      
                      
                      
                      25,880Column
      Financial, Inc., expiration December 31, 2010, interest is variable based
      on 1-month LIBOR plus 0.85% to 1.35%, the weighted average was 1.35%, and
      1.49% at June 30, 2009 and December 31, 2008, respectively.
      (2)
                      
                      
                      103,063
                      
                      
                      
                      141,138
                      
                      
                      
                      144,475
                      
                      
                      
                      261,981Total
      repurchase agreements
                      
                      $
                      184,192
                      
                      
                      $
                      245,620
                      
                      
                      $
                      240,604
                      
                      
                      $
                      395,730


29


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





(1)
            In
      February 2009 the repurchase agreement was terminated and the asset which
      was subject to this repurchase agreement was added to the Column multiple
      loan asset repurchase agreement.  The Column multiple loan asset
      repurchase agreement was modified to provide that the interest rate,
      maturity date and advance rate, with respect to the asset added to the
      multiple loan asset repurchase facility, would remain as it was under the
      specific repurchase agreement.


(2)
            On
      April 14, 2009, the multiple loan asset repurchase agreement was modified
      as discussed above.


(3)
            Collateral
      carrying value equals face value less bond discounts, unrealized losses
      and other-than-temporary impairment losses and increased by premiums and
      unrealized gains.





Repurchase
Facilities





Under the
terms of the repurchase facility with Column, Concord was required to maintain
minimum liquidity, comprised of cash and cash equivalents, of at least
$10,000,000 at all times.  At certain times during the year ended
December 31, 2008 and at certain times during the three months ended March 31,
2009, Concord’s cash balance declined to an amount below the $10,000,000 minimum
liquidity requirements.  In February 2009 this requirement was
eliminated from the Column repurchase facility and Concord’s prior failure to
comply was waived.








Under the
repurchase facilities with Royal Bank of Scotland PLC (“RBS”),
Concord has a similar $10,000,000 minimum liquidity requirement.  In
February 2009 Concord received a waiver of the covenant violation from the Royal
Bank of Scotland through December 31, 2009.




During
the quarter ended June 30, 2009 the RBS repurchase facility required Concord to
maintain a minimum net worth and a maximum indebtedness to tangible net worth.
For the quarter ended June 30, 3009, Concord was in default of its agreement as
it failed the covenant tests. In July, RBS agreed to restructure its agreement
with Concord. The new provisions include i) extending the maturity to January
2011 ii) waiving the going concern opinion iii) reducing the net worth
requirement to $100 million and iv) suspending the leverage and liquidity
covenant until March 31, 2010. The restructuring of the agreement requires
Concord to reduce the outstanding balance by $11,500,000.  The payment
to reduce the outstanding balance was made on July 31, 2009 as a result of
Concord selling a real estate debt investment.




KeyBank
Credit Facility





On March
7, 2008 Concord entered into a $100,000,000 secured revolving credit facility
with KeyBank National Association (“KeyBank”).  The credit facility
enables Concord to finance existing unlevered assets as well as new assets
acquired by Concord.  The initial maximum aggregate borrowing under
the loan is $100,000,000.  Borrowings under the facility bear interest
at spreads over LIBOR ranging from 1.75% to 2.25%, depending on the underlying
loan asset or loan security for which such borrowing is made.  At June
30, 2009, the outstanding balance was $79,300,000 with a weighted average
interest rate of 2.51%, and the carrying value of loan assets and loan
securities securing the facility was approximately $132,131,000.  The
facility matures March 2010 subject to a one-year extension.  On July
24, 2009, Concord paid down $2,000,000 on the outstanding balance.





Under the
terms of the line of credit facility with KeyBank, Concord is required to
maintain minimum liquidity, comprised of cash and cash equivalents, of at least
$10,000,000 at all times.  At certain times during the year ended
December 31, 2008 and at certain times during the three months ended March 31,
2009, Concord’s cash balances declined to an amount below the $10,000,000
liquidity requirements.  On February 24, 2009 Concord received from
KeyBank a waiver of the covenant violation through December 31,
2009.





Additionally,
during the quarter ended June 30, 2009, KeyBank required Concord to maintain a
minimum tangible net worth and a maximum indebtedness to tangible net
worth.  For the quarter ended June 30, 2009, Concord was in default as
it failed the covenant tests.


30


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Collateralized
Debt Obligations





The
following table outlines borrowings under CDO-1’s collateralized debt
obligations as of June 30, 2009 and December 31, 2008 (in
thousands):





June
      30, 2009
                
                
                December
      31, 2008Debt
                  Outstanding
                
                
                Weighted-
                  Average
                  Interest
      Rate
                
                
                Collateral
                  Par
      Value
                
                
                Debt
                  Outstanding
                
                
                Weighted-
                  Average
                  Interest
      Rate
                
                
                Collateral
                  Par
      ValueCDO-1
      – Issued seven investmentgrade
      tranches on December 21,2006.
      Reinvestment period through December 21, 2011. Matures on December
      21, 2016. Interest rate variable based on one-month
    LIBOR
                
                $
                347,525
                
                
                
                0.795
                %
                
                $
                464,462
                
                
                $
                347,525
                
                
                
                0.95
                %
                
                $
                464,831





9.
              Debt





Mortgage Loans
Payable





The Trust
had outstanding mortgage loans payable of $226,655,000 and $229,737,000 at June
30, 2009 and December 31, 2008, respectively.  The mortgage loan
payments of principal and interest are generally due monthly, quarterly or
semi-annually and are collateralized by applicable real estate of the
Trust.





The
Trust’s mortgage loans payable at June 30, 2009 and December 31, 2008 are
summarized as follows (in thousands):





Maturity
                        
                        Spread
      Over
                          LIBOR/Prime
                        
                        
                        Interest
      Rate at
                          June 30, 2009
                        
                        
                        Balance
      at
                          June 30, 2009
                        
                        
                        Balance
      at
                          December 31, 2008Fixed Interest Rate:Amherst,
      NY
                        
                        October
      2013
                        
                        
                        —
                        
                        
                        
                        5.65
                        %
                        
                        $
                        16,721
                        
                        
                        $
                        16,913Indianapolis,
      IN
                        
                        April  2015
                        
                        
                        —
                        
                        
                        
                        5.82
                        %
                        
                        
                        4,351
                        
                        
                        
                        4,384Houston,
      TX
                        
                        April
      2016
                        
                        
                        —
                        
                        
                        
                        6.43
                        %
                        
                        
                        65,490
                        
                        
                        
                        67,009Andover,
      MA
                        
                        February
      2011
                        
                        
                        —
                        
                        
                        
                        6.60
                        %
                        
                        
                        6,328
                        
                        
                        
                        6,389S.
      Burlington, VT
                        
                        February
      2011
                        
                        
                        —
                        
                        
                        
                        6.60
                        %
                        
                        
                        2,712
                        
                        
                        
                        2,738Chicago,
      IL
                        
                        March
      2016
                        
                        
                        —
                        
                        
                        
                        5.75
                        %
                        
                        
                        21,275
                        
                        
                        
                        21,391Lisle,
      IL
                        
                        June
      2016
                        
                        
                        —
                        
                        
                        
                        6.26
                        %
                        
                        
                        24,310
                        
                        
                        
                        24,452Lisle,
      IL
                        
                        March
      2017
                        
                        
                        —
                        
                        
                        
                        5.55
                        %
                        
                        
                        5,600
                        
                        
                        
                        5,600Kansas
      City, KS
                        
                        June
      2012
                        
                        
                        —
                        
                        
                        
                        7.04
                        %
                        
                        
                        6,817
                        
                        
                        
                        6,768Orlando,
      FL
                        
                        July
      2017
                        
                        
                        —
                        
                        
                        
                        6.40
                        %
                        
                        
                        39,379
                        
                        
                        
                        39,610Chicago,
      IL
                        
                        March
      2010
                        
                        
                        —
                        
                        
                        
                        6.00
                        %
                        
                        
                        9,300
                        
                        
                        
                        9,500Variable Interest Rate:Various
      (1)
                        
                        June
      2010
                        
                        LIBOR+1.75%
                        
                        
                        
                        (2
                        )
                        
                        
                        24,372
                        
                        
                        
                        24,983$
                        226,655
                        
                        
                        $
                        229,737





(1)
            The
      Trust received a one-year extension to June 30, 2010.  The loan
      payable to Keybank is collateralized by 14 properties and the Trust has
      one remaining one-year option to extend this
  loan.


31


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





(2)
            The
      Trust entered into an interest rate swap agreement in the notional amount
      of $26,000, effectively converting the floating interest rate to a fixed
      rate of 5.8% through December 2009.  At June 30, 2009 the
      principal balance is covered by the swap
  agreement.





The fair
value of the Trust’s mortgage loans payable are less than their current carrying
amounts by $32,298,000 at June 30, 2009 and exceeded their current carrying
amounts by $789,000 at December 31, 2008.





Note
Payable





At
December 31, 2008, the Trust had a $9,800,000 note payable to Citibank, bearing
interest at LIBOR plus 2.5% and maturing in December 2011.  The loan
was made in connection with the Trust’s purchase during 2008 of 3,500,000 common
shares of Lexington, and was repaid in March 2009.





10.
            Revolving
      Line of Credit




The Trust
has a line of credit with KeyBank pursuant to which the Trust can borrow on a
revolving basis up to $35,000,000.  The revolving credit line matures
December 16, 2010 with the option by the Trust to extend the term for an
additional year.  Amounts borrowed under the credit facility bear
interest at LIBOR plus 3.0%.  To the extent the Trust maintains cash
balances at KeyBank in excess of a certain threshold, the interest rate is
reduced to LIBOR plus 2.25%.  During the quarter ended June 30, 2009,
the Trust borrowed and repaid the full $35,000,000 available under the
line.  There were no advances outstanding under the line as of June
30, 2009.  The Trust is required to pay a commitment fee on the unused
portion of the line, which amounted to approximately $16,000 and $38,000 for the
three and six months ended June 30, 2009, respectively, and $44,000 and $88,000
for the three and six months ended June 30, 2008, respectively.




The
revolving line of credit requires the Trust to maintain (i) a minimum
consolidated debt service coverage ratio, (ii) a maximum leverage ratio, (iii)
liquid assets of $17,500,000 and (iv) a minimum net worth.  The
revolving credit line is secured by substantially all of the Trust’s
assets.  The revolving credit line requires monthly payments of
interest only.  To the extent that the amounts outstanding under the
facility are in excess of the borrowing base (as calculated), the Trust is
required to make a principal payment to reduce such excess. The Trust may prepay
from time to time without premium or penalty and re-borrow amounts
prepaid.  As a result of the Trust’s repurchase of Series B-1
Preferred Shares and the impairment charges taken by the Trust on its investment
in Lex-Win Concord, the Trust does not currently meet the net worth covenant as
defined under the line of credit and, consequently, is currently not eligible to
borrow under the line.  At June 30, 2009 and December 31, 2008, there
were no amounts outstanding under the facility.




11.       Derivative Financial
Instruments





The Trust
has exposure to fluctuations in market interest rates.  The Trust
seeks to limit its risk to interest rate fluctuations through match financing on
our assets as well as through hedging transactions.  Specifically, the
Trust enters into derivative financial instruments.





The
Trust’s objective in using interest rate derivatives is to add stability to
interest expense and to manage its exposure to interest rate
movements.  To accomplish this objective, the Trust primarily uses
interest rate swaps as part of its interest rate risk management
strategy.  Interest rate swaps designated as cash flow hedges involve
the receipt of variable rate amounts from a counterparty in exchange for the
Trust making fixed-rate payments over the life of the agreements without
exchange of the underlying notional amount.


32


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





The
effective portion of changes in fair value of the interest rate swap designated
and that qualifies as a cash flow hedge is recorded in Accumulated Other
Comprehensive Income and is subsequently reclassified into earnings in the
period that the hedged forecasted transaction affects
earnings.  During the three and six months ended June 30, 2009 and
2008, the interest rate swap was used to hedge the variable cash flows
associated with existing variable-rate debt.  The Trust also assesses
and documents, both at the hedging instruments inception and on an ongoing
basis, whether the derivative instrument is highly effective in achieving
offsetting changes in the cash flows attributable to the hedged
item.  The Trust has recorded changes in fair value related to the
effective portion of its interest rate swap contract designated and qualifying
as cash flow hedges totaling $165,000 and $341,000 of increased interest expense
for the three and six months ended June 30, 2009, respectively, and $439,000 of
increased interest expense for the three months ended June 30, 2008 and $144,000
of decreased interest expense for the six months ended June 30, 2008, as a
component of other liabilities and accumulated other comprehensive loss within
the Trust’s consolidated balance sheets.





Effective
June 24, 2009, the Trust entered into an interest rate swap agreement, with a
notional amount of $23,000,000, which will commence January 1, 2010 at the
expiration of the existing swap and will cover the balance of the terms through
current maturity on the KeyBank loan which is collateralized by various
properties.





The table
below presents information about the Trust’s interest rate swaps at June 30,
2009 (dollars in thousands):




Maturity
                  
                  Swap
                    Rate
                  
                  
                  Notional
                    Amount
                    of
      Hedge
                  
                  
                  Cost
                    of
                    Hedge
                  
                  
                  Estimated
      Fair
                    Value
      of
                    Swap
      in Other
                    Comprehensive
                    Income
                  
                  
                  UnrealizedGain
                    on
      SettledSwap
                    in
      Other
                    Comprehensive
                    Income
                  
                  
                  Change
      in Swap
                    ValuationsIncludedin
                    OtherComprehensive
                    Income
                    For
      the ThreeMonths
                    Ended
      June 30,2009
                  
                  
                  Change
      in Swap
                    Valuations
      Includedin
                    OtherComprehensive
                    Income
                    For
      the Six Months
                    Ended
      June 30,2009December
      2009
                  
                  
                  4.05
                  %
                  
                  $
                  26,000
                  (1)
                  
                  $
                  -
                  
                  
                  $
                  (398
                  )
                  
                  $
                  63
                  
                  
                  $
                  127
                  
                  
                  $
                  265June
      2010
                  
                  
                  1.05
                  %
                  
                  $
                  23,000
                  (2)
                  
                  $
                  -
                  
                  
                  $
                  (26
                  )
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -




(1)
            Represents
      a swap agreement related to the variable interest rate loan collateralized
      by various properties.


(2)
            In
      connection with the Finova portfolio loan extension, the Trust was
      required to provide interest rate protection through the maturity of the
      extension (June 30, 2010).  The Trust obtained an interest rate
      swap with a $23,000,000 notional amount that will effectively convert
      the  interest rate on the KeyBank note payable from a floating
      rate of LIBOR plus 1.75% to a fixed rate of
  1.80%.





12.
              Series
      B-1 Preferred Shares





In
January 2009the
Trustacquired
917,105 Series B-1 Preferred Shares at a discount from their liquidation value
of $25 per share.  As a result, the Trust recorded a gain from the
early extinguishment of debt of approximately $5,237,000 for the three months
ended March 31, 2009.





In July
2009 the Trust acquired 100,000 Series B-1 Preferred Shares at a discount from
their liquidation value of $25 per share.  As a result, the Trust will
recognize a gain from the early extinguishment of debt of approximately $444,000
in the third quarter.





As of
August 1, 2009, there are 1,396,000 Series B-1 Preferred Shares
outstanding.





13.
              Common
      Shares





The
following table sets forth information relating to sales of Common Shares during
the six months ended June 30, 2009:





Date of Issuance
              
              Number of Shares Issued
              
              Price per Share
              
              Type of Offering1/15/09
              
              61,292
              
              $10.85
              
              DRIP(1)4/15/09
              
              7,462
              
              $8.27
              
              DRIP





(1)         The
Trust’s Dividend Reinvestment and Stock Purchase Plan.


33


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





14.
            Discontinued
      Operations





In
December 2008 the Trust sold a shopping center asset located in Biloxi,
Mississippi aggregating approximately 51,000 square feet for a net sales price
to the Trust of approximately $2,678,000.  The Trust recorded a
$1,807,000 gain on the sale and the results of operations of this property are
classified as discontinued operations for the three and six months ended June
30, 2008.


On August
8, 2008 a petition for the condemnation of a shopping center asset located in
St. Louis, Missouri aggregating 46,000 square feet was dismissed by a Missouri
Court.  As a result, the operations for this property, previously
classified as discontinued operations, are now classified as income from
continuing operations for the three and six months ended June 30, 2008 and
2009.





15.
              Commitment
      and Contingencies




The Trust
is involved from time to time in litigation on various matters, including
disputes with tenants and disputes arising out of agreements to purchase or sell
properties.  Given the nature of the Trust’s business activities,
these lawsuits are considered routine to the conduct of its
business.  The result of any particular lawsuit cannot be predicted
because of the very nature of litigation, the litigation process and its
adversarial nature, and the jury system.  The Trust does not expect
that the liabilities, if any, that may ultimately result from such legal actions
will have a material adverse effect other than previously disclosed
in the consolidated financial statements.




16.
              Related-Party
      Transactions





The
following table sets forth the fees and reimbursements paid by the Trust for the
three and six months ended June 30, 2009 and 2008 to FUR Advisors and Winthrop
Management L.P. (in thousands):





For
      the Three Months Ended
                  
                  
                  For
      the Six Months Ended2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Asset
      management (1)
                  
                  $
                  791
                  (3)
                  
                  $
                  1,388
                  (4)
                  
                  $
                  1,572
                  (5)
                  
                  $
                  2,711
                  (6)Property
      management (2)
                  
                  
                  73
                  
                  
                  
                  65
                  
                  
                  
                  140
                  
                  
                  
                  126Construction
      management (2)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  3
                  
                  
                  
                  -$
                  864
                  
                  
                  $
                  1,453
                  
                  
                  $
                  1,715
                  
                  
                  $
                  2,837





(1)
            Payable
      to FUR Advisors.


(2)
            Payable
      to Winthrop Management L.P.


(3)
            Before
      credits of $68, discussed below.


(4)
            Before
      credits of $63, discussed below.


(5)
            Before
      credits of $137, discussed below.


(6)
            Before
      credits of $125, discussed below.





FUR
Advisors





The
activities of the Trust and its subsidiaries are administered by FUR Advisors
LLC (“FUR Advisors”) pursuant to the terms of the Advisory Agreement between the
Trust and FUR Advisors.  FUR Advisors is controlled by and partially
owned by the executive officers of the Trust. Pursuant to the terms of the
Advisory Agreement, FUR  Advisors is responsible for providing asset
management services to the Trust and coordinating with the Trust’s shareholder
transfer agent and property managers.  FUR Advisors is entitled to
receive a base management fee and an incentive fee.  In addition, FUR
Advisors or its affiliate is also entitled to receive property and construction
management fees.


34


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Base
Management Fee





In March
2009 the base management fee was modified effective as of January 1,
2009.  As modified, the asset based fee calculation has been
eliminated and the equity based fee is based on a price of $11.00 per Common
Share outstanding at January 1, 2009 and $25.00 per Series B-1 Preferred Share
with respect to the 1,496,000 Series B-1 Preferred Shares outstanding after
giving effect to the repurchases of Series B-1 Preferred Shares during the
fourth quarter of 2008 and the first quarter of 2009.  Any additional
future conversions, redemptions or repurchases of the Series B-1 Preferred
Shares, such as the repurchase of the 100,000 Series B-1 Preferred Shares in
July 2009, will not reduce the base equity for purposes of the base management
fee calculation.  Any future issuances of Common Shares or preferred
shares will increase the equity as per the existing agreement for purposes of
the base management fee calculation.





Incentive
Fee





The
incentive fee entitles FUR Advisors to receive (a) an amount equal to 20% of all
distributions paid to beneficiaries of Common Shares after December 31, 2003 in
excess of the Threshold Amount, hereinafter defined, and, (b) upon the
termination of the Advisory Agreement, an amount equal to 20% of the
“liquidation value” of the Trust in excess of the Threshold Amount at the
termination date. As defined in the Advisory Agreement, the Threshold Amount is
equal to (x) $314,787,000, increased by the net issuance price of all Common
Shares and increased for preferred shares converted, issued after January 1,
2009, and decreased by the redemption price of all Common Shares redeemed after
January 1, 2009, plus (y) a return on the amount, as adjusted, set forth in (x)
equal to 7% per annum compounded annually. The incentive fee is reduced by any
direct damages to the Trust if the Advisory Agreement is terminated by the Trust
for cause.





If the
Advisory Agreement were terminated, the actual incentive fee payable would be
based on an appraised valuation or the net liquidation proceeds received for the
Trust’s assets, which may be substantially in excess of the amount calculated
based on the market price of the Common Shares.





Winthrop
Management L.P.





Winthrop
Management L.P., an affiliate of FUR Advisors and the Trust’s executive
officers, assumed property management responsibilities for various properties
owned by the Trust. Pursuant to the terms of the property management agreement,
Winthrop Management L.P. receives a property management fee equal to 3% of the
monthly revenues.





Credits





WRP
Sub-Management LLC (“WRP Sub-Management”), an affiliate of FUR Advisors,
provides accounting, collateral management and loan brokerage services to
Concord and its subsidiaries, including CDO-1.  WRP Sub-Management
received reimbursement of direct and indirect expenses totaling $298,000 and
$698,000 for the three and six months ended June 30, 2009, respectively, in
accordance with the terms of the agreement.  Of these amounts,
$137,000 and $275,000, respectively, were paid to reimburse it for costs
associated with providing accounting and other “back-office” services for the
benefit of Concord (the “Affiliate Amount”).  Because the Trust pays
an advisory fee to FUR Advisors whereas Lexington, the other equity member in
Lex-Win Concord, does not, the advisory fee payable to FUR Advisors by the Trust
is reduced by 50% of the Affiliate Amount to ensure equal treatment of the Trust
and Lexington with respect to the reimbursements paid by Concord.  For
the three and six months ended June 30, 2009, the Trust received and utilized a
credit of $68,000 and $137,000, respectively, against the base management
fee.





During
the three and six months ended June 30, 2008, WRP Sub-Management received
reimbursement of direct and indirect expenses totaling $417,000 and $888,000,
respectively.  Of these amounts, $125,000 and $250,000, respectively,
were paid to reimburse it for costs associated with providing accounting and
other “back office” services for the benefit of Concord.  The Trust
received and utilized a credit of $63,000 and $125,000, respectively, against
the base management fee.





On March
24, 2008, the Trust acquired for the benefit of Concord two classes of
securities issued by CDO-1 with a face value of $10,000,000 for approximately
$4,850,000 and transferred legal ownership of these securities to Concord on
March 31, 2008 and received reimbursement equal to the acquisition
cost.


35


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





17.
              Business
      Segments





SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in financial statements and requires that
those enterprises report selected financial information about operating segments
in interim financial reports issued to shareholders.


Based on
the Trust’s method of internal reporting, management determined that it has
three operating segments: (i) the ownership of operating properties; (ii) the
origination and acquisition of loans and debt securities secured directly or
indirectly by commercial and multi-family real property – collectively, loan
assets and loan securities; and (iii) the ownership of equity and debt
securities in other REITs – REIT securities.  The accounting policies
of the segments are identical to those described in Note 2.





The
operating properties segment includes all of the Trust’s wholly and partially
owned operating properties.  The loan assets and loan securities
segment includes all of the Trust’s activities related to real estate loans,
which consists primarily of the Trust’s investment in Lex-Win Concord and Marc
Realty.  The REIT securities segment includes all of the Trust’s
activities related to the ownership of securities in other publicly traded real
estate companies.  In addition to our three business segments, the
Trust reports non-segment specific income and expense under corporate income
(expense).





The
following table summarizes the Trust’s assets by business segment for the
periods ended June 30, 2009 and December 31, 2008 (in thousands):





June
      30, 2009
                  
                  
                  December
      31, 2008Operating
      properties
                  
                  $
                  281,041
                  
                  
                  $
                  286,780Loan
      assets and loan securities
                  
                  
                  106,167
                  
                  
                  
                  146,560REIT
      securities
                  
                  
                  53,967
                  
                  
                  
                  36,796CorporateCash
      and cash equivalents
                  
                  
                  20,469
                  
                  
                  
                  59,238Other
                  
                  
                  23,088
                  
                  
                  
                  48,720Total
      Assets
                  
                  $
                  484,732
                  
                  
                  $
                  578,094





The Trust
defines net operating income for each segment presented as the segment’s revenue
and other income less operating expenses.  Interest on cash reserves,
general and administrative expenses and other non-segment specific income and
expense items are reported under corporate income (expense).  The
following table presents a summary of revenues from operating properties, loan
assets and loan securities and REIT securities and expenses incurred by each
segment for the three and six months ended June 30, 2009 and June 30, 2008 (in
thousands):


36


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





For
      the Three Months Ended
                          
                          
                          For
      the Six Months EndedJune
      30,
                            2009
                          
                          
                          June
      30,
                            2008
                          
                          
                          June
      30,
                            2009
                          
                          
                          June
      30,
                            2008Operating
      PropertiesRents
      and reimbursements
                          
                          $
                          10,447
                          
                          
                          $
                          10,993
                          
                          
                          $
                          21,432
                          
                          
                          $
                          21,660Operating
      expenses
                          
                          
                          (1,822
                          )
                          
                          
                          (1,802
                          )
                          
                          
                          (3,823
                          )
                          
                          
                          (3,669
                          )Real
      estate taxes
                          
                          
                          (652
                          )
                          
                          
                          (675
                          )
                          
                          
                          (1,355
                          )
                          
                          
                          (1,414
                          )Equity
      in loss of Sealy Northwest Atlanta
                          
                          
                          (204
                          )
                          
                          
                          (98
                          )
                          
                          
                          (242
                          )
                          
                          
                          (236
                          )Equity
      in loss of Sealy Airpark Nashville
                          
                          
                          (314
                          )
                          
                          
                          (267
                          )
                          
                          
                          (572
                          )
                          
                          
                          (550
                          )Equity
      in loss of Sealy Newmarket
                          
                          
                          (177
                          )
                          
                          
                          -
                          
                          
                          
                          (363
                          )
                          
                          
                          -Net
      operating income
                          
                          
                          7,278
                          
                          
                          
                          8,151
                          
                          
                          
                          15,077
                          
                          
                          
                          15,791Loan
      Assets and Loan SecuritiesInterest
                          
                          
                          829
                          
                          
                          
                          322
                          
                          
                          
                          1,207
                          
                          
                          
                          828Equity
      in earnings (loss) of preferred equity investment of Marc
      Realty
                          
                          
                          (1,023
                          )
                          
                          
                          1,088
                          
                          
                          
                          (8
                          )
                          
                          
                          3,418Impairment
      loss on preferred equity investment
                          
                          
                          (2,186
                          )
                          
                          
                          (2,000
                          )
                          
                          
                          (2,186
                          )
                          
                          
                          (2,000
                          )Equity
      in loss of Lex-Win Concord
                          
                          
                          (49,884
                          )
                          
                          
                          (20,933
                          )
                          
                          
                          (67,565
                          )
                          
                          
                          (16,857
                          )Impairment
      loss on investment in Lex-Win Concord
                          
                          
                          (31,670
                          )
                          
                          
                          -
                          
                          
                          
                          (31,670
                          )
                          
                          
                          -Provision
      for loss on loans receivable
                          
                          
                          (1,724
                          )
                          
                          
                          -
                          
                          
                          
                          (2,152
                          )
                          
                          
                          -Unrealized
      loss on available for sale loans
                          
                          
                          (203
                          )
                          
                          
                          -
                          
                          
                          
                          (203
                          )
                          
                          
                          -Gain
      on sale of mortgage backed securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          454Net
      operating loss
                          
                          
                          (85,861
                          )
                          
                          
                          (21,523
                          )
                          
                          
                          (102,577
                          )
                          
                          
                          (14,157
                          )REIT
      SecuritiesDividends
                          
                          
                          1,385
                          
                          
                          
                          28
                          
                          
                          
                          2,759
                          
                          
                          
                          55Gain
      on sale of available for sale securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,029Gain
      on sale of securities carried at fair value
                          
                          
                          2,685
                          
                          
                          
                          -
                          
                          
                          
                          2,598
                          
                          
                          
                          -Unrealized
      gain on securities carried at fair value
                          
                          
                          12,580
                          
                          
                          
                          -
                          
                          
                          
                          1,432
                          
                          
                          
                          -Equity
      in loss of Lex-Win Acquisition
                          
                          
                          -
                          
                          
                          
                          (1,035
                          )
                          
                          
                          -
                          
                          
                          
                          (878
                          )Impairment
      loss on available for sale securities
                          
                          
                          -
                          
                          
                          
                          (107
                          )
                          
                          
                          -
                          
                          
                          
                          (207
                          )Net
      operating income (loss)
                          
                          
                          16,650
                          
                          
                          
                          (1,114
                          )
                          
                          
                          6,789
                          
                          
                          
                          999Net
      Operating (Loss) Income
                          
                          
                          (61,933
                          )
                          
                          
                          (14,486
                          )
                          
                          
                          (80,711
                          )
                          
                          
                          2,633Reconciliations
      to GAAP Net Loss:Less
      - Depreciation and Amortization
                          
                          
                          2,682
                          
                          
                          
                          2,910
                          
                          
                          
                          5,581
                          
                          
                          
                          5,968Less
      - Interest ExpenseOperating
      properties
                          
                          
                          3,603
                          
                          
                          
                          3,661
                          
                          
                          
                          7,198
                          
                          
                          
                          7,444Loan
      assets and loan securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          206REIT
      securities
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          75
                          
                          
                          
                          -Corporate
      Income (Expense)Interest
      income
                          
                          
                          42
                          
                          
                          
                          436
                          
                          
                          
                          114
                          
                          
                          
                          664Interest
      expense
                          
                          
                          (830
                          )
                          
                          
                          (1,807
                          )
                          
                          
                          (1,558
                          )
                          
                          
                          (3,649
                          )Gain
      on extinguishment of debt
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          5,237
                          
                          
                          
                          -General
      and administrative (1)
                          
                          
                          (1,878
                          )
                          
                          
                          (1,482
                          )
                          
                          
                          (3,324
                          )
                          
                          
                          (3,553
                          )State
      and local taxes
                          
                          
                          (147
                          )
                          
                          
                          (98
                          )
                          
                          
                          (197
                          )
                          
                          
                          (222
                          )Loss
      from continuing operations before non-controlling
      interest
                          
                          
                          (71,031
                          )
                          
                          
                          (24,008
                          )
                          
                          
                          (93,293
                          )
                          
                          
                          (17,745
                          )Non-controlling
      interest
                          
                          
                          (165
                          )
                          
                          
                          (86
                          )
                          
                          
                          (336
                          )
                          
                          
                          (86
                          )Loss
      from continuing operations attributable to Winthrop Realty
      Trust
                          
                          
                          (71,196
                          )
                          
                          
                          (24,094
                          )
                          
                          
                          (93,629
                          )
                          
                          
                          (17,831
                          )Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                          
                          
                          -
                          
                          
                          
                          37
                          
                          
                          
                          -
                          
                          
                          
                          86Net
      Loss Attributable to Winthrop Realty Trust
                          
                          $
                          (71,196
                          )
                          
                          $
                          (24,057
                          )
                          
                          $
                          (93,629
                          )
                          
                          $
                          (17,745
                          )Capital
      ExpendituresOperating
      properties
                          
                          $
                          287
                          
                          
                          $
                          778
                          
                          
                          $
                          582
                          
                          
                          $
                          1,607





(1)
            After
      credits – See Note 16.


37


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





18.
            Subsequent
      Events





The Trust
has evaluated all subsequent events through August 10, 2009, which is the date
of filing.  All relevant items have been disclosed in the
corresponding Notes to these Financial Statements.


38




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





Certain
statements contained herein constitute forward-looking statements as such term
is defined in Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as
amended.   Forward-looking statements are not guarantees of
performance.   They involve risks, uncertainties and
assumptions.   Our future results, financial condition and
business may differ materially from those expressed in these forward-looking
statements.   You can find many of these statements by looking
for words such as “approximates,” “believes,” “expects,” “anticipates,”
“intends,” “plans,” “would,” “may” or similar expressions in this quarterly
report on Form 10-Q.   These forward-looking statements are
subject to numerous assumptions, risks and uncertainties.  Many of the
factors that will determine these items are beyond our ability to control or
predict.   Factors that may cause actual results to differ
materially from those contemplated by the forward-looking statements include,
but are not limited to, those set forth in our Annual Report on Form 10-K for
the year ended December 31, 2008 under “Forward Looking Statements” and
“Item 1A – Risk Factors” as well as our other filings with the
SEC.  For these statements, we claim the protection of the safe harbor
for forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995.  We expressly disclaim any responsibility to
update forward-looking statements, whether as a result of new information,
future events or otherwise.   Accordingly, investors should use
caution in relying on forward-looking statements, which are based on
information, judgments and estimates at the time they are made, to anticipate
future results or trends.




Management’s
Discussion and Analysis of Financial Condition and Results of Operations
includes a discussion of our consolidated financial statements for the three and
six months ended June 30, 2009 as compared to the three and six months ended
June 30, 2008.   The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the amounts of
revenues and expenses during the reporting periods.   Actual
results could differ from those estimates.




This item
should be read in conjunction with the financial statements, footnotes thereto
and other items contained elsewhere in this report.





Overview





We are a
real estate investment trust engaged in the business of owning real property and
real estate related assets. Our business objective is to maximize long-term
shareholder value through a total return value approach to real estate
investing.  We seek to achieve this objective by acquiring investments
with both recurring cash flow in order to sustain our dividend, along with
investments that we believe have appreciation potential. We operate in three
strategic business segments: (i) operating properties; (ii) loan assets and loan
securities; and (iii) REIT equity and debt securities. We acquire assets through
direct ownership as well as through strategic alliances and ventures, and have
entered into three significant venture arrangements. Our venture with Marc
Realty, a Chicago area real estate company, is our primary vehicle for
investments in the Chicago metropolitan area.  We also invest through
our venture with Sealy & Co. in which we have made three investments in
office flex parks.  In addition, since its formation in March 2006, we
have acquired substantially all of our loan assets and loan securities through
Concord Debt Holdings LLC, which we refer to as Concord, a joint venture with
Lexington Realty Trust, which we refer to as Lexington, and, since August 2008,
Inland America Concord Sub LLC, which we refer to as Inland.





As of
June 30, 2009, we held interests in approximately 9.5 million rentable square
feet of office, retail, multi-tenant and mixed use space through our 21 wholly
owned operating properties and our ventures with Marc Realty and Sealy &
Co., Ltd., which we refer to as Sealy.  Average occupancy at our
consolidated properties was approximately 95% for the six months ended June 30,
2009.  As of June 30, 2009 our consolidated properties were
approximately 89.6% leased.   The decline in occupancy at June
30, 2009 was the result of the loss of a tenant in May 2009 which occupied
approximately 285,000 square feet at our Jacksonville, Florida
Property.  In addition to our operating properties and our joint
venture arrangements, we held REIT securities with a fair value of $53,871,000
as of June 30, 2009.  Our primary sources of income are rental income
and tenant recoveries from leases of our operating properties, interest income
from our loan assets and loan securities, and interest and dividend income and
possible appreciation from our investments in REIT securities.  The
comparability of financial data from period to period is affected by several
items including the timing of our property acquisition and leasing activities
and the purchases and sales of assets and investments.


39


WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





The
weakness in the economy since late 2007 and the subsequent disruption of the
capital and credit markets throughout 2008 and the first two quarters of 2009
has affected profitability and limited the availability of financing and the
ability to raise equity capital.  During the first two quarters of
2009 we continued to focus our attention primarily on maintaining our liquidity
and reducing our exposure to near-term debt maturities, while at the same time
seeking opportunistic investments and investments with current
returns.  Toward that end, we capitalized on the market mispricing of
senior REIT securities and invested $29,889,000 in REIT preferred and debt
securities during the first half of 2009.





With
respect to our debt exposure, each of our investment platforms and investments
is essentially a stand-alone business, such that any potential problems or
liabilities which might occur are limited to that specific platform or
investment.  Consequently, our exposure is in each case limited to our
equity in that particular investment and not to us as a
whole.  Inclusive of extension rights, none of our loans are scheduled
to mature in 2009.  As of June 30, 2009 there is $2,871,000 of
scheduled principal payments on mortgage loans remaining in 2009.  The
remaining balance of approximately $223,784,000 is scheduled to be paid down or
mature in 2010 or later.





During
2009, we have taken material other-than-temporary impairment losses on assets in
our portfolio that have lost considerable value. In doing so, we have addressed
the financial statement impact of our legacy asset issues. These issues related
primarily to our investment in Lex-Win Concord LLC (“Concord”) and our suburban
Chicago investments in Marc Realty. As it relates to Concord, we have
specifically responded to market trends of accelerating CDO and CMBS rating
downgrades, increasing default probability assumptions, market interest rate
fluctuations, the short-term nature of Concord’s repurchase agreement financing
and an overall lack of clarity on future recovery of the underlying collateral
in these assets.  These factors along with the recent failure by
Inland to make its capital call, the litigation initiated by Inland, the
expectation that there will not be any distributions received in the near term
and the non-controlling nature of our investment in Lex-Win have resulted in our
determination that an other than temporary impairment exists and an additional
impairment related to our investment in Concord was warranted in the second
quarter.  The aggregate impairments consist of both a proportionate
share of Concord’s operating losses plus a decline in the fair value that
management has assigned to the remaining equity in the investment. While we have
determined that the decline in the fair value of our investment in Concord is
other than temporary, the writedown of our investment in Concord to zero for
financial statement purposes should not convey to investors that we and our
partners have ceased to work towards equity recovery.




During
the second quarter, we worked towards improving our position on our legacy Marc
Realty portfolio and in July 2009 the Trust restructured this investment. This
integrated transaction was strategic in that, in its simplest terms, we
exchanged our interest in several Chicago suburban properties for an increased
overall interest in certain downtown Chicago properties which we consider to be
opportunities with a lower risk profile and a better return potential and are
more aligned with our overall investment strategy.





The
contractual changes of the restructuring include the elimination of certain
accumulated deferred returns due to Marc Realty on their equity, the
modification and equalization of the priority of payments to the parties and an
increase of the interest rates on our mezzanine loans and an increase in the
interest rate on Marc Realty’s equity in exchange for us transferring our
interests in four properties to Marc Realty.  In addition, we made an
additional aggregate advance of $684,000 in July 2009 which effectively resulted
in the equalization of interests to 50%-50% between our equity investment and
Marc Realty’s equity.  Due to the nature of this multi-step
transaction we recognized losses of approximately $5,755,000 in the second
quarter of 2009.  In accordance with GAAP, we are required to
recognize an accounting loss equal to the carrying value of our basis in the
suburban properties in which we transferred our interest, which amount was
$5,755,000 and was recognized in the second quarter.  Conversely, GAAP
does not allow us to recognize the value of the increased equity in the downtown
properties that we received in the form of the elimination of the accumulated
deferred returns due to Marc Realty from the properties in which we continue to
hold an interest.  At June 30, 2009, the investments in those
properties continue to be carried at cost and any future benefit of the
foregoing modification will be recognized at the time of
realization.  Effective July 1, 2009, our investments in the Marc
Realty properties will be reclassified from preferred equity investments to
common equity investments.





40




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





Capital
and Credit Market Deterioration





As
the capital and credit market deterioration has worsened, we have performed
additional assessments to determine our exposure to bankruptcies, which could
negatively affect the tenancy at our operating properties as well as negatively
impact borrowers’ cash flow and thus their ability to meet their obligations
under our loan assets and loan securities.   We have also
monitored the impact of the currently limited availability of financing and
equity offerings.  Because there is little funding available in the
capital and credit markets, there are fewer buyers in the market and buyers are
seeking significantly higher returns, placing significant downward pressure on
current real estate values.   Consequently, there is a risk that
borrowers will be unable to obtain replacement financing or sell the collateral
underlying loan assets and loan securities upon maturity which could lead to
more loan defaults and/or negotiated extensions to existing loans beyond their
current expirations.  In addition, we further reviewed our risk
associated with counterparties to our hedging instruments and credit facilities.
We believe our greatest risk to operating results and liquidity is the recent
unprecedented volatility in capital and credit markets, which, if not
stabilized, may create additional losses in the upcoming years.




A
continued weakness in the economy could further impair our ability to raise
future capital through equity and debt offerings, thereby requiring us to obtain
additional capital through the sale of assets. Further, the declining
availability of financing will likely continue to have an impact on our ability
to finance additional acquisitions and, ultimately, the value of real estate
generally.





We have
historically used the public equity markets and secured financing as our primary
sources of capital.  We expect to continue to fund our investments
through one or a combination of cash reserves, borrowings under a credit
facility, property loans, or the issuance of debt or equity.  In
addition, as our investments reach a level in value to the point where we may be
unlikely to achieve better than market returns, to the extent market conditions
permit we may exit the investment and redeploy the capital to what we believe to
be higher yielding opportunities.




Liquidity and Capital
Resources





Liquidity
is a measure of our ability to meet potential cash requirements, including
commitments to repay borrowings, fund and maintain investments and other general
business needs. We believe that cash flow from operations will continue to
provide adequate capital to fund our operating and administrative expenses,
regular debt service obligations and all dividend payments in accordance with
REIT requirements in the short-term. We anticipate that cash on hand, borrowings
under a credit facility and issuance of equity and debt securities, as well as
other alternatives, will provide the necessary capital required for our
investment activities.  As a REIT, we must distribute annually at
least 90% of our REIT taxable income. As a result of this dividend requirement,
we, like other REITs, are unable to reinvest all of our operating cash flow and,
in addition to cash reserves, are dependent on raising capital through equity
and debt issuances or forming ventures with institutional or high net worth
investors to obtain additional funds with which to expand our
business.





Our
primary sources of funds include:





·
            cash
      and cash equivalents;


·
            rents
      and reimbursements received from our operating
  properties;


·
            payments
      received under our loan assets and loan
  securities;


·
            the
      issuance of equity and debt
securities;


·
            interest
      and dividends received from investments in and possible appreciation of
      REIT securities;


·
            cash
      distributions from joint ventures;


·
            borrowings
      under our credit facilities; and


·
            asset
      specific borrowings.





At June
30, 2009, we had cash and cash equivalents of $20,469,000.  In
addition, we had other liquid assets consisting of securities carried at fair
value and available for sale securities totaling $53,871,000.


41




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





Significant
financial transactions during the first two quarters of 2009
include:





·
            the
      acquisition on January 6, 2009 of 917,105 of our Series B-1 Preferred
      Shares with a liquidation value of $22,928,000 for $17,081,000 in cash,
      resulting in a net gain of
$5,237,000;


·
            the
      acquisition of REIT securities consisting of senior debentures with a face
      value of $29,490,000 for a cost of $19,665,000, preferred shares at a cost
      of $9,361,000 and common shares at a cost of
  $863,000;


·
            the
      acquisition of two first mortgage loans with a face value of $81,015,000
      for a cost of $43,869,000;


·
            the
      extension of the maturity date of the mortgage loan on our River City
      property for a period of one year;


·
            the
      extension of the maturity date of our $24,372,000 mortgage loan for a
      period of one year; and


·
            the
      repayment in March 2009 of a $9,800,000 note
  payable.





Subsequent
to June 30, 2009, the following transactions have occurred:





·
            the
      acquisition on July 9, 2009 of 100,000 of our Series B-1 Preferred Shares
      with a liquidation value of $2,500,000 for $2,000,000 in cash, resulting
      in a net gain of approximately
$444,000;


·
            the
      sale on July 14, 2009 at par of a $35,000,000 A Note with respect to the
      first mortgage loan secured by the property located at 160 Spear Street,
      San Francisco, California; and


·
            the
      restructuring of our preferred equity investment in Marc Realty as
      discussed in Item 1 – Financial Statements, Note
  7.





Cash
Flows





Operating Activities





Cash provided by operating activities of
$10,138,000for thesixmonths endedJune 30, 2009reflects our net loss of $93,293,000
adjusted bynon-cash itemsof $102,115,000 including
depreciation and amortization expense, the effect of straight-lining of rental
income, equity in losses of partially-owned entities and unrealized losses on
securities carried at fair value, $2,520,000 of distributions from
non-consolidated interestsanda net decrease due to changes in other operating
assets and liabilities of $1,204,000.  Seeour discussion of our Results of
Operations below for additional details on our operations.





Investing Activities





Cashused ininvesting activitiesof $50,539,000for thesix monthsendedJune 30, 2009was compr
ised primarily of the
following:





·
            $35,000,000 for purchases of available
      for sale real estate loans which represents the portion of the 160 Spear
      loan that was subsequently sold in
July;


·
            $29,889,000 for purchases of securities
      carried at fair value;


·
            $9,072,000 for acquisitions of
      loans receivable, primarily the Siete Square loan and the balance of the
      160 Spear loan;


·
            $2,075,000 for additional loan advances
      related to the Marc Realty portfolio;
and


·
            $719,000 for tenant
      improvements.





These uses of investing cash flows were
offset primarily by:





·
            $16,759,000 in proceeds from the sale
      of securities carried at fair
value;


·
            $6,800,000 in proceeds from the
      repayment of loans receivable;
and


·
            $2,597,000 in net proceeds from
      the release of cash escrows;primarily related to the release
      of funds from the qualified intermediary for the sale of our Biloxi,
      Mississippi property.


42




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





Financing Activities





Cash provided byfinancing activitiesof $1,632,000for thesix monthsendedJune 30, 2009was comprised primarily of the
following:





·
            $35,000,000 of proceeds from our
      revolving line of credit;


·
            $19,818,000 of proceeds from our
      loan payable; and


·
            $3,938,000 of restricted cash held
      in escrow that was released, primarily related to the application of funds
      held as cash collateral and utilized to pay off the CitiBank note
      payable.





These sources offinancing cash flows were offset
primarily by:





·
            $35,000,000for repayment of borrowings on
      our revolving line of
credit;


·
            $9,800,000 for paymentofthe notepayableto CitiBank;


·
            $9,888,000 for dividend payments
      on our Common Shares; and


·
            $3,131,000 for mortgage loan
      repayments.





Dividends





Since
December 2005 we have paid regular dividends to our shareholders.  In
paying dividends we have endeavored to have our dividends track cash flow from
operations, both recurring and nonrecurring.  As a result, while we intend
to continue paying dividends each quarter, future dividend declarations will be
at the discretion of our Board of Trustees and will depend on the actual cash
flow of the Trust both projected as recurring and nonrecurring, its overall
financial condition, capital requirements, the distribution requirements for
REITs under the Internal Revenue Code of 1986 and such other factors as our
Board of Trustees deem relevant.   Subject to the foregoing, we expect
to continue distributing our current cash flow after reserving normal and
customary amounts thereby allowing us to maintain our capital.  
Toward that end, the Board of Trustees elected to reduce our dividend to $0.25
per share for each of the first two quarters of 2009, which represented a
reduction from $0.325 per share for each of the first two quarters of
2008.  This represents our existing budgeted recurring cash flow
generated by assets currently owned and excludes any realized gains from capital
transactions, any potential cash flow from our investment in Concord, as well as
potential future cash flow generated from the investment of the substantial cash
and cash equivalents on hand.  We expect to continue applying these
standards with respect to our dividends on a quarterly basis which could cause
the dividends to increase or decrease depending on cash flow.





We paid
regular quarterly dividends $0.40625 per Series B-1 Preferred Share in each of
the first two quarters of 2009.  We declared a special dividend of $0.05
per Common Share in December 2008, which was paid in January 2009.





Results of
Operations




Our
results are discussed below by business segment:





·
              Operating
      Properties – our wholly and partially owned operating
      properties;


·
                Loan
      Assets and Loan Securities – our activities related to senior and
      mezzanine real estate loans as well ascommercial
      mortgage-backed securities including our investment in Concord and our
      Marc Realty ventureproperties;


·
              REIT
      Securities – our activities related to the ownership of equity and debt
      securities in other real estate investment trusts;
  and


·
              Non-segment
      specific results are discussed under Corporate – includes interest on cash
      reserves, general and administrative expenses and other non-segment
      specific income and expense
items.




43




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





The
following table summarizes our assets by business segment (in
thousands):





June 30,
                      2009
                    
                    
                    December 31,
                      2008Operating
      properties
                    
                    $
                    281,041
                    
                    
                    $
                    286,780Loan
      assets and loan securities
                    
                    
                    106,167
                    
                    
                    
                    146,560REIT
      securities
                    
                    
                    53,967
                    
                    
                    
                    36,796CorporateCash
      and cash equivalents
                    
                    
                    20,469
                    
                    
                    
                    59,238Other
                    
                    
                    23,088
                    
                    
                    
                    48,720Total
      Assets
                    
                    $
                    484,732
                    
                    
                    $
                    578,094




Total
assets decreased by $93,362,000, or 16.2%, from $578,094,000 at December 31,
2008 to $484,732,000 at June 30, 2009.  The decrease was due primarily
to a decrease of $38,769,000 in cash and cash equivalents, a decrease of
$40,393,000 in loan assets and loan securities and a decrease of $25,632,000 in
other assets.




The
decrease in loan assets and loan securities is due primarily to a decrease of
$73,061,000 in the carrying value of our equity investment in Concord as a
result of the operating loss incurred by Concord for the six months ended June
30, 2009 as well as a $24,941,000 other comprehensive income reclassification
adjustment and a $51,916,000 valuation adjustment recognized by the Trust on
this investment at June 30, 2009.  The decrease in other assets
resulted from the utilization of $17,081,000 for the re-acquisition of the
Series B-1 Preferred Shares and the release of approximately $8,642,000 of funds
held in escrow.  The release of escrow funds was primarily the result
of $2,678,000 released from the qualified intermediary for the sale of our
Biloxi, Mississippi property and $5,227,000 released from the CitiBank cash
collateral account and utilized to pay off the $9,800,000 note
payable.




The
results of operations and changes in financial position for the Trust are
discussed below.





Comparisonof SixMonths endedJune 30, 2009 versusSixMonths endedJune 30, 2008





The
following table summarizes our results by business segment for the six months
ended June 30, 2009 and 2008 (in thousands):





2009
                  
                  
                  2008Operating
      properties
                  
                  $
                  2,298
                  
                  
                  $
                  2,379Loan
      assets and loan securities
                  
                  
                  (102,577
                  )
                  
                  
                  (14,363
                  )REIT
      securities
                  
                  
                  6,714
                  
                  
                  
                  999Corporate
      income (expenses)
                  
                  
                  272
                  
                  
                  
                  (6,760
                  )Consolidated  loss
      from continuing operations
                  
                  $
                  (93,293
                  )
                  
                  $
                  (17,745
                  )





Operating
Properties


2009
                    
                    
                    2008Rents
      and reimbursements
                    
                    $
                    21,432
                    
                    
                    $
                    21,660Operating
      expenses
                    
                    
                    (3,823
                    )
                    
                    
                    (3,669
                    )Real
      estate taxes
                    
                    
                    (1,355
                    )
                    
                    
                    (1,414
                    )Equity
      in loss of Sealy Northwest Atlanta
                    
                    
                    (242
                    )
                    
                    
                    (236
                    )Equity
      in loss of Sealy Airpark Nashville
                    
                    
                    (572
                    )
                    
                    
                    (550
                    )Equity
      in loss of Sealy Newmarket
                    
                    
                    (363
                    )
                    
                    
                    -Operating
      income
                    
                    
                    15,077
                    
                    
                    
                    15,791Depreciation
      expense
                    
                    
                    (5,581
                    )
                    
                    
                    (5,968
                    )Interest
      expense
                    
                    
                    (7,198
                    )
                    
                    
                    (7,444
                    )Net
      income
                    
                    $
                    2,298
                    
                    
                    $
                    2,379


44




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





The
decrease in operating income from our operating properties for the comparable
periods was due primarily to:





·
            a
      $228,000 decrease in rents and reimbursements due primarily
      to:


-
            a
      decrease of $351,000 on our wholly-owned net lease portfolio due to the
      restructuring of the lease for our Plantation, Florida property as of
      January 1, 2009;


-
            a
      decrease of $194,000 at our Lisle, Illinois properties due to an
      approximate 9% decrease in occupancy at one of the properties in
      2009;


-
            a
      decrease of $44,000 at our Ontario property as a result of a decline in
      revenue from the parking facility in 2009
;


-
            an
      increase of $263,000 at our River City property due to an approximate 6%
      increase in average occupancy in
2009;


-
            an
      increase of $57,000 at our Creekwood Apartments property due to an
      approximate 7% increase in average occupancy in
  2009;


·
            a
      $154,000 increase in operating expenses due primarily to increased cost at
      our River City property; and


·
            a
      $391,000 increase in losses from our Sealy equity investments due
      primarily to a $363,000 loss related to our Newmarket office complex in
      Atlanta, Georgia which we acquired in August 2008.  Losses from
      the Sealy portfolio are primarily the result of non-cash depreciation and
      amortization expenses.  We received cash distributions of
      $665,000 from the Sealy equity investments for the six months ended June
      30, 2009.





Depreciation,
real estate taxes and interest expenses related to our operating properties
remained relatively constant with the comparable prior year period.





Loan
Assets and Loan Securities





2009
                  
                  
                  2008Interest
                  
                  $
                  1,207
                  
                  
                  $
                  828Equity
      in earnings (loss) of preferred equity investment
                  
                  
                  (2,194
                  )
                  
                  
                  1,418Equity
      in loss of Lex-Win Concord
                  
                  
                  (99,235
                  )
                  
                  
                  (16,857
                  )Gain
      on sale of mortgage backed securities
                  
                  
                  -
                  
                  
                  
                  454Provision
      for loss on loan receivable
                  
                  
                  (2,152
                  )
                  
                  
                  -Unrealized
      loss on available for sale loans
                  
                  
                  (203
                  )
                  
                  
                  -Operating
      loss
                  
                  
                  (102,577
                  )
                  
                  
                  (14,157
                  )Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (206
                  )Net
      loss
                  
                  $
                  (102,577
                  )
                  
                  $
                  (14,363
                  )





The
decrease in operating income from loan  assets and loan securities for the
comparable periods was due primarily to:





·
              a
      $82,378,000 increase in equity in loss from Lex-Win Concord due primarily
      to:


-
            a
      $64,413,000 impairment loss on real estate debt investments held for sale
      at Concord;


-
            a
      $41,492,000 increase in provision for loss contingencies on real
      estate debt investments at Concord;


-
            a
      $16,520,000 realized loss on sale of investments held for sale at
      Concord;


-
                  a $9,600,000
      collateral support agreement obligation recorded in June 2009;
      and


-
            a
      $47,261,000 decrease in impairment loss on available for sale securities
      at Concord.





45




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009


The
Trust’s allocable share of the loss from Concord was $67,565,000 for the
six months ended June 30, 2009 which represents an increase of $50,708,000 over
the loss allocated for the six months ended June 30, 2008.  In
addition, we recorded a $31,670,000 other-than-temporary impairment loss in 2009
on our equity investment in Lex-Win Concord.





·
              a
      $3,612,000 decrease in equity in earnings from our preferred equity
      investment, Marc Realty, primarily due
to:


-
              a
      $2,664,000 loss from the transfer of our interest in three of the
      properties in the Marc Realty portfolio in May
  2009;


-
            a
      $565,000 decrease in earnings as a result of having a lower investment
      balance in 2009;


-
            a
      $197,000 decrease in gains on sale of real estate;
  and


-
            a
      $186,000 increase in other-than-temporary impairments.  The
      Trust recognized $2,186,000 of other-than-temporary impairments on four of
      our mezzanine loans during the six months ended June 30, 2009 compared
      with a $2,000,000 other-than-temporary impairment recognized on one
      mezzanine loan during the same period in
2008;


·
              a
      $2,152,000 provision for loss on loans receivable related to seven
      properties in our Marc Realty
portfolio;and


·
              a
      $454,000 gain on sale of mortgage backed securities recognized in the
      quarter ended June 30, 2008.





REIT Securities





2009
                  
                  
                  2008Interest
      and dividends
                  
                  $
                  2,759
                  
                  
                  $
                  55Gain
      on sale of securities
                  
                  
                  2,598
                  
                  
                  
                  2,029Impairment
      loss on available for sale securities
                  
                  
                  -
                  
                  
                  
                  (207
                  )Unrealized
      gain on securities carried at fair value
                  
                  
                  1,432
                  
                  
                  
                  -Equity
      in earnings of Lex-Win Acquisition, LLC
                  
                  
                  -
                  
                  
                  
                  (878
                  )Operating
      income
                  
                  
                  6,789
                  
                  
                  
                  999Interest
      expense
                  
                  
                  (75
                  )
                  
                  
                  -Net
      income
                  
                  $
                  6,714
                  
                  
                  $
                  999





The
increase in operating income from REIT securities for the comparable periods was
due primarily to:





·
            a
      $2,704,000 increase due primarily to interest and dividends received in
      2009 on our REIT investment portfolio as the result of the increased
      investment in REIT securities for the six months ended June 30,
      2009;


·
            a
      $1,432,000 unrealized gain on securities carried at fair value;
      and


·
            a
      $569,000 increase in gain on sale of
securities.




Corporate




2009
              
              
              2008Interest
      income
              
              $
              114
              
              
              $
              664General
      and administrative
              
              
              (3,324
              )
              
              
              (3,553
              )Interest
      expense
              
              
              (1,558
              )
              
              
              (3,649
              )Gain
      on extinguishment of debt
              
              
              5,237
              
              
              
              -State
      and local taxes
              
              
              (197
              )
              
              
              (222
              )Operating
      income (loss)
              
              $
              272
              
              
              $
              (6,760
              )


The
increase in corporate operations for the comparable periods was due primarily
to:





·
            a
      $5,237,000 gain on early extinguishment of debt resulting from our January
      2009 purchase of 917,105 of our Series B-1 Preferred Shares at a discount
      to their liquidation value;


46





WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




·
            a
      $2,091,000 decrease in corporate interest expense due primarily to lower
      aggregate payments in 2009 on our Series B-1 Preferred Shares as a result
      of fewer Series B-1 Preferred Shares outstanding during
    2009;


·
            a
      $229,000 decrease in general and administrative expenses due primarily to
      the reduction in the base management fee of $651,000 which was partially
      offset by a $327,000 increase in professional fees;
  and


·
            a
      $550,000 decrease in corporate interest income earned on our cash and cash
      equivalents due primarily to lower yields on U.S. Treasury securities and
      other depository accounts during the first six months of 2009 versus
      2008.





State
income taxes were $197,000 and $222,000 for the six months ended June 30, 2009
and 2008, respectively, due primarily to our anticipated taxable income for
state purposes, after deductions for dividends paid and after the utilization of
net operating loss carryforwards, where applicable.





ComparisonofThree Months endedJune 30, 2009 versus Three Months endedJune 30, 2008





The
following table summarizes our results by business segment for the three months
ended June 30, 2009 and 2008 (in thousands):


2009
                  
                  
                  2008Operating
      properties
                  
                  $
                  993
                  
                  
                  $
                  1,580Loan
      assets and loan securities
                  
                  
                  (85,861
                  )
                  
                  
                  (21,523
                  )REIT
      securities
                  
                  
                  16,650
                  
                  
                  
                  (1,114
                  )Corporate
      expenses
                  
                  
                  (2,813
                  )
                  
                  
                  (2,951
                  )Consolidated  loss
      from continuing operations
                  
                  $
                  (71,031
                  )
                  
                  $
                  (24,008
                  )





Operating
Properties





2009
                  
                  
                  2008Rents
      and reimbursements
                  
                  $
                  10,447
                  
                  
                  $
                  10,993Operating
      expenses
                  
                  
                  (1,822
                  )
                  
                  
                  (1,802
                  )Real
      estate taxes
                  
                  
                  (652
                  )
                  
                  
                  (675
                  )Equity
      in loss of Sealy Northwest Atlanta
                  
                  
                  (204
                  )
                  
                  
                  (98
                  )Equity
      in loss of Sealy Airpark Nashville
                  
                  
                  (314
                  )
                  
                  
                  (267
                  )Equity
      in loss of Sealy Newmarket
                  
                  
                  (177
                  )
                  
                  
                  -Operating
      income
                  
                  
                  7,278
                  
                  
                  
                  8,151Depreciation
      expense
                  
                  
                  (2,682
                  )
                  
                  
                  (2,910
                  )Interest
      expense
                  
                  
                  (3,603
                  )
                  
                  
                  (3,661
                  )Net
      income
                  
                  $
                  993
                  
                  
                  $
                  1,580





The
decrease in operating income from our operating properties for the comparable
periods was due primarily to:





·
            a
      $546,000 decrease in rents and reimbursements due primarily
      to:


-
            a
      decrease of $386,000 on our wholly-owned net lease portfolio due to the
      restructuring of the lease for our Plantation, Florida property as of
      January 1, 2009;


-
            a
      decrease of $189,000 at our Ontario property as a result of a decline in
      revenue from the parking facility in 2009
;


-
            a
      decrease of $92,000 at our Lisle, Illinois properties due to an
      approximate 9% decrease in occupancy at one of the properties in
      2009;


-
            an
      increase of $66,000 at our River City property due to an approximate 8%
      increase in average occupancy for the three months ended June 30,
      2009;


-
            an
      increase of $54,000 at our Creekwood Apartments property due to an
      approximate 9% increase in average occupancy for the three months ended
      June 30, 2009;


·
            a
      $20,000 increase in operating expenses;
and


47




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009


·
            a
      $330,000 increase in losses from our Sealy equity investments due
      primarily to a $177,000 loss related to our Newmarket office complex in
      Atlanta, Georgia which we acquired in August 2008.  Losses from
      the Sealy portfolio are primarily the result of non-cash depreciation and
      amortization expenses.  We received cash distributions of
      $322,000 from the Sealy’s equity investments for the three months ended
      June 30, 2009.





Depreciation
and interest expenses related to our operating properties remained relatively
constant with the comparable prior year period.





Loan
Assets and Loan Securities





2009
                  
                  
                  2008Interest
                  
                  $
                  829
                  
                  
                  $
                  322Equity
      in loss of preferred equity investment
                  
                  
                  (3,209
                  )
                  
                  
                  (912
                  )Equity
      in loss of Lex-Win Concord
                  
                  
                  (81,554
                  )
                  
                  
                  (20,933
                  )Provision
      for loss on loans receivable
                  
                  
                  (1,724
                  )
                  
                  
                  -Unrealized
      loss on available for sale loans
                  
                  
                  (203
                  )
                  
                  
                  -Operating
      loss
                  
                  
                  (85,861
                  )
                  
                  
                  (21,523
                  )Interest
      expense
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  $
                  (85,861
                  )
                  
                  $
                  (21,523
                  )





The
decrease in operating income from loan assets and loan securities for the
comparable periods was due primarily to:





·
              a
      $60,621,000 increase in equity in loss from Lex-Win Concord due primarily
      to:


-
            a
      $27,505,000 impairment loss on real estate debt investments held for sale
      at Concord;


-
            a
      $38,992,000 increase in provision for loss contingencies on real estate
      debt investments at Concord;


-
            a
      $16,520,000 realized loss on sale of investments held for sale at
      Concord;


-
            a
      $9,600,000 collateral support agreement obligation recorded in June 2009;
      and


-
            a
      $42,764,000 decrease in impairment loss on available for sale securities
      at Concord.





The
Trust’s allocable share of the loss from Concord was $49,884,000 for the three
months ended June 30, 2009 which represents an increase of $28,951,000 over the
loss allocated for the three months ended June 30, 2008.  In addition,
we recorded a $31,670,000 other-than-temporary impairment loss in 2009 on our
equity investment in Lex-Win Concord.





·
              a
      $2,297,000 decrease in equity in earnings from our preferred equity
      investment, Marc Realty, primarily due
to:


-
            a
      $2,664,000 loss from the transfer of our interest in three of the
      properties in the Marc Realty portfolio in May
  2009;


-
            a
      $209,000 decrease in earnings as a result of having a lower investment
      balance in 2009;


-
            a
      $186,000 increase in other-than-temporary impairments.  The
      Trust recognized $2,186,000 of other-than-temporary impairments on four of
      our mezzanine loans during the three months ended June 30, 2009 compared
      with a $2,000,000 other-than-temporary impairment recognized on one
      mezzanine loan during the same period in 2008;
  and


-
            offset
      by a $762,000 increase in gains on sale of real estate;
  and


·
              a
      $1,724,000 provision for loss on loans receivable related to seven
      properties in our Marc Realty
portfolio.


48




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





REIT Securities


2009
                  
                  
                  2008Interest
      and dividends
                  
                  $
                  1,385
                  
                  
                  $
                  28Gain
      on sale of securities
                  
                  
                  2,685
                  
                  
                  
                  -Impairment
      loss on available for sale securities
                  
                  
                  -
                  
                  
                  
                  (107
                  )Unrealized
      gain on securities carried at fair value
                  
                  
                  12,580
                  
                  
                  
                  -Equity
      in loss of Lex-Win Acquisition, LLC
                  
                  
                  -
                  
                  
                  
                  (1,035
                  )Operating
      income (loss)
                  
                  
                  16,650
                  
                  
                  
                  (1,114
                  )Interest
      expense
                  
                  
                  -
                  
                  
                  
                  -Net
      income (loss)
                  
                  $
                  16,650
                  
                  
                  $
                  (1,114
                  )


The
increase in operating income from REIT securities for the comparable periods was
due primarily to:





·
            a
      $12,580,000 unrealized gain on securities carried at fair value as a
      result of a recovery in market value during the three months ended June
      30, 2009;


·
            a
      $2,685,000 gain on sale of securities;
and


·
            an
      increase of $1,357,000 in dividend income due primarily to interest and
      dividends received in 2009 on our REIT investment portfolio as the result
      of the increased investment in REIT securities for the three months ended
      June 30, 2009.





Corporate





2009
                    
                    
                    2008Interest
      income
                    
                    $
                    42
                    
                    
                    $
                    436General
      and administrative
                    
                    
                    (1,878
                    )
                    
                    
                    (1,482
                    )Interest
      expense
                    
                    
                    (830
                    )
                    
                    
                    (1,807
                    )State
      and local taxes
                    
                    
                    (147
                    )
                    
                    
                    (98
                    )Operating
      loss
                    
                    $
                    (2,813
                    )
                    
                    $
                    (2,951
                    )





The
increase in corporate operations for the comparable periods was due primarily
to:





·
            a
      $977,000 decrease in corporate interest expense due primarily to lower
      aggregate payments in 2009 on our Series B-1 Preferred Shares as a result
      of fewer Series B-1 Preferred Shares outstanding during
    2009;


·
            a
      $396,000 increase in general and administrative expenses due primarily to
      a $374,000 increase in professional fees;
and


·
            a
      $394,000 decrease in corporate interest income earned on our cash and cash
      equivalents due primarily to lower yields on U.S. Treasury securities and
      other depository accounts during the three months of 2009 versus
      2008.





State
income taxes were $147,000 and $98,000 for the three months ended June 30, 2009
and 2008, respectively, due primarily to our anticipated taxable income for
state purposes, after deductions for dividends paid and after the utilization of
net operating loss carryforwards, where applicable.





Off-Balance Sheet
Investments





We have
two significant off-balance sheet investments – our Marc Realty and Lex-Win
Concord investment platforms.   Marc Realty is discussed at Item
1. Financial Statements - Note 7 and Lex-Win Concord is discussed at Item 1.
Financial Statements - Note 8.





Critical Accounting Policies
and Estimates





A summary
of our critical accounting policies is included in our Annual Report on Form
10-K for the year ended December 31, 2008.





Recently Issued Accounting
Standards





See Item
1. Financial Statements – Note 2.


49




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Interest Rate Risk





We have exposure to fluctuations in
market interest rates.  Market interest rates are highly sensitive to
many factors beyond our control.  Various financial vehicles exist
which would allow management to mitigate the potential negative effects of
interest rate fluctuations on our cash flow and earnings.





Our
liabilities include both fixed and variable rate debt.  As discussed
in Item 2 – Management’s Discussion and Analysis of Financial Condition and
Results of Operations, we seek to limit our risk to interest rate fluctuations
through match financing on our loan assets and loan securities as well as
through hedging transactions.  In this regard, we entered into the
following agreements:




·
            An
      interest rate swap with a $40,000,000 notional amount that effectively
      converted the interest rate on that portion of principal of our note
      payable to KeyBank from a floating rate equal to LIBOR plus 1.75% to a
      fixed rate of 5.80%.  We made a $40,000,000 prepayment on
      KeyBank’s floating rate debt during the second quarter of 2007. As a
      result, we settled a portion of the existing interest rate swap with a
      notional amount of $14,000,000 for $366,000, resulting in an unrealized
      gain which will be amortized to income over the remaining life of the
      swap.  The outstanding balance at June 30, 2009 on this loan is
      approximately $24,372,000.


·
            Effective
      June 24, 2009, we entered into an interest rate swap agreement, with a
      notional amount of $23,000,000, which will commence January 1, 2010 at the
      expiration of the existing swap and will cover the balance of the terms
      through current maturity on the KeyBank loan which is collateralized by
      various properties.





The
following table shows what the annual effect a change in the LIBOR rate would
have on interest expense based upon the unhedged balances in variable rate debt
at June 30, 2009 (in thousands):





ChangeinLIBOR(2)-0.32%
                          
                          
                          1%
                          
                          
                          2%
                          
                          
                          3%Change in consolidated interest
      expense
                          
                          $
                          (63
                          )
                          
                          $
                          198
                          
                          
                          $
                          396
                          
                          
                          $
                          595Pro-rata share of change in
      interestexpenseof debton non-consolidatedentities
    (1)
                          
                          
                          (653
                          )
                          
                          
                          2,039
                          
                          
                          
                          4,078
                          
                          
                          
                          6,116Non-controlling interestsshare
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -(Increase) decrease in
      netincome
                          
                          $
                          (716
                          )
                          
                          $
                          2,237
                          
                          
                          $
                          4,474
                          
                          
                          $
                          6,711





(1)
              Represents
      our pro-rata share of a change in interest expense in our equity
      investment – Concord.


(2)
              The
      one month LIBOR rate at June 30, 2009 was
0.32%.





We
believe that due to our significant investment in a non-consolidated entity
(Concord), the presentation of our pro-rata share of a change in interest
expense from this entity is important to fully understand our exposure to
fluctuations in interest rates.




We may
utilize various financial instruments to mitigate the potential negative impact
of interest rate fluctuations on our cash flows and earnings, including hedging
strategies, depending on our analysis of the interest rate environment and the
costs and risks of such strategies.  In addition, as of June 30, 2009
our pro-rata share of Lex-Win Concord’s variable rate loan assets and loan
securities with a face value aggregating $384,791,000 partially mitigate our
exposure to change in interest rates.


50




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





Market
Value Risk




Our hedge
transaction, and those utilized by Concord, using derivative instruments also
involve certain additional risks such as counterparty credit risk, the
enforceability of hedging contracts and the risk that unanticipated and
significant changes in interest rates will cause a significant loss of basis in
the contract.  The three counterparties of these arrangements are
Credit Suisse International, KeyBank and JP Morgan.  At the present
time, due to the loan interest rate environment, the Trust’s hedge transaction
represents a liability to the Trust and Concord’s hedge transactions represent a
liability to Concord.  The Trust has no obligation to post any
collateral for the benefit of the counterparty.




ITEM
      4.
            CONTROLS
      AND PROCEDURES





We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed with the SEC is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure.




As of
June 30, 2009, an evaluation was performed under the supervision and with the
participation of our management, including the CEO and CFO, of the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) under the Securities Exchange Act of 1934).
Based on that evaluation, our management, including the CEO and CFO, concluded
that our disclosure controls and procedures were effective as of June 30,
2009.





Other Matters




There
have been no changes in our internal controls over financial reporting during
the most recent quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.


51




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




PART
II. OTHER INFORMATION








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





On May
21, 2009, the Trust held its Annual Meeting of Shareholders for the purpose
of:




1.
            Electing
      seven Trustees to our Board of Trustees to serve for a term of one year
      and until their respective successors shall be elected and shall
      qualify;




2.
            Amending
      Section 1.3 of the Declaration of Trust to clarify the purpose of the
      Trust;




3.
            Amending
      Section 3.3 of the Declaration of Trust to modify the indemnification
      rights of Trustees, officers, employees and agents of the
      Trust;




4.
            Amending
      Section 4.1 of the Declaration of Trust to more clearly set forth the
      rights of the Trust to issue shares of beneficial
  interest;




5.
            Amending
      Section 7.1 of the Declaration of Trust to modify the timing of the
      Trust’s annual meeting and permit additional persons to call special
      meetings of holders of beneficial
interests;




6.
            Amending
      Article VIII of the Declaration of Trust to modify, among other things,
      the voting requirement for election of
Trustees;




7.
            Amending
      Section 10.1 of the Declaration of Trust to permit certain amendments to
      the Declaration of Trust to be made without the consent of holders of
      beneficial interests;




8.
            Amending
      Article XI of the Declaration of Trust to correct inconsistencies set
      forth therein and to clarify the rights of the
  Trust;




9.
            Ratifying
      the selection of PricewaterhouseCoopers LLP as our independent registered
      public accounting firm for the 2009 fiscal
year;




The
following persons were elected as Trustees by the following vote:




Trustee
                
                Shares Voted For
                
                Shares Voted AgainstMichael
      L. Ashner
                
                14,715,123
                
                391,987Arthur
      Blasberg, Jr.
                
                14,943,561
                
                163,549Howard
      Goldberg
                
                14,876,622
                
                230,488Thomas
      F. McWilliams
                
                14,928,769
                
                178,341Lee
      Seidler
                
                14,963,058
                
                144,052Carolyn
      Tiffany
                
                14,967,811
                
                139,299Steven
      Zalkind
                
                14,948,140
                
                158,970





With
respect to the proposals to amend provisions of the Declaration of Trust,
shareholders approved each such proposal by the following vote:





Proposal
                
                Shares Voted For
                
                Shares Voted Against
                
                Shares AbstainingAmend
      Section 1.3
                
                11,661,205
                
                48,072
                
                10,564Amend
      Section 3.3
                
                11,613,494
                
                87,819
                
                18,526Amend
      Section 4.1
                
                8,066,143
                
                3,619,815
                
                33,882Amend
      Section 7.1
                
                11,621,921
                
                83,081
                
                14,839Amend
      Article VIII
                
                11,548,423
                
                154,952
                
                16,466Amend
      Section 10.1
                
                8,123,881
                
                3,575,614
                
                20,344Amend
      Article XI
                
                11,582,513
                
                124,904
                
                12,424


52




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009





Shareholders
ratified PricewaterhouseCoopers LLP as the Trust’s independent registered public
accounting firm for 2009 by the following vote:


Shares Voted For
              
              Shares Voted Against
              
              Shares Abstaining15,055,375
              
              28,101
              
              23,637





ITEM
      6.
            EXHIBITS





Exhibits
required by Item 601 of Regulation S-K are filed herewith or incorporated herein
by reference and are listed in the attached Exhibit Index.


53




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




SIGNATURES





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





Winthrop
      Realty TrustDate:  August
      10, 2009
              By:
              /s/ Michael L. AshnerMichael
      L. AshnerChief
      Executive OfficerDate:  August
      10, 2009
              By:
              /s/ Thomas C. StaplesThomas
      C. StaplesChief
      Financial Officer


54




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




EXHIBIT
INDEX





Exhibit
                  
                  Description
                  
                  Page
                    Number3.1
                  
                  Second
      Amended and Restated Declaration of Trust as of May 21,
    2009
                  
                  *3.2
                  
                  Bylaws
      of the Trust as restated on November 8, 2005 - Incorporated by reference
      to Exhibit 3.1 to the Trust’s Form 8-K filed November 10,
      2005.
                  
                  -3.3
                  
                  Amendment
      to Bylaws adopted January 10, 2007 - Incorporated by reference to Exhibit
      3.1 to the Trust’s Form 8-K filed January 16, 2007
                  
                  -3.4
                  
                  Amendment
      to Bylaws adopted February 27, 2007 - Incorporated by reference to Exhibit
      3.1 to the Trust’s Form 8-K filed March 2, 2007
                  
                  -4.1
                  
                  Form
      of certificate for Common Shares of Beneficial
      Interest.  Incorporated by reference to Exhibit 4.1 to the
      Trust’s Annual Report on Form 10-K for the year ended December 31,
      2008
                  
                  -4.2
                  
                  Warrant
      to purchase 500,000 shares of Beneficial Interest of Trust - Incorporated
      by reference to Exhibit 4(l) to the Trust’s Annual Report on Form 10-K for
      the year ended December 31, 1998.
                  
                  -4.3
                  
                  Agreement
      of Limited Partnership of WRT Realty L.P., dated as of January 1, 2005 -
      Incorporated by reference to Exhibit 4.1 to the Trust’s Form 8-K filed
      January 4, 2005.
                  
                  -4.4
                  
                  Amended
      and Restated Certificate of Designations for Series B-1 Cumulative
      Convertible Redeemable Preferred Shares of Beneficial Interest (“Series
      B-1 Certificate of Designations”) - Incorporated by reference to Exhibit
      4.1 to the Trust’s Form 8-K filed June 21, 2005.
                  
                  -4.5
                  
                  Amendment
      No. 1 to Series B-1 Certificate of Designations - Incorporated by
      reference to Exhibit 4.1 to the Trust’s Form 8-K filed November 13,
      2007.
                  
                  -10.1
                  
                  Indemnification
      Agreement with Neil Koenig, dated as of April 29, 2002 - Incorporated by
      reference to Exhibit 10.Q to the Trust’s Annual Report on Form 10-K for
      the year ended December 31, 2002.
                  
                  -10.2
                  
                  Stock
      Purchase Agreement between the Trust and FUR Investors, LLC, dated as of
      November 26, 2003, including Annex A thereto, being the list of Conditions
      to the Offer - Incorporated by reference to Exhibit 10.1 to the Trust’s
      Form 8-K filed December 1, 2003.
                  
                  -10.3
                  
                  Second
      Amended and Restated Advisory Agreement dated March 5, 2009, between the
      Trust, WRT Realty L.P. and FUR Advisors LLC. Incorporated by reference to
      Exhibit 10.3 to the Trust’s Annual Report on Form 10-K for the year ended
      December 31, 2008
                  
                  -10.4
                  
                  Exclusivity
      Services Agreement between the Trust and Michael L. Ashner - Incorporated
      by reference to Exhibit 10.4 to the Trust’s Form 8-K filed December 1,
      2003.
                  
                  -10.5
                  
                  Amendment
      No. 1 to Exclusivity Agreement, dated November 7, 2005 - Incorporated by
      reference to Exhibit 10.7 to the Trust’s Form 8-K filed November 10,
      2005.
                  
                  -10.6
                  
                  Covenant
      Agreement between the Trust and FUR Investors, LLC - Incorporated by
      reference to Exhibit 10.5 to the Trust’s Form 8-K filed December 1,
      2003.
                  
                  -


55




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




10.7
                
                Loan
      Agreement, dated November 18, 2004, among FT-Fin Acquisition LLC, Keybank
      National Association, Newstar CP Funding LLC, Keybank National
      Association, as agent for itself and such other lending institutions, and
      Keybanc Capital Markets, as the Arranger - Incorporated by reference to
      Exhibit 10.1 to the Trust’s Form 8-K filed November 23,
    2004.
                
                -10.8
                
                Loan
      Modification Agreement, dated June 30, 2006, among FT-Fin Acquisition LLC,
      Keybank National Association, Newstar CP Funding LLC, Keybank National
      Association, as agent for itself and such other lending institutions, and
      Keybank Capital Markets, as the Arranger - Incorporated by reference to
      Exhibit 10.11 to the Trust’s Quarterly report on Form 10-Q for the period
      ended June 30, 2006.
                
                -10.9
                
                Form
      of Mortgage, dated November 18, 2004, in favor of Keybank National
      Association - Incorporated by reference to Exhibit 10.2 to the Trust’s
      Form 8-K filed November 23, 2004.
                
                -10.10
                
                Ownership
      Interest Pledge Agreement, dated November 18, 2004, from FT-Fin
      Acquisition LLC to Keybank National Association - Incorporated by
      reference to Exhibit 10.3 to the Trust’s Form 8-K filed November 23,
      2004.
                
                -10.11
                
                Guaranty,
      dated as of November 18, 2004, by First Union Real Estate Equity and
      Mortgage Investments in favor of Keybank National Association, as the
      agent - Incorporated by reference to Exhibit 10.4 to the Trust’s Form 8-K
      filed November 23, 2004.
                
                -10.12
                
                Indemnity
      Regarding Hazardous Materials, dated as of November 18, 2004, by First
      Union Real Estate Equity and Mortgage Investments in favor of Keybank
      National Association, as the agent - Incorporated by reference to Exhibit
      10.5 to the Trust’s Form 8-K filed November 23, 2004.
                
                -10.13
                
                Amended
      and Restated Omnibus Agreement, dated March 16, 2005, among Gerald Nudo,
      Laurence Weiner and WRT Realty L.P. - Incorporated by reference to Exhibit
      10.1 to the Trust’s Form 8-K filed March 18, 2005
                
                -10.14
                
                Agreement,
      dated as of July 1, 2009, among Gerald Nudo, Laurence Weiner and WRT
      Realty L.P.
                
                *10.15
                
                Securities
      Purchase Agreement, dated February 16, 2005, between First Union Real
      Estate Equity and Mortgage Investments and Kimco Realty Corporation -
      Incorporated by reference to Exhibit 10 to the Trust’s Form 8-K filed
      February 18, 2005.
                
                -10.16
                
                Securities
      Purchase Agreement, dated February 25, 2005, between First Union Real
      Estate Equity and Mortgage Investments, Perrin Holden & Davenport
      Capital Corp. and the Investors named therein - Incorporated by reference
      to Exhibit 10.1 to the Trust’s Form 8-K filed March 3,
    2005.
                
                -10.17
                
                Securities
      Purchase Agreement, dated June 15, 2005, between First Union Real Estate
      Equity and Mortgage Investments, Perrin Holden & Davenport Capital
      Corp. and the Investors named therein - Incorporated by reference to
      Exhibit 10.1 to the Trust’s Form 8-K filed June 21, 2005.
                
                -10.18
                
                Amended
      and Restated Registration Rights Agreement, dated June 20, 2005, between
      First Union Real Estate Equity and Mortgage Investments and the Investors
      named therein  - Incorporated by reference to Exhibit 10.2 to
      the Trust’s Form 8-K filed June 21, 2005.
                
                -


56




WINTHROP
REALTY TRUST


FORM
10-Q JUNE 30, 2009




10.19
              
              Amended
      and Restated Investor Rights Agreement, dated June 20, 2005, between First
      Union Real Estate Equity and Mortgage Investments and the Investors named
      therein - Incorporated by reference to Exhibit 10.3 to the Trust’s Form
      8-K filed June 21, 2005.
              
              -10.20
              
              Securities
      Purchase Agreement, dated November 7, 2005, between the Trust and Vornado
      Investments L.L.C. (“Vornado”) - Incorporated by reference to Exhibit 10.1
      to the Trust’s Form 8-K filed November 10, 2005.
              
              -10.21
              
              Registration
      Rights Agreement, dated November 7, 2005, between the Trust and Vornado -
      Incorporated by reference to Exhibit 10.2 to the Trust’s Form 8-K filed
      November 10, 2005.
              
              -10.22
              
              Loan
      Agreement, dated as of December 16, 2005, between WRT Realty L.P. and
      KeyBank, National Association - Incorporated by reference to Exhibit 10.1
      to the Trust’s Form 8-K filed December 21, 2005.
              
              -10.23
              
              Guaranty
      from Winthrop Realty Trust in favor of KeyBank, National Association-
      Incorporated by reference to Exhibit 10.2 to the Trust’s Form 8-K filed
      December 21, 2005.
              
              -10.24
              
              Second
      Amendment to Loan Agreement, dated as of December 16, 2008- Incorporated
      by reference to Exhibit 10.1 to the Trust’s Form 8-K filed December 22,
      2008.
              
              -10.25
              
              Third
      Amendment to Loan Agreement, dated as of December 16, 2008- Incorporated
      by reference to Exhibit 10.2 to the Trust’s Form 8-K filed December 22,
      2008
              
              -10.26
              
              Agreement
      between Michael L. Ashner and Winthrop Realty Trust dated July 23, 2006 -
      Incorporated by reference to Exhibit 10.2 to the Trust’s Form 8-K filed
      July 25, 2006.
              
              -10.27
              
              Winthrop
      Realty Trust 2007 Long Term Stock Incentive Plan - Incorporated by
      reference to the Trust’s Definitive Proxy Statement on Schedule 14A filed
      with the Securities and Exchange Commission on March 30,
    2007.
              
              -10.28
              
              Second
      Amended and Restated Limited Liability Company Agreement of Concord Debt
      Holdings LLC, dated August 2, 2008, between Lex-Win Concord LLC and Inland
      American (Concord) Sub LLC  - Incorporated by reference to
      Exhibit 10.1 to the Trust’s Form 8-K filed August 4, 2008
              
              -10.29
              
              Limited
      Liability Company Agreement of Lex-Win Concord LLC, dated August 2, 2008,
      among WRT Realty L.P., The Lexington Master Limited Partnership and WRP
      Sub-management LLC - Incorporated by reference to Exhibit 10.2 to the
      Trust’s Form 8-K filed August 4, 2008
              
              -31
              
              Certifications
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
              
              *32
              
              Certification
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
              
              *




* filed
herewith




57