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:  September 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   o           Accelerated
filer   x


Non-accelerated
filer   o
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  ̈ No x





As of
November 1, 2009 there were 15,924,702 Common Shares of Beneficial Interest
outstanding.









INDEX





PagePart
      I.
                              Financial
      Information
                              3Item
      1.
                              Financial
      Statements (Unaudited):
                              3Consolidated
      Balance Sheets as of September 30, 2009 and December
      31, 2008
                              3Consolidated
      Statements of Operations and Comprehensive Income (Loss) for
      the Three and Nine Months Ended September 30, 2009 and September 30,
      2008
                              4Consolidated
      Statements of Equity for the Nine Months Ended September 30, 2009 and
      September 30, 2008
                              5Consolidated
      Statements of Cash Flows for the Nine Months Ended September 30, 2009
      and
      September 30, 2008
                              6Notes
      to Consolidated Financial Statements
                              8Item
      2.
                              Management’s
      Discussion and Analysis of Financial Condition and
      Results of Operations
                              36Item
      3.
                              Quantitative
      and Qualitative Disclosure about Market Risk
                              47Item
      4.
                              Controls
      and Procedures
                              47Part
      II.
                              Other
      Information
                              49Item
      1A.
                              Risk
      Factors
                              49Item
      6.
                              Exhibits
                              59Signatures
                              
                              60Exhibit
      Index
                              
                              61




2


Item
1. Financial Information




WINTHROP
REALTY TRUST


FORM
10-Q - SEPTEMBER 30, 2009




CONSOLIDATED
BALANCE SHEETS





(Unaudited)


(In
thousands, except share and per share data)





September 30, 2009
                              
                              
                              December 31, 2008(as adjusted)ASSETSInvestments
      in real estate, at costLand
                              
                              $
                              21,344
                              
                              
                              $
                              21,344Buildings
      and improvements
                              
                              
                              247,129
                              
                              
                              
                              246,362268,473
                              
                              
                              
                              267,706Less
      - accumulated depreciation
                              
                              
                              (30,521
                              )
                              
                              
                              (25,901
                              )Investments
      in real estate, net
                              
                              
                              237,952
                              
                              
                              
                              241,805Cash
      and cash equivalents
                              
                              
                              35,147
                              
                              
                              
                              59,238Restricted
      cash held in escrows
                              
                              
                              8,745
                              
                              
                              
                              14,353Loans
      receivable, net of allowances of $1,341 and $2,445,
      respectively
                              
                              
                              9,570
                              
                              
                              
                              22,876Accounts
      receivable, net of allowances of $152 and $225,
    respectively
                              
                              
                              13,505
                              
                              
                              
                              14,028Securities
      carried at fair value
                              
                              
                              61,486
                              
                              
                              
                              36,516Available
      for sale securities, net
                              
                              
                              205
                              
                              
                              
                              184Preferred
      equity investments
                              
                              
                              4,094
                              
                              
                              
                              50,624Equity
      investments
                              
                              
                              76,214
                              
                              
                              
                              92,202Lease
      intangibles, net
                              
                              
                              23,701
                              
                              
                              
                              25,929Deferred
      financing costs, net
                              
                              
                              2,037
                              
                              
                              
                              3,218Deposit
      for purchase of Series B-1 Preferred Shares
                              
                              
                              -
                              
                              
                              
                              17,081Other
      assets
                              
                              
                              -
                              
                              
                              
                              40TOTAL
      ASSETS
                              
                              $
                              472,656
                              
                              
                              $
                              578,094LIABILITIESMortgage
      loans payable
                              
                              $
                              225,454
                              
                              
                              $
                              229,737Series
      B-1 Cumulative Convertible Redeemable Preferred Shares,$25
      per share liquidation preference; 1,396,000 and 2,413,105shares
      authorized and outstanding at September 30, 2009 andDecember
      31, 2008, respectively
                              
                              
                              34,900
                              
                              
                              
                              60,328Note
      payable
                              
                              
                              -
                              
                              
                              
                              9,800Accounts
      payable and accrued liabilities
                              
                              
                              8,110
                              
                              
                              
                              8,596Dividends
      payable
                              
                              
                              3,965
                              
                              
                              
                              5,934Deferred
      income
                              
                              
                              53
                              
                              
                              
                              795Below
      market lease intangibles, net
                              
                              
                              3,034
                              
                              
                              
                              3,696TOTAL
      LIABILITIES
                              
                              
                              275,516
                              
                              
                              
                              318,886COMMITMENTS
      AND CONTINGENCIESEQUITYWinthrop
      Realty Trust Shareholders' Equity:Common
      Shares, $1 par, unlimited shares authorized; 15,861,231and
      15,754,495 outstanding at September 30, 2009 andDecember
      31, 2008, respectively
                              
                              
                              15,861
                              
                              
                              
                              15,754Additional
      paid-in capital
                              
                              
                              461,896
                              
                              
                              
                              460,956Accumulated
      distributions in excess of net income
                              
                              
                              (291,984
                              )
                              
                              
                              (213,284
                              )Accumulated
      other comprehensive loss
                              
                              
                              (222
                              )
                              
                              
                              (15,176
                              )Total
      Winthrop Realty Trust Shareholders' Equity
                              
                              
                              185,551
                              
                              
                              
                              248,250Non-controlling
      interests
                              
                              
                              11,589
                              
                              
                              
                              10,958Total  Equity
                              
                              
                              197,140
                              
                              
                              
                              259,208TOTAL
      LIABILITIES AND EQUITY
                              
                              $
                              472,656
                              
                              
                              $
                              578,094





See Notes
to Consolidated Financial Statements.


3




WINTHROP
REALTY TRUST


FORM
10-Q - SEPTEMBER 30, 2009




CONSOLIDATED
STATEMENTS OF OPERATIONS AND


COMPREHENSIVE
INCOME (LOSS)


(Unaudited)


(In
thousands, except per share data)





For the Three Months Ended
                                                        
                                                        
                                                        For the Nine Months EndedSeptember 30,
                                                        
                                                        
                                                        September 30,2009
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        2009
                                                        
                                                        
                                                        2008RevenueRents
      and reimbursements
                                                        
                                                        $
                                                        10,642
                                                        
                                                        
                                                        $
                                                        10,873
                                                        
                                                        
                                                        $
                                                        32,074
                                                        
                                                        
                                                        $
                                                        32,533Interest
      and dividends
                                                        
                                                        
                                                        2,496
                                                        
                                                        
                                                        
                                                        379
                                                        
                                                        
                                                        
                                                        6,462
                                                        
                                                        
                                                        
                                                        1,26213,138
                                                        
                                                        
                                                        
                                                        11,252
                                                        
                                                        
                                                        
                                                        38,536
                                                        
                                                        
                                                        
                                                        33,795ExpensesProperty
      operating
                                                        
                                                        
                                                        2,158
                                                        
                                                        
                                                        
                                                        1,848
                                                        
                                                        
                                                        
                                                        5,981
                                                        
                                                        
                                                        
                                                        5,517Real
      estate taxes
                                                        
                                                        
                                                        704
                                                        
                                                        
                                                        
                                                        766
                                                        
                                                        
                                                        
                                                        2,059
                                                        
                                                        
                                                        
                                                        2,180Depreciation
      and amortization
                                                        
                                                        
                                                        2,695
                                                        
                                                        
                                                        
                                                        2,980
                                                        
                                                        
                                                        
                                                        8,276
                                                        
                                                        
                                                        
                                                        8,948Interest
                                                        
                                                        
                                                        4,297
                                                        
                                                        
                                                        
                                                        5,929
                                                        
                                                        
                                                        
                                                        13,128
                                                        
                                                        
                                                        
                                                        17,227Impairment
      loss on available for sale securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        207Provision
      for loss on loan receivable
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,152
                                                        
                                                        
                                                        
                                                        -General
      and administrative
                                                        
                                                        
                                                        1,825
                                                        
                                                        
                                                        
                                                        1,566
                                                        
                                                        
                                                        
                                                        5,149
                                                        
                                                        
                                                        
                                                        5,119State
      and local taxes
                                                        
                                                        
                                                        14
                                                        
                                                        
                                                        
                                                        13
                                                        
                                                        
                                                        
                                                        211
                                                        
                                                        
                                                        
                                                        23511,693
                                                        
                                                        
                                                        
                                                        13,102
                                                        
                                                        
                                                        
                                                        36,956
                                                        
                                                        
                                                        
                                                        39,433Other
      incomeEarnings
      (loss) from preferred equity investments
                                                        
                                                        
                                                        86
                                                        
                                                        
                                                        
                                                        1,100
                                                        
                                                        
                                                        
                                                        (2,108
                                                        )
                                                        
                                                        
                                                        2,518Earnings
      (loss) from equity investments
                                                        
                                                        
                                                        211
                                                        
                                                        
                                                        
                                                        2,323
                                                        
                                                        
                                                        
                                                        (100,201
                                                        )
                                                        
                                                        
                                                        (16,198
                                                        )Gain
      on sale of available for sale securities
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        2,029Gain
      on sale of securities carried at fair value
                                                        
                                                        
                                                        676
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        3,274
                                                        
                                                        
                                                        
                                                        -Gain
      on sale of mortgage-backed securitiesavailable
      for sale
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        454Gain
      on sale of other assets
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        24
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        24Unrealized
      gain on securities carried at fair value
                                                        
                                                        
                                                        12,578
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        14,010
                                                        
                                                        
                                                        
                                                        -Impairment
      loss on real estate loan available for sale
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (203
                                                        )
                                                        
                                                        
                                                        -Gain
      on early extinguishment of debt
                                                        
                                                        
                                                        445
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        5,682
                                                        
                                                        
                                                        
                                                        -Interest
      income
                                                        
                                                        
                                                        31
                                                        
                                                        
                                                        
                                                        761
                                                        
                                                        
                                                        
                                                        145
                                                        
                                                        
                                                        
                                                        1,42514,027
                                                        
                                                        
                                                        
                                                        4,208
                                                        
                                                        
                                                        
                                                        (79,401
                                                        )
                                                        
                                                        
                                                        (9,748
                                                        )Consolidated
      income (loss) from continuing operations
                                                        
                                                        
                                                        15,472
                                                        
                                                        
                                                        
                                                        2,358
                                                        
                                                        
                                                        
                                                        (77,821
                                                        )
                                                        
                                                        
                                                        (15,386
                                                        )Income
      from discontinued operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        49
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        134Consolidated
      net income (loss)
                                                        
                                                        
                                                        15,472
                                                        
                                                        
                                                        
                                                        2,407
                                                        
                                                        
                                                        
                                                        (77,821
                                                        )
                                                        
                                                        
                                                        (15,252
                                                        )Income
      attributable to non-controlling interests
                                                        
                                                        
                                                        (315
                                                        )
                                                        
                                                        
                                                        (178
                                                        )
                                                        
                                                        
                                                        (651
                                                        )
                                                        
                                                        
                                                        (264
                                                        )Net
      income (loss) attributable to Winthrop Realty Trust
                                                        
                                                        $
                                                        15,157
                                                        
                                                        
                                                        $
                                                        2,229
                                                        
                                                        
                                                        $
                                                        (78,472
                                                        )
                                                        
                                                        $
                                                        (15,516
                                                        )Comprehensive
      income (loss)Net
      income (loss)
                                                        
                                                        $
                                                        15,472
                                                        
                                                        
                                                        $
                                                        2,407
                                                        
                                                        
                                                        $
                                                        (77,821
                                                        )
                                                        
                                                        $
                                                        (15,252
                                                        )Change
      in unrealized gain (loss) on available for salesecurities
      arising during the period
                                                        
                                                        
                                                        10
                                                        
                                                        
                                                        
                                                        16
                                                        
                                                        
                                                        
                                                        21
                                                        
                                                        
                                                        
                                                        2,128Change
      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
                                                        
                                                        
                                                        141
                                                        
                                                        
                                                        
                                                        41
                                                        
                                                        
                                                        
                                                        406
                                                        
                                                        
                                                        
                                                        (209
                                                        )Change
      in unrealized gain (loss) from equity investments
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (820
                                                        )
                                                        
                                                        
                                                        26,174
                                                        
                                                        
                                                        
                                                        3,465Less
      reclassification adjustment from gains includedin
      net income
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        (2,483
                                                        )Comprehensive
      income (loss)
                                                        
                                                        $
                                                        15,623
                                                        
                                                        
                                                        $
                                                        1,644
                                                        
                                                        
                                                        $
                                                        (51,220
                                                        )
                                                        
                                                        $
                                                        (12,161
                                                        )Per
      Common Share data - BasicIncome
      (loss) from continuing operations attributable toWinthrop
      Realty Trust
                                                        
                                                        $
                                                        0.90
                                                        
                                                        
                                                        $
                                                        0.14
                                                        
                                                        
                                                        $
                                                        (4.96
                                                        )
                                                        
                                                        $
                                                        (1.07
                                                        )Income
      from discontinued operations attributable toWinthrop
      Realty Trust
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        0.01Net
      income (loss) attributable to Winthrop Realty Trust
                                                        
                                                        $
                                                        0.90
                                                        
                                                        
                                                        $
                                                        0.14
                                                        
                                                        
                                                        $
                                                        (4.96
                                                        )
                                                        
                                                        $
                                                        (1.06
                                                        )Per
      Common Share data - DilutedIncome
      (loss) from continuing operations attributable toWinthrop
      Realty Trust
                                                        
                                                        $
                                                        0.90
                                                        
                                                        
                                                        $
                                                        0.14
                                                        
                                                        
                                                        $
                                                        (4.96
                                                        )
                                                        
                                                        $
                                                        (1.07
                                                        )Income
      from discontinued operations attributable toWinthrop
      Realty Trust
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        0.01Net
      income (loss) attributable to Winthrop Realty Trust
                                                        
                                                        $
                                                        0.90
                                                        
                                                        
                                                        $
                                                        0.14
                                                        
                                                        
                                                        $
                                                        (4.96
                                                        )
                                                        
                                                        $
                                                        (1.06
                                                        )Basic
      Weighted-Average Common Shares
                                                        
                                                        
                                                        15,855
                                                        
                                                        
                                                        
                                                        15,717
                                                        
                                                        
                                                        
                                                        15,828
                                                        
                                                        
                                                        
                                                        14,570Diluted
      Weighted-Average Common Shares
                                                        
                                                        
                                                        15,855
                                                        
                                                        
                                                        
                                                        15,725
                                                        
                                                        
                                                        
                                                        15,828
                                                        
                                                        
                                                        
                                                        14,570Amounts
      attributable to Winthrop RealtyTrust
      Common ShareholdersIncome
      (loss) from continuing operations
                                                        
                                                        $
                                                        14,318
                                                        
                                                        
                                                        $
                                                        2,180
                                                        
                                                        
                                                        $
                                                        (78,472
                                                        )
                                                        
                                                        $
                                                        (15,650
                                                        )Income
      from discontinued operations
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        49
                                                        
                                                        
                                                        
                                                        -
                                                        
                                                        
                                                        
                                                        134Net
      income (loss)
                                                        
                                                        $
                                                        14,318
                                                        
                                                        
                                                        $
                                                        2,229
                                                        
                                                        
                                                        $
                                                        (78,472
                                                        )
                                                        
                                                        $
                                                        (15,516
                                                        )





See Notes
to Consolidated Financial Statements.


4


WINTHROP
REALTY TRUST


FORM
10-Q - SEPTEMBER 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
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (78,472
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (78,472
                                        )Cumulative
      effect, change in accounting principle
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        11,647
                                        
                                        
                                        
                                        (11,647
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Net
      income attributable to non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        651
                                        
                                        
                                        
                                        651Distributions
      to non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (743
                                        )
                                        
                                        
                                        (743
                                        )Contributions
      from non-controlling interests
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        723
                                        
                                        
                                        
                                        723Dividends
      paid or accrued on Common Sharesof
      Beneficial Interest ($0.75 per share)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (11,875
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (11,875
                                        )Change
      in unrealized gain on available for salesecurities,
      net of reclassification adjustmentfor
      amounts included in net income
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        21
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        21Change
      in unrealized loss on interest ratederivatives
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        406
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        406Change
      in unrealized loss from equityinvestments
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,174
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        26,174Stock
      issued pursuant to dividend reinvestmentplan
                                        
                                        
                                        107
                                        
                                        
                                        
                                        107
                                        
                                        
                                        
                                        940
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        1,047Balance,
      September 30, 2009
                                        
                                        
                                        15,861
                                        
                                        
                                        $
                                        15,861
                                        
                                        
                                        $
                                        461,896
                                        
                                        
                                        $
                                        (291,984
                                        )
                                        
                                        $
                                        (222
                                        )
                                        
                                        $
                                        11,589
                                        
                                        
                                        $
                                        197,140





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
                                            
                                            
                                            $
                                            (124,553
                                            )
                                            
                                            $
                                            (8,090
                                            )
                                            
                                            $
                                            9,978
                                            
                                            
                                            $
                                            301,772Net
      loss attributable to Winthrop Realty Trust
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (15,516
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (15,516
                                            )Net
      income attributable to non-controlling interests
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            264
                                            
                                            
                                            
                                            264Distributions
      to non-controlling interests
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (9
                                            )
                                            
                                            
                                            (9
                                            )Contributions
      from non-controlling interests
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            600
                                            
                                            
                                            
                                            600Dividends
      paid or accrued on Common Sharesof
      Beneficial Interest ($0.195 per share)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (14,621
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (14,621
                                            )Change
      in unrealized gain on available for salesecurities,
      net of reclassification adjustmentfor
      amounts included in net income
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            99
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            99Change
      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
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (209
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (209
                                            )Change
      in unrealized loss from equityinvestments
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,465
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,465Stock
      issued pursuant to dividend reinvestmentplan
                                            
                                            
                                            818
                                            
                                            
                                            
                                            818
                                            
                                            
                                            
                                            2,600
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,418Conversion
      of Series B-1 Preferred Shares toCommon
      Shares
                                            
                                            
                                            2,705
                                            
                                            
                                            
                                            2,705
                                            
                                            
                                            
                                            9,064
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            11,769Issuance
      of Common Shares through rights offering
                                            
                                            
                                            8,845
                                            
                                            
                                            
                                            8,845
                                            
                                            
                                            
                                            28,056
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            36,901Balance,
      September 30, 2008
                                            
                                            
                                            78,660
                                            
                                            
                                            $
                                            78,660
                                            
                                            
                                            $
                                            397,865
                                            
                                            
                                            $
                                            (154,690
                                            )
                                            
                                            $
                                            (4,999
                                            )
                                            
                                            $
                                            10,833
                                            
                                            
                                            $
                                            327,669





See Notes
to Consolidated Financial Statements.


5


WINTHROP
REALTY TRUST
 FORM
10-Q - SEPTEMBER 30, 2009
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In
thousands)
 
 For the Nine Months EndedSeptember 30,2009
                      
                      
                      2008Cash
      flows from operating activitiesNet
      loss
                      
                      $
                      (77,821
                      )
                      
                      $
                      (15,252
                      )Adjustments
      to reconcile net loss to net cash provided by operating
      activitiesDepreciation
      and amortization (including amortization of deferredfinancing
      costs)
                      
                      
                      5,562
                      
                      
                      
                      6,077Amortization
      of lease intangibles
                      
                      
                      3,647
                      
                      
                      
                      4,172Straight-lining
      of rental income
                      
                      
                      (514
                      )
                      
                      
                      (624
                      )Losses
      (earnings) of preferred equity investments
                      
                      
                      2,843
                      
                      
                      
                      (1,602
                      )Distributions
      from preferred equity investments
                      
                      
                      2,291
                      
                      
                      
                      3,702Losses
      of equity investments
                      
                      
                      100,201
                      
                      
                      
                      16,198Distributions
      from equity investments
                      
                      
                      1,596
                      
                      
                      
                      6,588Restricted
      cash held in escrows
                      
                      
                      (1,009
                      )
                      
                      
                      549Gain
      on sale of mortgage-backed securities available for sale
                      
                      
                      -
                      
                      
                      
                      (454
                      )Gain
      on sale of securities carried at fair value
                      
                      
                      (3,274
                      )
                      
                      
                      -Gain
      on sale of available for sale securities
                      
                      
                      -
                      
                      
                      
                      (2,029
                      )Unrealized
      gain on securities carried at fair value
                      
                      
                      (14,010
                      )
                      
                      
                      -Impairment
      loss on real estate loan available for sale
                      
                      
                      203
                      
                      
                      
                      -Gain
      on early extinguishment of debt
                      
                      
                      (5,682
                      )
                      
                      
                      -Impairment
      loss
                      
                      
                      -
                      
                      
                      
                      207Provision
      for loss on loan receivable
                      
                      
                      2,152
                      
                      
                      
                      -Bad
      debt recovery
                      
                      
                      (73
                      )
                      
                      
                      (55
                      )Tenant
      leasing costs
                      
                      
                      (2,081
                      )
                      
                      
                      -Net
      change in interest receivable
                      
                      
                      (171
                      )
                      
                      
                      (50
                      )Net
      change in loan discount accretion
                      
                      
                      (406
                      )
                      
                      
                      -Net
      change in accounts receivable
                      
                      
                      1,110
                      
                      
                      
                      10,399Net
      change in accounts payable and accrued liabilities
                      
                      
                      (653
                      )
                      
                      
                      (2,968
                      )Net
      cash provided by operating activities
                      
                      
                      13,911
                      
                      
                      
                      24,858Cash
      flows from investing activitiesInvestments
      in real estate
                      
                      
                      (1,301
                      )
                      
                      
                      (2,784
                      )Proceeds
      from repayments of mortgage-backed securities available for
      sale
                      
                      
                      -
                      
                      
                      
                      78,318Return
      of equity on equity investments
                      
                      
                      -
                      
                      
                      
                      19,041Investment
      in equity investments
                      
                      
                      (2,007
                      )
                      
                      
                      (14,093
                      )Investment
      in preferred equity investments
                      
                      
                      -
                      
                      
                      
                      (4,973
                      )Investment
      in real estate loan available for sale
                      
                      
                      (35,000
                      )
                      
                      
                      -Proceeds
      from sale of real estate loan available for sale
                      
                      
                      34,797
                      
                      
                      
                      -Proceeds
      from preferred equity investments
                      
                      
                      60
                      
                      
                      
                      21,273Purchase
      of securities carried at fair value
                      
                      
                      (30,552
                      )
                      
                      
                      -Purchase
      of available for sale securities
                      
                      
                      -
                      
                      
                      
                      (5,055
                      )Proceeds
      from sale of securities carried at fair value
                      
                      
                      22,866
                      
                      
                      
                      -Proceeds
      from sale of available for sale securities
                      
                      
                      -
                      
                      
                      
                      57,699Decrease
      (increase) in restricted cash held in escrows
                      
                      
                      2,647
                      
                      
                      
                      (619
                      )Issuance
      and acquisition of loans receivable
                      
                      
                      (15,501
                      )
                      
                      
                      (6,928
                      )Collection
      of loans receivable
                      
                      
                      10,980
                      
                      
                      
                      2,635Net
      cash (used in) provided by investing activities
                      
                      
                      (13,011
                      )
                      
                      
                      144,514
 
 (Continued
on next
page)
  
 6
  WINTHROP
REALTY TRUST
 FORM
10-Q - SEPTEMBER 30, 2009
 
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In
thousands)
 (Continued
from previous page)
 
 For the Nine Months EndedSeptember 30,2009
                      
                      
                      2008Cash
      flows from financing activitiesRepayment
      of borrowings under repurchase agreements
                      
                      $
                      -
                      
                      
                      $
                      (75,175
                      )Proceeds
      from loan payable
                      
                      
                      19,818
                      
                      
                      
                      -Payment
      of loan payable
                      
                      
                      (19,818
                      )
                      
                      
                      -Proceeds
      from revolving line of credit
                      
                      
                      35,000
                      
                      
                      
                      70,000Payment
      of revolving line of credit
                      
                      
                      (35,000
                      )
                      
                      
                      -Proceeds
      from mortgage loans payable
                      
                      
                      49
                      
                      
                      
                      742Restricted
      cash held in escrows
                      
                      
                      3,970
                      
                      
                      
                      (32,996
                      )Principal
      payments of mortgage loans payable
                      
                      
                      (4,332
                      )
                      
                      
                      (3,959
                      )Payments
      of note payable
                      
                      
                      (9,800
                      )
                      
                      
                      -Deferred
      financing costs
                      
                      
                      (61
                      )
                      
                      
                      (24
                      )Dividends
      paid on Common Shares
                      
                      
                      (13,844
                      )
                      
                      
                      (25,750
                      )Redemption
      of Series B-1 Preferred Shares
                      
                      
                      (2,000
                      )
                      
                      
                      -Issuance
      of Common Shares under dividend reinvestment plan
                      
                      
                      1,047
                      
                      
                      
                      3,418Issuance
      of Common Shares through rights offering
                      
                      
                      -
                      
                      
                      
                      36,901Contribution
      from non-controlling interest
                      
                      
                      723
                      
                      
                      
                      600Distribution
      to non-controlling interest
                      
                      
                      (743
                      )
                      
                      
                      (9
                      )Net
      cash used in financing activities
                      
                      
                      (24,991
                      )
                      
                      
                      (26,252
                      )Net
      increase (decrease) in cash and cash equivalents
                      
                      
                      (24,091
                      )
                      
                      
                      143,120Cash
      and cash equivalents at beginning of period
                      
                      
                      59,238
                      
                      
                      
                      36,654Cash
      and cash equivalents at end of period
                      
                      $
                      35,147
                      
                      
                      $
                      179,774Supplemental Disclosure of Cash
      Flow InformationInterest
      paid
                      
                      $
                      12,624
                      
                      
                      $
                      20,040Taxes
      paid
                      
                      $
                      124
                      
                      
                      $
                      115Supplemental Disclosure of
      Non-Cash Investing and Financing ActivitiesDividends
      accrued on Common Shares
                      
                      $
                      3,965
                      
                      
                      $
                      5,113Capital
      expenditures accrued
                      
                      $
                      190
                      
                      
                      $
                      394Conversion
      of Series B-1 Preferred Shares into Common Shares
                      
                      $
                      -
                      
                      
                      $
                      11,769Redemption
      of Series B-1 Preferred Shares
                      
                      $
                      (17,081
                      )
                      
                      $
                      -Deposit
      on redemption of Series B-1 Preferred Shares
                      
                      $
                      17,081
                      
                      
                      $
                      -Transfer
      of preferred equity investments to equity method
    investments
                      
                      $
                      (41,823
                      )
                      
                      $
                      -Transfer
      of loans to equity method investments
                      
                      $
                      (15,805
                      )
                      
                      $
                      -Transfer to
      equity method investments from loans and preferred equity
      investments
                      
                      $
                      57,628
                      
                      
                      $
                      -
 
 See Notes
to Consolidated Financial Statements.
  7


WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





1.
            Organization





Winthrop
Realty Trust (the “REIT” or the “Trust”) 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 property and real estate related assets.





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 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 considered
necessary for fair statements have been included, which adjustments were normal
recurring adjustments.  The results of operations for the nine months
ended September 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.





FASB Launches New Accounting
Standards Codification




In June
2009 the Financial Accounting Standards Board (“FASB”) issued FASB Accounting
Standards Codification (“Codification”) as the single source of authoritative
GAAP recognized by the FASB to be applied by nongovernmental entities effective
for interim and annual periods ending after September 15, 2009.  Rules
and interpretive releases of the SEC under authority of federal securities laws
are also sources of authoritative GAAP for SEC registrants. The Codification
supersedes all existing non-SEC accounting and reporting standards. All other
non-grandfathered, non-SEC accounting literature not included in the
Codification have become non-authoritative.




Following
the Codification, FASB will not issue new standards in the form of Statements,
FASB Staff Positions (“FSP”) or Emerging Issues Task Force (“EITF”) Abstracts.
Instead, it will issue Accounting Standards Updates, which will serve to update
the Codification, provide background information about the guidance and provide
the basis for conclusions on the changes to the Codification.





8




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


GAAP is
not intended to be changed as a result of the FASB's Codification, but it will
change the way the guidance is organized and presented. As a result, these
changes will have a significant impact on how companies reference GAAP in their
financial statements and in their accounting policies.  The Trust has
adopted the Codification in this quarterly report by using plain English to
describe FASB broad topic references.




Reverse Stock
Split





In
November 2008 the Trust effected a 1-for-5 reverse stock split (the
"Reverse Split") of its Common Shares of Beneficial Interest (“Common Shares”)
pursuant to which each five Common Shares issued and outstanding as of the close
of the market on November 28, 2008 were automatically combined into one
Common Share, subject to the elimination of fractional shares.  All
references to Common Shares outstanding, per Common Share amounts and stock
option data have been revised to reflect the effect of the Reverse Split
for all periods presented.





Reclassifications





Certain
prior year balances have been reclassified in order to conform to the current
year’s presentation.  Discontinued operations for the three and
nine month periods ended September 30, 2008 include the Trust’s property in
Biloxi, Mississippi.  Also during the three and nine month
periods ended September 30, 2008, the Trust placed its St. Louis, Missouri
property back into continuing operations.





Retrospective Adjustments
Related to Non-Controlling Interests





Effective
January 1, 2009, the Trust adopted the provisions of a newly issued accounting
standard for non-controlling interests which establishes and expands accounting
and reporting standards for entities that have outstanding minority
interests.  They are now characterized as non-controlling interests in
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 disclosure in the consolidated statements of
operations and comprehensive income of 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 was reported as an expense in determining consolidated net income.
 The adoption of this new accounting standard 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’s consolidated balance sheets, (ii) the reclassification of
minority interest expense to net income attributable to non-controlling
interests on the Trust’s consolidated statements of operations and comprehensive
income, and (iii) additional disclosures, including consolidated statements of
changes in equity.





As part
of the adoption of this standard, the consolidated financial statements reflect
certain reclassifications of prior period amounts. The revisions had no impact
on previously reported net income attributable to Common Shares or basic and
diluted earnings per Common Share.




Variable Interest
Entities




The Trust
has evaluated its investments to determine whether they constitute a variable
interest in a variable interest entity (“VIE”).  The FASB’s accounting
guidance on consolidations 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 the new FASB accounting guidance for disclosure
requirements for the consolidation of VIEs. Among other things these new
standards require enhanced disclosure with respect to variable interest entities
to provide users of financial statements with an understanding of the
significant judgments and assumptions made by the Trust in its determination of
whether it must consolidate variable interest entities.





9




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





Earnings Per
Share





The Trust
determines basic earnings per share on the weighted average number of Common
Shares outstanding during the period and reflects 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 on a quarterly basis equal to the
greater of (i) $0.40625 per share quarterly (6.5% of the liquidation preference
on an annualized basis) or (ii) cash dividends payable on the number of Common
Shares into which the Series B-1 Preferred Shares are
convertible.  The Trust computes diluted earnings per share based on
the weighted average number of Common Shares outstanding combined with the
incremental weighted average effect from all outstanding potentially dilutive
instruments.





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





Three
      Months Ended
                                September
      30,
                              
                              
                              Nine
      Months Ended
                                September
      30,2009
                              
                              
                              2008
                              
                              
                              2009
                              
                              
                              2008BasicIncome
      (loss) from continuing operations attributable to Winthrop Realty
      Trust
                              
                              $
                              15,157
                              
                              
                              $
                              2,180
                              
                              
                              $
                              (78,472
                              )
                              
                              $
                              (15,650
                              )Allocation
      of undistributed earnings to Series B-1 Preferred Shares
                              
                              
                              (839
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                              
                              
                              -
                              
                              
                              
                              49
                              
                              
                              
                              -
                              
                              
                              
                              134Net
      income (loss) attributable to Winthrop Realty Trust applicable to Common
      Shares for earnings per share purposes
                              
                              $
                              14,318
                              
                              
                              $
                              2,229
                              
                              
                              $
                              (78,472
                              )
                              
                              $
                              (15,516
                              )Basic
      weighted-average Common Shares
                              
                              
                              15,855
                              
                              
                              
                              15,717
                              
                              
                              
                              15,828
                              
                              
                              
                              14,570Income
      (loss) from continuing operations attributable to Winthrop Realty
      Trust
                              
                              $
                              0.90
                              
                              
                              $
                              0.14
                              
                              
                              $
                              (4.96
                              )
                              
                              $
                              (1.07
                              )Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              0.01Net
      income (loss) attributable to Winthrop Realty Trust per Common
      Share
                              
                              $
                              0.90
                              
                              
                              $
                              0.14
                              
                              
                              $
                              (4.96
                              )
                              
                              $
                              (1.06
                              )DilutedIncome
      (loss) from continuing operations attributable to Winthrop Realty
      Trust
                              
                              $
                              15,157
                              
                              
                              $
                              2,180
                              
                              
                              $
                              (78,472
                              )
                              
                              $
                              (15,650
                              )Allocation
      of undistributed earnings to Series B-1 Preferred Shares
                              
                              
                              (839
                              )
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                              
                              
                              -
                              
                              
                              
                              49
                              
                              
                              
                              -
                              
                              
                              
                              134Net
      income (loss) attributable to Winthrop Realty Trust applicable to Common
      Shares for earnings per share purposes
                              
                              $
                              14,318
                              
                              
                              $
                              2,229
                              
                              
                              $
                              (78,472
                              )
                              
                              $
                              (15,516
                              )Basic
      weighted-average Common Shares
                              
                              
                              15,855
                              
                              
                              
                              15,717
                              
                              
                              
                              15,828
                              
                              
                              
                              14,570Series
      B-1 Preferred Shares (1)
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -Stock
      options (2)
                              
                              
                              -
                              
                              
                              
                              8
                              
                              
                              
                              -
                              
                              
                              
                              -Diluted
      weighted-average Common Shares
                              
                              
                              15,855
                              
                              
                              
                              15,725
                              
                              
                              
                              15,828
                              
                              
                              
                              14,570Income
      (loss) from continuing operations attributable to Winthrop Realty
      Trust
                              
                              $
                              0.90
                              
                              
                              $
                              0.14
                              
                              
                              $
                              (4.96
                              )
                              
                              $
                              (1.07
                              )Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              0.01Net
      income (loss) attributable to Winthrop Realty Trust per Common
      Share
                              
                              $
                              0.90
                              
                              
                              $
                              0.14
                              
                              
                              $
                              (4.96
                              )
                              
                              $
                              (1.06
                              )




10




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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





Recently Issued Accounting
Standards





In August
2009 the FASB updated guidance on fair value measurements which clarifies how
entities should estimate the fair value of liabilities. The accounting standards
update was issued to improve the consistency of how entities apply the fair
value guidance to liabilities and reintroduces the concept of entry value into
the determination of fair value.  Entry value is the amount an entity
would receive to enter into an identical liability.  Under the new
guidance, the fair value of a liability is not adjusted to reflect the impact of
contractual restrictions that prevent its transfer.  The update was
effective for the Trust for the quarter ended September 30, 2009. The Trust has
adopted this standard which did not have a material impact on its consolidated
financial statements.





In
June 2009 the FASB issued an amendment to the accounting and
disclosure requirements for the consolidation of VIEs. This amendment requires
an enterprise to perform a qualitative analysis when determining whether or not
it must consolidate a VIE and requires a continuous reassessment of whether it
must consolidate a VIE. Additionally, the amendment requires enhanced
disclosures about an enterprise’s involvement with VIEs and any significant
change in risk exposure due to that involvement, as well as how its involvement
with VIEs impacts the enterprise’s financial statements. Finally, an enterprise
will be required to disclose significant judgments and assumptions used to
determine whether or not to consolidate a VIE. This amendment will be
effective for the Trust beginning in fiscal 2010. The Trust is evaluating the
impact of this amendment on its consolidated financial statements.





11




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In June
2009 the FASB issued an amendment to the accounting and disclosure requirements
for transfers of financial assets. This amendment requires greater transparency
and additional disclosures for transfers of financial assets and the entity’s
continuing involvement with the assets.  In addition, this amendment
changes the criteria for the transfer of a financial asset and eliminates the
concept of a qualifying special-purpose entity. This amendment will be effective
for the Trust beginning in fiscal 2010. The Trust is evaluating the impact of
this amendment on its consolidated financial statements.





In
April 2009 the FASB amended the accounting guidance for business combinations as
it related to acquired contingencies. The new rules apply to all assets
acquired and all liabilities assumed in a business combination that arise from
contingencies. The guidance states that the acquirer will recognize such an
asset or liability if the acquisition date 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 accounting
standards for loss 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 amendment
was effective for all business acquisitions of the Trust occurring on or
after January 1, 2009. The Trust has adopted the new provisions under
business combinations which did not have a material impact on its
consolidated financial statements.





In April
2009 the FASB amended existing guidance on investments in debt and equity
securities related to determining whether an impairment for investments in debt
securities is other-than-temporary. It requires a more detailed, risk-oriented
breakdown of major security types and related information. In addition, the new
guidance expands required disclosures and increases the frequency of certain
disclosures by requiring interim rather than annual reporting (such as the aging
of securities with unrealized losses). This guidance 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.  The new rules require that 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 will not more-likely-than-not be required to sell 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 new requirements
were effective for the Trust for the quarter ended June 30, 2009. The cumulative
effect of the adoption of this new accounting standard included an increase in
the opening balance of accumulated distributions in excess of net income at
April 1, 2009 of $11,647,000 and corresponding adjustment to accumulated other
comprehensive loss primarily as a result of the Trust’s investment in Lex-Win
Concord LLC.





In April
2009 the FASB expanded the guidance for estimating fair value when the volume
and level of activity for the asset or liability have significantly
decreased.  The amendment also includes guidance on identifying
circumstances that indicate a transaction is not orderly. The new
rules 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 techniques used, the objective of a fair value measurement remains the
same – that is, the price that would be received upon sale of an asset or paid
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 new guidance 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”). The new
requirements were effective for the Trust for the quarter ended June 30, 2009.
The Trust has adopted this standard which did not have a material impact on its
consolidated financial statements.





In April
2009 the FASB amended guidance related to reporting disclosures for financial
instruments. This guidance requires disclosing qualitative and quantitative
information about the fair value of all financial instruments on a quarterly
basis, including methods and significant assumptions used to estimate fair value
during the period. These disclosures were previously done annually. The new
requirements were effective for the Trust for the quarter ended June 30, 2009
and do not require disclosures for earlier periods presented for comparative
purposes at initial adoption. In periods after initial adoption, this amendment
requires comparative disclosures only for periods ending after initial
adoption.  The Trust has adopted this new guidance which did not have a
material impact on its consolidated financial statements.





12




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In
November 2008 the FASB issued guidance related to equity method investments
which generally continues existing practices including the use of a
cost-accumulation approach to initial measurement of the investment but the new
rules do 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 existing standards.  The new
requirements were effective for the Trust for the quarter ended March 31,
2009.  The Trust has adopted the new guidance which did not have a
material impact on its consolidated financial statements.




In June
2008 the FASB issued new guidance on derivatives related to determining whether
an instrument (or embedded feature) is indexed to an entity’s own
stock.  This new guidance specifies that if 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, it would not be considered a derivative financial
instrument.  This new guidance was effective for the Trust for the
quarter ended March 31, 2009.  The Trust has adopted this new guidance
which did not have a material impact on its consolidated financial
statements.





3.
            Fair
      Value Measurement





Cash equivalents, derivative financial
instruments, available for sale securities and securities carried at fair value
are reported at fair value.  The accounting standards 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, the standards establish 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 or quoted prices of securities with
similar characteristics, 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 SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


In
October 2008 the Trust adopted an amendment to the guidance for fair value
measurements 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, the amended guidance 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, the accounting
rules require 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 this new guidance
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
and Cash Equivalents





The
Trust’s cash and 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 September 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
September 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.





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.





To comply
with the accounting provisions of fair value measurements, 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.





14




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


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 September 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 September 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
      and cash equivalents
                  
                  $
                  35,147
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  35,147Available
      for sale securities
                  
                  
                  205
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  205Securities
      carried at fair value
                  
                  
                  60,869
                  
                  
                  
                  -
                  
                  
                  
                  617
                  
                  
                  
                  61,486$
                  96,221
                  
                  
                  $
                  -
                  
                  
                  $
                  617
                  
                  
                  $
                  96,838LiabilitiesDerivative
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  247
                  
                  
                  $
                  -
                  
                  
                  $
                  247





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
      and cash equivalents
                  
                  $
                  59,238
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  59,238Available
      for sale securities
                  
                  
                  184
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  184Securities
      carried at fair value
                  
                  
                  36,516
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  36,516$
                  95,938
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  95,938LiabilitiesDerivative
      liabilities
                  
                  $
                  -
                  
                  
                  $
                  765
                  
                  
                  $
                  -
                  
                  
                  $
                  765





The table
below includes a roll forward of the balance sheet amounts from January 1, 2009
to September 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.





Nine Months Ended September 30, 2009
                
                Securities Carried
                  at Fair Value(in
      thousands)Fair
      value, January 1, 2009
                
                $
                -Purchases,
      issuances and settlements , net
                
                
                617Transfers
      in/and or out of Level 3
                
                
                -Fair
      value, September 30, 2009
                
                $
                617




15




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 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 LLC
fall within Level 3.  The Trust recognized valuation adjustments of
$31,670,000 on this asset during the nine months ended September 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 three preferred equity investments as of June 30,
2009.  Due to the restructuring of our investment in the Marc Realty
properties, these preferred equity investments were reclassified as equity
investments as of July 1, 2009.  All of the Trust’s remaining equity
investments are carried at cost which is equal to or lower than their current
fair value at September 30, 2009.  There were no valuation adjustments
made during the three months ended September 30, 2009.





The table
below presents as of December 31, 2008 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





The
current accounting guidance for fair value measurement 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.  The fair value option guidance permits the
fair value option election on an instrument by instrument basis of an asset or
liability when initially recorded 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 nine months ended September 30, 2009, the Trust recognized a net
unrealized gain of $12,578,000 and $14,010,000, 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.





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





Financial
      instruments, at fair value
                  
                  September
      30, 2009AssetsSecurities
      carried at fair value:Senior
      debentures
                  
                  $
                  22,035Preferred
      shares
                  
                  
                  21,064Common
      shares
                  
                  
                  18,387$
                  61,486





16






WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 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
                        September 30, 2009
                      
                      
                      Amount Due
                        Upon Maturity
                      
                      
                      DifferenceAssetsSecurities
      carried at fair value:Senior
      debentures
                      
                      $
                      22,035
                      
                      
                      $
                      25,191
                      
                      
                      $
                      3,156
 
 4.
              Acquisitions,
      Loan Originations, Dispositions and
Financings
 
 Preferred
Stock
 
 In July
2009 the Trust acquired 100,000 Series B-1 Preferred Shares at a discounted
price of $2,000,000.  The Trust recorded a gain from the early
extinguishment of debt of approximately $445,000, net of unamortized issuance
costs of $55,000.  Subsequent to this repurchase, there are 1,396,000
Series B-1 Preferred Shares outstanding.
 
 Acquisitions &
Dispositions of REIT Securities
 
 During
the three months ended September 30, 2009 the Trust received, as a dividend
payment from one of its investments in the form of additional common shares
valued at approximately $663,000 at the date of issuance.
 
 During
the three months ended September 30, 2009 the Trust sold senior debentures with
an original cost basis of $2,905,000 and a fair value as reported on the balance
sheet on June 30, 2009 of $3,753,000 and received net proceeds of approximately
$3,783,000.  In addition, during the three months ended September 30, 2009,
the Trust sold preferred shares with an original cost basis of $181,000 and a
fair value as reported on the balance sheet on June 30, 2009 of $397,000, for
net proceeds of approximately $431,000.  Also during the period, the Trust
sold common shares with an original cost basis of $1,245,000 and a fair value as
reported on the balance sheet on June 30, 2009 of $1,281,000 for net proceeds of
approximately $1,893,000.  For the three and nine months ended September
30, 2009, the Trust recognized a net gain on the sale of these securities of
approximately $676,000 and $3,274,000, respectively, exclusive of any interest
or dividends earned.
 
 Real Estate Loan
Acquisitions
 
 On June
1, 2009, the Trust acquired from Concord Debt Holdings LLC, 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.  As of September 30, 2009 no
advances have been made by the Trust or requested by the borrower.  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.  The remaining
$3,500,000 investment has been recorded as a loan receivable, is carried at cost
and has a discounted payoff amount of $15,000,000.  The difference between
the discounted payoff amount and the carrying value is accreted into income as
interest income over the life of the loan using the effective interest
method.
  17
 
 WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 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 was
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.
 
 Creekwood
Apartments
 
 In August
2009 the First District Court of Wyandotte County, Kansas, appointed a receiver
to operate and manage the Trust’s apartment complex in Kansas City, Kansas,
commonly referred to as Creekwood Apartments.  In October 2009 the First
District Court of Wyandotte, Kansas, issued a notice of foreclosure on behalf of
the first mortgage holder.  The Trust believes that the outstanding
principal balance of the first mortgage approximates the current value of the
property and, because the Trust has been unable to obtain replacement financing
and because the lender has been unwilling to provide concessions, the Trust has
not disputed the foreclosure.  The Trust anticipates the property will be
foreclosed in the fourth quarter of 2009.
 
 5.
              Loans
      Receivable
 
 All of
the Trust’s loans identified as being impaired 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 the accounting guidance of fair
value measurements.
 
 The
following table summarizes the Trust’s loans receivable at September 30, 2009
and December 31, 2008 (in thousands):
 
 Carrying Amount (7)September 30,
                            
                            
                            December 31,Property
                            
                            Location
                            
                            Interest Rate
                            
                            
                            Maturity
                            
                            2009
                            
                            
                            2008Marc
      Realtyproperties (1) (2)
                            
                            Chicago,
      IL
                            
                            
                            8.5
                            %
                            
                            May
      2016
                            
                            $
                            1,508
                            
                            
                            $
                            17,547Loan
      loss allowance
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            (1,341
                            )
                            
                            
                            (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
                            
                            San
      Francisco, CA
                            
                            
                            (6
                            )
                            
                            June
      2012
                            
                            
                            3,899
                            
                            
                            
                            -Siete
      Square (5)
                            
                            Phoenix,
      AZ
                            
                            
                            9.8
                            %
                            
                            June
      2012
                            
                            
                            5,504
                            
                            
                            
                            -Vision
      Term Loan (8)
                            
                            
                            
                            
                            15.0
                            %
                            
                            Dec
      2011
                            
                            
                            -
                            
                            
                            
                            1,266Loan
      loss allowance
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            -
                            
                            
                            
                            (1,266
                            )$
                            9,570
                            
                            
                            $
                            22,876
 
 (1)
              Represents
      tenant improvement and capital expenditure loans for properties in the
      Marc Realty portfolio. Effective July 1, 2009, the tenant improvement and
      capital expenditure loans to certain properties have been transferred to
      equity investments in connection with the Marc Realty restructuring (See
      Note 7).
 (2)
              Collateralized
      by a subordinate mortgage or the ownership interests in the property
      owner.
  18
 
 WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 (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 loan secured by the
property.
 (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 September 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 September 30, 2009) at a rate of 9.75% per
      annum.
 (7)
              The
      carrying amount includes accrued interest of $294 and $123 at September
      30, 2009 and December 31, 2008, respectively, and accretion of discount of
      $406 and $0 at September 30, 2009 and December 31, 2008,
      respectively.
 (8)
              In
      April 2009, the Trust wrote off this loan and loan
    allowance.
 
 During
the nine months ended September 30, 2009, the Trust recorded a provision for
loan loss of $2,152,000 related to loans on several properties in the Marc
Realty portfolio.  In addition, during the nine months ended September 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.  There was no provision for loan loss recorded during the three
months ended September 30, 2009.
 
 For the
three and nine months ended September 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 September 30, 2009, the Trust has received $9,000
which was recorded as a cash recovery on impaired loans which had a carrying
value of $0 at September 30, 2009.
 
 6.
              Securities
 
 Securities Carried at Fair
Value
 
 Securities
carried at fair value are comprised of senior debentures, preferred shares, and
common shares for which the Trust has elected the fair value
option.
 
 Securities
carried at fair value at September 30, 2009 are summarized in the table below
(in thousands):
 
 Cost
                    
                    
                    Fair ValueSenior
      debentures
                    
                    $
                    16,347
                    
                    
                    $
                    22,035Preferred
      shares
                    
                    
                    12,598
                    
                    
                    
                    21,064Common
      shares
                    
                    
                    19,927
                    
                    
                    
                    18,387$
                    48,872
                    
                    
                    $
                    61,486
 
 For the
three and nine months ended September 30, 2009, the Trust recognized an
unrealized gain on securities carried at fair value of $12,578,000 and
$14,010,000, 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
  19
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 Available for Sale
Securities
 
 Available
for sale securities are comprised of securities for which the Trust has not
elected the fair value option.  These securities are accounted for under
the applicable guidance related to debt and equity securities.
 
 Available
for sale securities at September 30, 2009 are summarized in the table below (in
thousands):
 
 Cost
                    
                    
                    Fair
                      ValuePreferred
      shares
                    
                    $
                    204
                    
                    
                    $
                    205
 
 For the
three and nine months ended September 30, 2009, the Trust recognized an
unrealized gain in other comprehensive income of $10,000 and $21,000,
respectively.  As of September 30, 2009, there was a cumulative unrealized
gain in other comprehensive income of $1 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 nine months ended September 30, 2009 and September 30, 2008, securities were
sold for total proceeds of approximately $22,866,000 and $57,699,000,
respectively.  The Trust recognized a net realized gain of $676,000 and
$3,274,000 on the sale of these securities during the three and nine months
ended September 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 nine months ended September 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
 
 During
July 2009 the Trust restructured its preferred equity investment with Marc
Realty.  Prior to the restructuring, the Trust held loans and equity
investments in 20 properties with Marc Realty.  The restructuring did
not apply to five of the properties (the “Excluded Properties”) in which the
Trust continues to hold preferred equity investments.  The
restructuring was applicable to 15 properties, three of which the Trust
transferred its interest to Marc Realty effective as of May 1, 2009 (the
“Transferred Properties”) and 12 of which have been reclassified from preferred
equity investments to equity investments effective July 1, 2009 (the “Included
Properties”).
 
 The
Excluded Properties
 
 The
Excluded Properties consist of five convertible mezzanine loans, together with
an equity investment in each mezzanine borrower. The 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.
 
 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 payments and expect the lender to foreclose.  The
debt on these properties is non-recourse to the Trust.  The Trust
fully impaired their investments in these four properties as of June 30, 2009
prior to the restructure. The other Excluded Property is a downtown Chicago
property in which the Trust invested in 2007 subsequent to the initial 2005 Marc
Realty investment and in which the Trust owns a 70% interest. At September 30,
2009 the remaining preferred equity investments in the Marc Realty portfolio
amount to approximately $3,923,000, net of impairments of
$5,475,000.
 
 The
downtown property investment and three of the four suburban property investments
are considered to be VIE’s primarily based on the fact that the underlying
entities do not have sufficient equity at risk to permit the entity to finance
its activities without additional subordinated financing.  As a result
of the existence of certain provisions in the operating agreements identifying
the Trust and Marc Realty as related parties, the Trust determined that Marc
Realty, as the primary decision makers and manager of the operating properties,
is considered to be most closely aligned with the business and is the primary
beneficiary of the VIE’s. The Trust’s preferred equity investment in the fourth
suburban property is not considered a VIE.
  20
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
Transferred Properties
 
 The Trust
transferred its interest in three properties as part of the Marc Realty
restructuring and recognized a loss of $2,664,000 from preferred equity
investments.
 
 The
Included Properties
 
 For the
Included Properties, which are now classified as equity investments, as
described in Note 8, the agreement modified the priority of payments between the
Trust and Marc Realty so that all earnings, losses and cash distributions are
now effectively pari passu.  The interest rate on our mezzanine loans
on the Included Properties 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.
 
 On the
Included Properties, the Trust is also entitled to participate on a pari passu
basis in cash flow.  The residual proceeds under a capital transaction
from the sale or refinancing of the applicable Included Property are to be
allocated 55% to Marc Realty and 45% to the Trust, 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.
 
 Impairment
of Investments
  As of
June 30, 2009, prior to the restructuring, the Trust evaluated it preferred
equity investments for impairment and determined that three of its investments
were other-than temporarily impaired.  In addition to the impairments
recognized on the Excluded Properties and Transferred Properties noted above,
the Trust recorded an impairment charge of $1,636,000 related to its investments
in these three properties.
 
 Earnings
 
 The Trust
recognized earnings from preferred equity investments, exclusive of
Participating Interest payments and impairments, of $86,000 and $1,997,000 for
the three and nine months ended September 30, 2009, respectively, and $1,117,000
and $3,602,000 for the three and nine months ended September 30, 2008,
respectively.  The results for the three months ended September 30, 2009
reflects the effects of the restructuring of the Marc Realty portfolio wherein
the results of the Included Properties are no longer classified as preferred
equity investments after July 1, 2009.  Earnings from preferred equity
investments for the three and nine months ended September 30, 2009 include an
impairment loss of approximately $550,000 taken on one of the Excluded
Properties and $4,300,000 of losses incurred in connection with the
restructuring.  Earnings for the nine months ended September 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.
  21
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 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
                      September 30, 2009
                    
                    
                    As of
                      December 31, 2008Condensed
      Balance SheetsASSETSInvestment
      in real estate, net
                    
                    $
                    24,468
                    
                    
                    $
                    167,386Prepaid
      expenses and deposits
                    
                    
                    25
                    
                    
                    
                    7,239Cash
      and cash equivalents
                    
                    
                    401
                    
                    
                    
                    3,371Receivables
      and other assets
                    
                    
                    2,736
                    
                    
                    
                    30,485Assets
      of discontinued operations
                    
                    
                    25,893
                    
                    
                    
                    -Total
      Assets
                    
                    $
                    53,523
                    
                    
                    $
                    208,481LIABILITIES
      AND PARTNERS’
      DEFICITNonrecourse
      mortgage debt
                    
                    $
                    22,592
                    
                    
                    $
                    285,524Other
      liabilities
                    
                    
                    4,145
                    
                    
                    
                    24,481Liabilities
      of discontinued operations
                    
                    
                    69,989
                    
                    
                    
                    -Total
      Liabilities
                    
                    
                    96,726
                    
                    
                    
                    310,005Partners’
      Deficit
                    
                    
                    (43,203
                    )
                    
                    
                    (101,524
                    )Total
      Liabilities and Partners’ Deficit
                    
                    $
                    53,523
                    
                    
                    $
                    208,481On
      the Trust’s Consolidated Balance Sheets:Preferred
      Equity Investment
                    
                    $
                    4,094
                    
                    
                    $
                    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 $5,475,000.
 
 For the Three Months Ended
                    
                    
                    For the Nine Months EndedSeptember 30,
                      2009
                    
                    
                    September 30,
                      2008
                    
                    
                    September 30,
                      2009
                    
                    
                    September 30,
                      2008Condensed
      Statements of OperationsRevenues
                    
                    $
                    1,400
                    
                    
                    $
                    15,083
                    
                    
                    $
                    23,731
                    
                    
                    $
                    46,351Operating
      expense
                    
                    
                    (560
                    )
                    
                    
                    (7,686
                    )
                    
                    
                    (10,304
                    )
                    
                    
                    (23,082
                    )Interest
      expense
                    
                    
                    (328
                    )
                    
                    
                    (4,641
                    )
                    
                    
                    (6,291
                    )
                    
                    
                    (13,362
                    )Real
      estate taxes
                    
                    
                    (163
                    )
                    
                    
                    (2,645
                    )
                    
                    
                    (3,543
                    )
                    
                    
                    (7,783
                    )Depreciation
      and amortization
                    
                    
                    (425
                    )
                    
                    
                    (3,368
                    )
                    
                    
                    (5,258
                    )
                    
                    
                    (9,532
                    )Other
      expenses, net
                    
                    
                    (57
                    )
                    
                    
                    (734
                    )
                    
                    
                    (1,127
                    )
                    
                    
                    (2,050
                    )Loss
      from continuing operations
                    
                    
                    (133
                    )
                    
                    
                    (3,991
                    )
                    
                    
                    (2,792
                    )
                    
                    
                    (9,458
                    )Discontinued
      operations (1)Income
      (loss) from discontinued operations
                    
                    
                    (572
                    )
                    
                    
                    119
                    
                    
                    
                    820
                    
                    
                    
                    (471
                    )Gain
      (loss) on sale of property
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (1,119
                    )
                    
                    
                    12,733Income
      (loss) from discontinued operations
                    
                    
                    (572
                    )
                    
                    
                    119
                    
                    
                    
                    (299
                    )
                    
                    
                    12,262Net
      income (loss)
                    
                    $
                    (705
                    )
                    
                    $
                    (3,872
                    )
                    
                    $
                    (3,091
                    )
                    
                    $
                    2,804On
      the Trust’s Consolidated Statements of Operations and Comprehensive
      Income:Equity
      in earnings (loss) of Preferred Equity Investment
                    
                    $
                    86
                    
                    
                    $
                    1,100
                    
                    
                    $
                    (2,108
                    )
                    
                    $
                    2,518
  22
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 (1)
              Discontinued
      operations for 2009 and 2008 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 consist of the following at September 30,
2009:
 Investment Group (1)
                          
                          Equity Investment
                          
                          Nominal %
                            Ownership (2)
                          
                          
                          Equity
                            Investment
                            September 30,
                            2009
                          
                          
                          Equity
                            Investment
                            December 31,
                            2008(in
      thousands)Marc
      Realty
                          
                          8
      South Michigan
                          
                          
                          50
                          %
                          
                          $
                          6,958
                          
                          
                          $
                          -Marc
      Realty
                          
                          11
      East Adams Street
                          
                          
                          49
                          %
                          
                          
                          2,833
                          
                          
                          
                          -Marc
      Realty
                          
                          29
      East Madison Street
                          
                          
                          50
                          %
                          
                          
                          7,595
                          
                          
                          
                          -Marc
      Realty
                          
                          30
      North Michigan
                          
                          
                          50
                          %
                          
                          
                          11,515
                          
                          
                          
                          -Marc
      Realty
                          
                          441
      High Point Plaza
                          
                          
                          50
                          %
                          
                          
                          6,001
                          
                          
                          
                          -Marc
      Realty
                          
                          223
      West Jackson Street
                          
                          
                          50
                          %
                          
                          
                          7,271
                          
                          
                          
                          -Marc
      Realty
                          
                          1701
      East Woodfield Road
                          
                          
                          50
                          %
                          
                          
                          4,169
                          
                          
                          
                          -Marc
      Realty
                          
                          2720
      River Road
                          
                          
                          50
                          %
                          
                          
                          4,141
                          
                          
                          
                          -Marc
      Realty
                          
                          3701
      Algonquin Road
                          
                          
                          50
                          %
                          
                          
                          2,769
                          
                          
                          
                          -Marc
      Realty
                          
                          Enterprise
      Centre
                          
                          
                          50
                          %
                          
                          
                          3,169
                          
                          
                          
                          -Marc
      Realty
                          
                          900
      Ridgebrook
                          
                          
                          50
                          %
                          
                          
                          1,582
                          
                          
                          
                          -Marc
      Realty
                          
                          2000-2060
      East Algonquin
                          
                          
                          50
                          %
                          
                          
                          1,644
                          
                          
                          
                          -Sealy
                          
                          Sealy
      Airpark Nashville
                          
                          
                          50
                          %
                          
                          
                          5,022
                          
                          
                          
                          6,510Sealy
                          
                          Sealy
      Northwest Atlanta
                          
                          
                          60
                          %
                          
                          
                          3,423
                          
                          
                          
                          3,780Sealy
                          
                          Sealy
      Newmarket
                          
                          
                          68
                          %
                          
                          
                          8,027
                          
                          
                          
                          8,756Concord
                          
                          Lex-Win
      Concord LLC
                          
                          
                          50
                          %
                          
                          
                          -
                          
                          
                          
                          73,061Various
                          
                          Lex-Win
      Acquisition
                          
                          
                          28
                          %
                          
                          
                          95
                          
                          
                          
                          95$
                          76,214
                          
                          
                          $
                          92,202
 
 (1)
              The
      Trust has various venture partners which we refer to as investment groups
      for purposes of explaining our equity investments. Further detail is
      provided for the equity investments under their respective investment
      group headings below.
 (2)
              The
      Trust has determined that with the exception of Lex-Win Acquisition and
      the three Sealy equity investments, these entities are
    VIEs.
  23
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
following table reflects the activity of the Trust’s equity investments for the
nine months ended September 30, 2009 (in thousands):
 
 Marc Realty
                    Ventures
                  
                  
                  Sealy
                    Ventures
                  
                  
                  Lex-Win
                    Concord
                    Venture
                  
                  
                  Lex-Win
                    Acquisition
                    Venture
                  
                  
                  TotalBalance
      at December 31, 2008
                  
                  $
                  -
                  
                  
                  $
                  19,046
                  
                  
                  $
                  73,061
                  
                  
                  $
                  95
                  
                  
                  $
                  92,202Transfer
      from preferred equity
                  
                  
                  41,823
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  41,823Transfer
      of loans receivable
                  
                  
                  15,805
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  15,805Equity
      in income (loss)
                  
                  
                  122
                  
                  
                  
                  (1,588
                  )
                  
                  
                  (98,735
                  )
                  
                  
                  -
                  
                  
                  
                  (100,201
                  )Equity
      in other comprehensive income
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  21,479
                  
                  
                  
                  -
                  
                  
                  
                  21,479Other
      comprehensive income reclassifications
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  4,695
                  
                  
                  
                  -
                  
                  
                  
                  4,695Contributions
                  
                  
                  2,007
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  2,007Distributions/capital
      returns ?
                  
                  
                  (110
                  )
                  
                  
                  (986
                  )
                  
                  
                  (500
                  )
                  
                  
                  -
                  
                  
                  
                  (1,596
                  )Balance
      at September 30, 2009
                  
                  $
                  59,647
                  
                  
                  $
                  16,472
                  
                  
                  $
                  -
                  
                  
                  $
                  95
                  
                  
                  $
                  76,214
 
 Marc
Realty
 
 The
Trust’s investments with Marc Realty, a Chicago area real estate company, are
the Trust’s primary vehicles for investments in the Chicago metropolitan
area.  As discussed in Note 7, on July 1, 2009 the Trust restructured
certain of its existing investments with Marc Realty and reclassified 12
investments from preferred equity investments to equity
investments.  In addition, any tenant improvement and capital
expenditure loans to these properties have been reclassified from loans
receivable to equity investments.
 
 The
restructuring of each of the Marc Realty investments was considered to be a
reconsideration event under FASB’s consolidation guidance due to the material
change in the agreements and the exchange of consideration between Marc Realty
and the Trust. As a result of the reconsideration, the investments in the
Included Properties were deemed to be variable interests in VIE’s primarily
based on the fact that the underlying entities do not have sufficient equity at
risk to permit the entity to finance its activities without additional
subordinated financial support and that the Trust, which legally holds mezzanine
loans in each of the underlying entities, has an obligation to absorb losses and
has the right to residual returns equal to that of the equity
holder.  As a result of the existence of certain provisions in the
operating agreements identifying the Trust and Marc Realty as related parties,
the Trust determined that Marc Realty, as the primary decision makers and
manager of the operating properties, is considered to be most closely aligned
with the business and is the primary beneficiary of the VIE’s.
 
 Although
the legal structure of the investments with Marc Realty is as loans, the
characteristics of  both the mezzanine loans and the tenant
improvement and capital expenditure loans indicate that equity method accounting
is most appropriate.  In addition to earning interest income on the
loans, the Trust is also entitled to residual proceeds and net operating cash
flows which are more representative of an equity investment. The Trust's level
of participation at 50% also supports venture accounting treatment with a
45%/55% split for residual proceeds upon capital transactions. There are also
provisions in the agreements for future funding of additional tenant improvement
and capital expenditure loans for which both parties will fund in accordance
with their deemed equity percentages.  The additional funding will be
used to fund either capital expenditures or operating losses, as necessary,
which can be viewed akin to capital contributions.
 
 As a
result, the investments with Marc Realty are deemed to be equity investments for
which the Trust now recognizes its pro-rata share of income or loss on 12
separate 50% owned equity investments. The Trust recorded net income from the 12
equity investments of $122,000 for the three months ended September 30,
2009.  Additionally, the Trust received cash distributions of $110,000
from the investments during the three months ended September 30,
2009.
 
 The
combined summarized balance sheets of the Trust’s Marc Realty venture
investments are as follows (in thousands):
 
 September 30,
                      2009ASSETSReal
      estate, net
                    
                    $
                    173,601Cash
      and cash equivalents
                    
                    
                    1,525Receivables
      and other assets
                    
                    
                    26,224Total
      Assets
                    
                    $
                    201,350LIABILITIES
      AND MEMBERS’/PARTNERS’ EQUITYMortgage
      and notes payable
                    
                    $
                    95,824Other
      liabilities
                    
                    
                    14,085Members’/Partners’
      equity
                    
                    
                    91,441Total
      Liabilities and Members’/Partners’ Equity
                    
                    $
                    201,350Trust’s
      share of equity
                    
                    $
                    45,877Basis
      differentials (1)
                    
                    
                    13,770Carrying
      value of the Trust’s investments in the equity investments
                    
                    $
                    59,647
  24
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 (1)
              This
      amount represents the aggregate difference between the Trust’s historical
      cost basis and the basis reflected at the equity investment level, which
      is typically amortized over the life of the related assets and
      liabilities.  The basis differentials are the result of
      other-than-temporary impairments at the investment level and a
      reallocation of equity at the venture level as a result of the
      restructuring.  In addition, certain acquisition, transaction and
      other costs may not be reflected in the net assets at the equity
      investment level.
 
 The
combined summarized statements of operations of the Trust’s Marc Realty venture
investments are as follows (in thousands):
 
 For the Three Months Ended
                      September 30, 2009Total
      revenue
                    
                    $
                    10,101ExpensesOperating
                    
                    
                    4,299Interest
                    
                    
                    1,155Real
      estate taxes
                    
                    
                    1,527Depreciation
      and amortization
                    
                    
                    2,298Other
      expense
                    
                    
                    461Total
      expenses
                    
                    
                    9,740Net
      income
                    
                    $
                    361Trust’s
      share of net income
                    
                    $
                    178Amortization
      of basis differential
                    
                    
                    (56
                    )Income
      from equity investments
                    
                    $
                    122
 
 Sealy
 
 As of
September 30, 2009, the Trust owns between 50-68% of three office flex parks
located in southeastern United States together with our venture partner, Sealy
& Co., Ltd. (“Sealy”), a real estate investment and operating company
headquartered in Dallas, Texas and Shreveport, Louisiana.
 
 The
combined summarized balance sheets of the Sealy venture equity investments are
as follows (in thousands):
 
 September 30,
                    2009
                  
                  
                  December 31,
                    2008ASSETSReal
      estate, net
                  
                  $
                  156,681
                  
                  
                  $
                  157,813Cash
      and cash equivalents
                  
                  
                  750
                  
                  
                  
                  3,002Receivables
      and other assets
                  
                  
                  15,283
                  
                  
                  
                  14,326Total
      Assets
                  
                  $
                  172,714
                  
                  
                  $
                  175,141LIABILITIES
      AND MEMBERS’/PARTNERS’ EQUITYMortgage
      and notes payable
                  
                  $
                  139,750
                  
                  
                  $
                  139,750Other
      liabilities
                  
                  
                  5,420
                  
                  
                  
                  3,196Members’/Partners’
      equity
                  
                  
                  27,544
                  
                  
                  
                  32,195Total
      Liabilities and Members’/Partners’ Equity
                  
                  $
                  172,714
                  
                  
                  $
                  175,141Carrying
      value of the Trust’s investments in the equity investments
                  
                  $
                  16,472
                  
                  
                  $
                  19,046
  25
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
combined summarized statements of operations of the Sealy venture equity
investments are as follows (in thousands):
 
 For the Three Months
                        Ended
                        September 30,
                      
                      
                      For the Nine Months
                        Ended
                        September 30,2009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Total
      revenue
                      
                      $
                      4,310
                      
                      
                      $
                      3,678
                      
                      
                      $
                      13,163
                      
                      
                      $
                      10,844ExpensesOperating
                      
                      
                      682
                      
                      
                      
                      872
                      
                      
                      
                      2,771
                      
                      
                      
                      2,373Real
      estate taxes
                      
                      
                      456
                      
                      
                      
                      513
                      
                      
                      
                      1,437
                      
                      
                      
                      1,398Interest
                      
                      
                      2,089
                      
                      
                      
                      1,775
                      
                      
                      
                      6,198
                      
                      
                      
                      4,762Depreciation
      and amortization
                      
                      
                      1,788
                      
                      
                      
                      1,571
                      
                      
                      
                      5,450
                      
                      
                      
                      4,761Other
      taxes
                      
                      
                      49
                      
                      
                      
                      20
                      
                      
                      
                      141
                      
                      
                      
                      115Total
      expenses
                      
                      
                      5,064
                      
                      
                      
                      4,751
                      
                      
                      
                      15,997
                      
                      
                      
                      13,409Net
      loss
                      
                      $
                      (754
                      )
                      
                      $
                      (1,073
                      )
                      
                      $
                      (2,834
                      )
                      
                      $
                      (2,565
                      )Trust’s
      share of net loss
                      
                      $
                      (411
                      )
                      
                      $
                      (581
                      )
                      
                      $
                      (1,588
                      )
                      
                      $
                      (1,367
                      )
 
 Lex-Win Concord LLC –
“Concord”
 
 At June
30, 2009, the Trust wrote down its investment in Concord to zero and recognized
an impairment loss of $31,670,000 primarily as a result of our overall lack of
clarity on future recovery of the underlying collateral in these assets. 
Specific factors that impacted our decision to write down the investment in
Concord included the continued deterioration in the value of Concord’s loan and
bond portfolio, Concord’s debt covenant violations, the distressed sale of
assets required to satisfy accelerated principal repayments to lenders, the
failure of Inland American Real Estate Trust, Inc. (“Inland”) to make its
capital call, and certain litigation initiated by Inland.
 
 The
aggregate impairments consisted of both a proportionate share of Concord’s
operating losses plus a decline in the fair value that management assigned to
the remaining equity in the investment.  The Trust determined the fair
value of its investment in Concord by calculating its share of net asset value,
as adjusted for various risks.  The fair value of Concord’s assets and
liabilities was determined using the income approach based upon  the
expected future cash flow of each asset and liability discounted at market rates
of return in accordance with accounting standards related to fair value
measurements.
  Concord
is in violation of certain debt covenants to its lenders for the period ended
September 30, 2009 as a result of the continued deterioration of the value of
its assets and cumulative operating losses as indicated above. Concord’s debt is
non-recourse to the Trust and Concord’s lenders’ sole recourse with respect to
defaults is limited to the value of Concord’s assets collateralized by the debt.
The lenders do not have recourse against the Trust’s assets.
  On May
22, 2009, a wholly-owned subsidiary of Inland filed a legal action against
Concord generally seeking changes to the organization documents, declarations
that Inland is not required to make any additional capital contributions and
that Inland should not be required to satisfy the May 11, 2009 capital call made
by Concord in the amount of $24,000,000.  The Trust believes that
Inland’s claims are without merit.  Concord filed counterclaims
against Inland which state, in general, that Inland is in material breach of the
their agreements with Concord and Concord will seek to recover all losses
incurred by it as a result of such breach.
 Certain
capital transactions which were executed between the Trust and Concord during
the nine months ended September 30, 2009 were considered reconsideration events.
It was determined that the investment in Concord was now a variable interest in
a VIE primarily due to a significant decline in value of the assets of the
entity and the resulting insufficient equity within Concord to finance its
activities.  As a result of the existence of certain provisions in the
operating agreements identifying that the Trust and its venture partner in the
investment are not related parties and each share equally in the economics and
the decision-making of the investment, a primary beneficiary does not exist for
this investment and the Trust accounts for this investment under the equity
method.
  26
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 The
summarized consolidated balance sheets of Concord are as follows (in
thousands):
 
 As of
                      September 30, 2009
                    
                    
                    As of
                      December 31, 2008Condensed
      Consolidated Balance SheetsASSETSCash
      and restricted cash
                    
                    $
                    5,421
                    
                    
                    $
                    15,134Real
      estate debt investments, net of loss allowance
                    
                    
                    561,273
                    
                    
                    
                    863,144Real
      estate debt investments held for sale
                    
                    
                    47,556
                    
                    
                    
                    -Available
      for sale securities, net
                    
                    
                    92,741
                    
                    
                    
                    118,491Other
      assets
                    
                    
                    7,764
                    
                    
                    
                    10,353Total
      assets
                    
                    $
                    714,755
                    
                    
                    $
                    1,007,122LIABILITIES
      AND MEMBERS’
      CAPITALRepurchase
      agreements
                    
                    $
                    148,942
                    
                    
                    $
                    240,604Revolving
      credit facility
                    
                    
                    73,666
                    
                    
                    
                    80,000Collateralized
      debt obligations
                    
                    
                    347,525
                    
                    
                    
                    347,525Contingent
      collateral support obligation
                    
                    
                    9,600
                    
                    
                    
                    -Accounts
      payable and other liabilities
                    
                    
                    17,403
                    
                    
                    
                    43,230Non-controlling
      redeemable preferred interest
                    
                    
                    3,229
                    
                    
                    
                    76,441Members’
      Capital
                    
                    
                    126,777
                    
                    
                    
                    248,262Accumulated
      other comprehensive loss
                    
                    
                    (12,498
                    )
                    
                    
                    (29,054
                    )Non-controlling
      interest
                    
                    
                    111
                    
                    
                    
                    114Total
      Liabilities and Members’ Capital
                    
                    $
                    714,755
                    
                    
                    $
                    1,007,122Trust’s
      share of equity
                    
                    $
                    57,139
                    
                    
                    $
                    109,604Basis
      differential (1)
                    
                    
                    (57,139
                    )
                    
                    
                    (36,543
                    )Carrying
      value of the Trust’s investment in Concord
                    
                    $
                    -
                    
                    
                    $
                    73,061
 
 (1) This
amount represents other-than-temporary impairments taken at the investment level
of $68,213 adjusted for suspended losses of $4,825 and accumulated other
comprehensive income of $6,249.
  The
summarized consolidated statements of operations of Concord are as follows (in
thousands):
 
 For the Three Months Ended
                    
                    
                    For the Nine Months EndedSeptember 30,
                      2009
                    
                    
                    September 30,
                      2008
                    
                    
                    September 30,
                      2009
                    
                    
                    September 30,
                      2008Condensed
      Consolidated Statement of OperationsInterest
      and other income
                    
                    $
                    8,611
                    
                    
                    $
                    18,187
                    
                    
                    $
                    31,386
                    
                    
                    $
                    55,396Interest
      expense
                    
                    
                    (4,409
                    )
                    
                    
                    (8,486
                    )
                    
                    
                    (13,267
                    )
                    
                    
                    (27,093
                    )Impairment
      loss on available for sale securities
                    
                    
                    (4,764
                    )
                    
                    
                    (1,205
                    )
                    
                    
                    (13,319
                    )
                    
                    
                    (57,021
                    )Provision
      for loss allowance on real estate debt investments
                    
                    
                    (33,483
                    )
                    
                    
                    (6,000
                    )
                    
                    
                    (77,175
                    )
                    
                    
                    (8,200
                    )Impairment
      loss on real estate debt investments held for sale
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (64,413
                    )
                    
                    
                    -Realized
      loss on sale of investments
                    
                    
                    (14
                    )
                    
                    
                    -
                    
                    
                    
                    (16,534
                    )
                    
                    
                    -Net
      loss on terminated interest rate swap agreement
                    
                    
                    (74
                    )
                    
                    
                    -
                    
                    
                    
                    (74
                    )
                    
                    
                    -Gain
      on extinguishment of debt
                    
                    
                    -
                    
                    
                    
                    5,201
                    
                    
                    
                    -
                    
                    
                    
                    12,699Contingent
      collateral support expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (9,600
                    )
                    
                    
                    -General
      and administrative
                    
                    
                    (1,574
                    )
                    
                    
                    (1,568
                    )
                    
                    
                    (4,066
                    )
                    
                    
                    (3,359
                    )Consolidated
      net income (loss)
                    
                    
                    (35,707
                    )
                    
                    
                    6,129
                    
                    
                    
                    (167,062
                    )
                    
                    
                    (27,578
                    )Loss
      (income) attributable to non-controlling redeemable preferred
      interest
                    
                    
                    27,061
                    
                    
                    
                    (318
                    )
                    
                    
                    23,292
                    
                    
                    
                    (318
                    )Income
      attributable to non-controlling interest
                    
                    
                    (3
                    )
                    
                    
                    (3
                    )
                    
                    
                    (9
                    )
                    
                    
                    (9
                    )Net
      income (loss) attributable to Concord
                    
                    $
                    (8,649
                    )
                    
                    $
                    5,808
                    
                    
                    $
                    (143,779
                    )
                    
                    $
                    (27,905
                    )Trust’s
      share of net income (loss)
                    
                    $
                    500
                    
                    
                    $
                    2,904
                    
                    
                    $
                    (67,065
                    )
                    
                    $
                    (13,953
                    )Other-than-temporary
      impairment
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (31,670
                    )
                    
                    
                    -Income
      (loss) from equity investment
                    
                    $
                    500
                    
                    
                    $
                    2,904
                    
                    
                    $
                    (98,735
                    )
                    
                    $
                    (13,953
                    )
  27
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 For the
three months ended September 30, 2009, the Trust received a distribution and
recorded income of $500,000 from Concord representing its share of asset
management fee income.  The Trust and Lexington Realty Trust (“Lexington”)
each made short-term secured loans of $4,180,000 and equity contributions of
$118,000 to Concord during the three months ended September 30, 2009.  The
loans were made on market terms and were secured by unencumbered held-for-sale
real estate assets of Concord.  The loans and the contributions were repaid
in full within 30 days of the initial funding.
 
 9.
              Debt
 
 Mortgage Loans
Payable
 
 The Trust
had outstanding mortgage loans payable of $225,454,000 and $229,737,000 at
September 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 September 30, 2009 and December 31, 2008 are
summarized as follows:
 
 Maturity
                              
                              Spread Over
                                LIBOR/Prime
                              
                              
                              Interest Rate at
                                September 30, 2009
                              
                              
                              Balance at
                                September 30, 2009
                              
                              
                              Balance at
                                December 31, 2008(in
      thousands)Fixed
      Interest Rate:Amherst,
      NY
                              
                              October
      2013
                              
                              
                              —
                              
                              
                              
                              5.65
                              %
                              
                              $
                              16,626
                              
                              
                              $
                              16,913Indianapolis,
      IN
                              
                              April 
      2015
                              
                              
                              —
                              
                              
                              
                              5.82
                              %
                              
                              
                              4,334
                              
                              
                              
                              4,384Houston,
      TX
                              
                              April
      2016
                              
                              
                              —
                              
                              
                              
                              6.42
                              %
                              
                              
                              64,687
                              
                              
                              
                              67,009Andover,
      MA
                              
                              February
      2011
                              
                              
                              —
                              
                              
                              
                              6.60
                              %
                              
                              
                              6,298
                              
                              
                              
                              6,389S.
      Burlington, VT
                              
                              February
      2011
                              
                              
                              —
                              
                              
                              
                              6.60
                              %
                              
                              
                              2,699
                              
                              
                              
                              2,738Chicago,
      IL
                              
                              March
      2016
                              
                              
                              —
                              
                              
                              
                              5.75
                              %
                              
                              
                              21,209
                              
                              
                              
                              21,391Lisle,
      IL
                              
                              June
      2016
                              
                              
                              —
                              
                              
                              
                              6.26
                              %
                              
                              
                              24,243
                              
                              
                              
                              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
                              %
                              
                              
                              39,269
                              
                              
                              
                              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$
                              225,454
                              
                              
                              $
                              229,737
 
 (1)
              The
      Trust received a one-year extension to June 30, 2010.  The loan
      payable to KeyBank (“the KeyBank Loan”) is collateralized by 14 properties
      and the Trust has one remaining one-year option to extend this
      loan.
 (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.
 
 The fair
value of the Trust’s mortgage loans payable are less than their current carrying
amounts by $30,938,000 at September 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 beneficial interest of Lexington, and was repaid in March
2009.
  28
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 10.
              Revolving
      Line of Credit
  The Trust
has a revolving 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%.
  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.  Additionally,
the Trust is limited to payment of dividends not to exceed 100% of adjusted
earnings on a trailing 12-month basis, as defined,  except to the extent
necessary to maintain its tax status as a REIT.  The revolving credit line
is collateralized 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 LLC,
the Trust did not meet the net worth covenant as defined under the line of
credit at June 30, 2009 and September 30, 2009.  Consequently, the Trust
was not eligible to borrow under the line.  On October 30, 2009, KeyBank
modified the net worth covenant such that the Trust met the modified net worth
covenant and is now eligible to borrow under the line.
  At
September 30, 2009 and December 31, 2008, there were no amounts outstanding
under the facility.  The Trust is required to pay a commitment fee on the
unused portion of the line, which amounted to approximately $22,000 and $61,000
for the three and nine months ended September 30, 2009, respectively, and
$10,000 and $99,000 for the three and nine months ended September 30, 2008,
respectively.
  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 its
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.
  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 nine months ended September 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 contracts
designated and qualifying as cash flow hedges totaling $178,000 and $519,000 of
increased interest expense for the three and nine months ended September 30,
2009, respectively, and $78,000 of increased interest expense for the three
months ended September 30, 2008 and $66,000 of decreased interest expense for
the nine months ended September 30, 2008, as a component of other liabilities
and accumulated other comprehensive loss within the Trust’s consolidated balance
sheets.
  29
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 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.
 
 The table
below presents information about the Trust’s interest rate swaps at September
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
                          Valuations Includedin
                          OtherComprehensive
                          Income
                          For the Three Months
                          Ended September 30,
                          2009
                        
                        
                        Change in Swap
                          Valuations Included in
                          Other Comprehensive
                          Income
                          For the Nine Months
                          Ended September 30,
                          2009December
      2009
                        
                        
                        4.05
                        %
                        
                        $
                        26,000
                        (1)
                        
                        $
                        -
                        
                        
                        $
                        (167
                        )
                        
                        $
                        25
                        
                        
                        $
                        195
                        
                        
                        $
                        486June
      2010
                        
                        
                        1.05
                        %
                        
                        $
                        23,000
                        (2)
                        
                        $
                        -
                        
                        
                        $
                        (80
                        )
                        
                        $
                        -
                        
                        
                        $
                        (54
                        )
                        
                        $
                        (80
                        )
 
 (1)
              Represents
      a swap agreement related to the KeyBank
Loan.
 (2)
              In
      connection with the KeyBank 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 Loan from a floating rate of LIBOR plus 1.75% to a
      fixed rate of 1.80%.
 
 12.
              Series
      B-1 Preferred Shares
 
 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
recognized a gain from the early extinguishment of debt of approximately
$445,000 in the three months ended September 30, 2009.
 
 As of
September 30, 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 nine months ended September 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
                        
                        DRIP7/15/09
                        
                        37,982
                        
                        
                        $
                        8.72
                        
                        DRIP
 
 (1)   The Trust’s Dividend Reinvestment and
Stock Purchase Plan.
 
 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 nine months ended September 30,
2008.  Income from discontinued operations for the three and nine months
ended September 30, 2008 consisted of rental income, depreciation and
amortization expense from the Biloxi, Mississippi property.
  30
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 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, were classified as income from continuing
operations for the three and nine months ended September 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 on
its financial condition or results of operations.
  16.
              Related-Party
      Transactions
 
 The
following table sets forth the fees and reimbursements paid by the Trust for the
three and nine months ended September 30, 2009 and 2008 to FUR Advisors and
Winthrop Management L.P. (in thousands):
 
 For the Three Months Ended
                    
                    
                    For the Nine Months Ended2009
                    
                    
                    2008
                    
                    
                    2009
                    
                    
                    2008Asset
      management (1)
                    
                    $
                    800
                    (3)
                    
                    $
                    1,484
                    (4)
                    
                    $
                    2,372
                    (5)
                    
                    $
                    4,195
                    (6)Property
      management (2)
                    
                    
                    58
                    
                    
                    
                    69
                    
                    
                    
                    198
                    
                    
                    
                    195Construction
      management (2)
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3
                    
                    
                    
                    -$
                    858
                    
                    
                    $
                    1,553
                    
                    
                    $
                    2,573
                    
                    
                    $
                    4,390
 
 (1)
              Payable
      to FUR Advisors.
 (2)
              Payable
      to Winthrop Management L.P.
 (3)
              Before
      credits of $60, discussed below.
 (4)
              Before
      credits of $68, discussed below.
 (5)
              Before
      credits of $197, discussed below.
 (6)
              Before
      credits of $193, discussed below.
 
 FUR
Advisors
 
 The
activities of the Trust 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.
 
 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 was 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.
  31
  WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
 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 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 on the properties they manage.
 
 Credits
 
 WRP
Sub-Management LLC (“WRP Sub-Management”), an affiliate of FUR Advisors,
provides accounting, collateral management and loan brokerage services to
Lex-Win Concord LLC and its subsidiaries, including CDO-1.  WRP
Sub-Management received reimbursement of direct and indirect expenses totaling
$197,000 and $895,000 for the three and nine months ended September 30, 2009,
respectively, in accordance with the terms of the agreement.  Of these
amounts, $120,000 and $395,000, 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 LLC, 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 nine months ended September 30, 2009, the Trust received and
utilized a credit of $60,000 and $197,000, respectively, against the base
management fee.
 
 During
the three and nine months ended September 30, 2008, WRP Sub-Management received
reimbursement of direct and indirect expenses totaling $377,000 and $1,265,000,
respectively.  Of these amounts, $135,000 and $385,000, 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 $68,000 and $193,000, respectively, against the base
management fee.
 
 Other
Activity
 
 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.
  32




WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009





NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





17.
            Business
      Segments





FASB
guidance on segment reporting 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.  Prior to July 1, 2009, 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 LLC and its tenant improvement and capital expenditure loans to
properties in the Marc Realty portfolio.  As of July 1, 2009, in
conjunction with the restructuring of its preferred equity investment in Marc
Realty, the Trust’s mezzanine loans and tenant improvement and capital
expenditure loans to the Included Properties in the Marc Realty portfolio are
now classified as equity investments and are included in the operating
properties segment.  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 its 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 September 30, 2009 and December 31, 2008 (in
thousands):





September 30, 2009
                  
                  
                  December 31, 2008Operating
      properties
                  
                  $
                  337,773
                  
                  
                  $
                  286,780Loan
      assets and loan securities
                  
                  
                  13,663
                  
                  
                  
                  146,560REIT
      securities
                  
                  
                  61,786
                  
                  
                  
                  36,796CorporateCash
      and cash equivalents
                  
                  
                  35,147
                  
                  
                  
                  59,238Other
                  
                  
                  24,287
                  
                  
                  
                  48,720Total
      Assets
                  
                  $
                  472,656
                  
                  
                  $
                  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 nine months ended September 30, 2009 and September 30,
2008 (in thousands):




33


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


For the Three Months Ended
                            
                            
                            For the Nine Months EndedSeptember 30,
                              2009
                            
                            
                            September 30,
                              2008
                            
                            
                            September 30,
                              2009
                            
                            
                            September 30,
                              2008Operating
      PropertiesRents
      and reimbursements
                            
                            $
                            10,642
                            
                            
                            $
                            10,873
                            
                            
                            $
                            32,074
                            
                            
                            $
                            32,533Operating
      expenses
                            
                            
                            (2,158
                            )
                            
                            
                            (1,848
                            )
                            
                            
                            (5,981
                            )
                            
                            
                            (5,517
                            )Real
      estate taxes
                            
                            
                            (704
                            )
                            
                            
                            (766
                            )
                            
                            
                            (2,059
                            )
                            
                            
                            (2,180
                            )Equity
      in income (loss) of Sealy Northwest Atlanta
                            
                            
                            19
                            
                            
                            
                            (128
                            )
                            
                            
                            (223
                            )
                            
                            
                            (364
                            )Equity
      in loss of Sealy Airpark Nashville
                            
                            
                            (289
                            )
                            
                            
                            (363
                            )
                            
                            
                            (861
                            )
                            
                            
                            (913
                            )Equity
      in loss of Sealy Newmarket
                            
                            
                            (141
                            )
                            
                            
                            (90
                            )
                            
                            
                            (504
                            )
                            
                            
                            (90
                            )Equity
      in income of Marc Realty investments
                            
                            
                            122
                            
                            
                            
                            -
                            
                            
                            
                            122
                            
                            
                            
                            -Net
      operating income
                            
                            
                            7,491
                            
                            
                            
                            7,678
                            
                            
                            
                            22,568
                            
                            
                            
                            23,469Depreciation
      and amortization expense
                            
                            
                            (2,695
                            )
                            
                            
                            (2,980
                            )
                            
                            
                            (8,276
                            )
                            
                            
                            (8,948
                            )Interest
      expense
                            
                            
                            (3,582
                            )
                            
                            
                            (3,674
                            )
                            
                            
                            (10,780
                            )
                            
                            
                            (11,118
                            )Operating
      properties net income
                            
                            
                            1,214
                            
                            
                            
                            1,024
                            
                            
                            
                            3,512
                            
                            
                            
                            3,403Loan
      Assets and Loan SecuritiesInterest
                            
                            
                            1,040
                            
                            
                            
                            342
                            
                            
                            
                            2,247
                            
                            
                            
                            1,171Equity
      in earnings of preferred equity investment of Marc Realty
                            
                            
                            86
                            
                            
                            
                            1,100
                            
                            
                            
                            78
                            
                            
                            
                            4,518Impairment
      loss on preferred equity investment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,186
                            )
                            
                            
                            (2,000
                            )Equity
      in earnings (loss) of Lex-Win Concord
                            
                            
                            500
                            
                            
                            
                            2,904
                            
                            
                            
                            (67,065
                            )
                            
                            
                            (13,953
                            )Impairment
      loss on investment in Lex-Win Concord
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (31,670
                            )
                            
                            
                            -Provision
      for loss on loans receivable
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (2,152
                            )
                            
                            
                            -Impairment
      loss on available for sale loans
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (203
                            )
                            
                            
                            -Gain
      on sale of mortgage backed securities
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            454Gain
      on sale of other assets
                            
                            
                            -
                            
                            
                            
                            24
                            
                            
                            
                            -
                            
                            
                            
                            24Net
      operating income (loss)
                            
                            
                            1,626
                            
                            
                            
                            4,370
                            
                            
                            
                            (100,951
                            )
                            
                            
                            (9,786
                            )General
      and administrative expense
                            
                            
                            (183
                            )
                            
                            
                            -
                            
                            
                            
                            (198
                            )
                            
                            
                            -Interest
      expense
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (206
                            )Loan
      assets and loan securities net income (loss)
                            
                            
                            1,443
                            
                            
                            
                            4,370
                            
                            
                            
                            (101,149
                            )
                            
                            
                            (9,992
                            )REIT
      SecuritiesDividends
                            
                            
                            1,456
                            
                            
                            
                            37
                            
                            
                            
                            4,215
                            
                            
                            
                            91Gain
      on sale of available for sale securities
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            2,029Gain
      on sale of securities carried at fair value
                            
                            
                            676
                            
                            
                            
                            -
                            
                            
                            
                            3,274
                            
                            
                            
                            -Unrealized
      gain on securities carried at fair value
                            
                            
                            12,578
                            
                            
                            
                            -
                            
                            
                            
                            14,010
                            
                            
                            
                            -Equity
      in loss of Lex-Win Acquisition
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (878
                            )Impairment
      loss on available for sale securities
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (207
                            )Net
      operating income
                            
                            
                            14,710
                            
                            
                            
                            37
                            
                            
                            
                            21,499
                            
                            
                            
                            1,035Interest
      expense
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (75
                            )
                            
                            
                            -REIT
      securities net income
                            
                            
                            14,710
                            
                            
                            
                            37
                            
                            
                            
                            21,424
                            
                            
                            
                            1,035Net
      Income (Loss)
                            
                            
                            17,367
                            
                            
                            
                            5,431
                            
                            
                            
                            (76,213
                            )
                            
                            
                            (5,554
                            )Reconciliations
      to GAAP Net Loss:Corporate
      Income (Expense)Interest
      income
                            
                            
                            31
                            
                            
                            
                            761
                            
                            
                            
                            145
                            
                            
                            
                            1,425Interest
      expense
                            
                            
                            (715
                            )
                            
                            
                            (2,255
                            )
                            
                            
                            (2,273
                            )
                            
                            
                            (5,903
                            )Gain
      on extinguishment of debt
                            
                            
                            445
                            
                            
                            
                            -
                            
                            
                            
                            5,682
                            
                            
                            
                            -General
      and administrative (1)
                            
                            
                            (1,642
                            )
                            
                            
                            (1,566
                            )
                            
                            
                            (4,951
                            )
                            
                            
                            (5,119
                            )State
      and local taxes
                            
                            
                            (14
                            )
                            
                            
                            (13
                            )
                            
                            
                            (211
                            )
                            
                            
                            (235
                            )Income
      (loss) from continuing operations before non-controlling
      interest
                            
                            
                            15,472
                            
                            
                            
                            2,358
                            
                            
                            
                            (77,821
                            )
                            
                            
                            (15,386
                            )Non-controlling
      interest
                            
                            
                            (315
                            )
                            
                            
                            (178
                            )
                            
                            
                            (651
                            )
                            
                            
                            (264
                            )Income
      (loss) from continuing operations attributable to Winthrop Realty
      Trust
                            
                            
                            15,157
                            
                            
                            
                            2,180
                            
                            
                            
                            (78,472
                            )
                            
                            
                            (15,650
                            )Income
      from discontinued operations attributable to Winthrop Realty
      Trust
                            
                            
                            -
                            
                            
                            
                            49
                            
                            
                            
                            -
                            
                            
                            
                            134Net
      Income (loss) Attributable to Winthrop Realty Trust
                            
                            $
                            15,157
                            
                            
                            $
                            2,229
                            
                            
                            $
                            (78,472
                            )
                            
                            $
                            (15,516
                            )Capital
      ExpendituresOperating
      properties
                            
                            $
                            550
                            
                            
                            $
                            821
                            
                            
                            $
                            1,132
                            
                            
                            $
                            2,428





(1)
            After
      credits – See Note 16.




34


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009
 
 NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


18.
                Subsequent
      Events





The Trust
has evaluated all subsequent events through November 9, 2009, which is the date
of filing.  All relevant items have been disclosed in the
corresponding Notes to these Financial Statements.





Series
C Shares





On
October 12, 2009, the Trust provided holders of the Series B-1 Preferred Shares,
all of whom are accredited investors as defined in rule 501 of the Securities
Act of 1933, as amended, the right, in a private transaction, to convert all or
any portion of their Series B-1 Preferred Shares into an equivalent number of
newly-issued Series C Cumulative Convertible Redeemable Preferred Shares (the
“Series C Preferred Shares”).  This right, which expired on October 28,
2009, enabled the holders of the Series B-1 Preferred Shares to convert one
Series B-1 Preferred Share into one Series C Preferred Share (the “Conversion
Offer”).  At October 28, 2009, holders of Series B-1 Preferred Shares
elected to convert an aggregate of 544,000 Series B-1 Preferred Shares into
Series C Preferred Shares and, effective November 1, 2009, 544,000 Series C
Preferred Shares were issued by the Trust.  As a result, effective November
1, 2009, the Trust has 852,000 Series B-1 Preferred Shares and 544,000 Series C
Preferred Shares outstanding.




The
Series C Preferred Shares have substantially the same rights as the Series B-1
Preferred Shares including dividend rate, liquidation preference and mandatory
redemption date, but will be junior in right of payment to the Series B-1
Preferred Shares.  However, under the terms of the Series C Preferred
Shares, the Trust is permitted to issue additional preferred shares which are on
par with the Series C Preferred Shares, subject to certain limitations, without
the consent of the holders of the Series C Preferred Shares.  The
Trust is not permitted to issue additional preferred shares which are on par
with the Series B-1 Preferred Shares.  Additionally, the initial
conversion price of the Series C Preferred Shares will be $14.00, which is a
reduction from the $22.50 conversion price on the Series B-1 Preferred
Shares.




Rights
Offering





On
October 14, 2009, the Trust announced that it would be distributing on or about
October 23, 2009 non-transferable subscription rights to subscribe for and
purchase up to an aggregate of 4,974,911 Common Shares at a price of $9.05 per
share to holders of record at the close of the market on October 22, 2009 of its
Common Shares and holders of its Series B-1 Preferred
Shares.  Pursuant to the rights offering, each holder of record on
October 22, 2009 of Common Shares and Series B-1 Preferred Shares received one
basic subscription right for every three and one-half Common Shares owned, or in
the case of Series B-1 Preferred Shares, one basic subscription right for every
three and one-half common shares issuable upon conversion of such Preferred
Shares, as of the record date.  Each basic subscription right entitles
the holder to purchase one Common Share.  Shareholders who exercise
their rights in full are also entitled to purchase additional shares pursuant to
an oversubscription right to the extent holders do not fully subscribe for their
basic subscription rights.  Shareholders will be able to exercise
their rights to purchase shares in the rights offering until 5:00 p.m. on
November 19, 2009, unless extended for a period not to exceed 30 business
days.




35




WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009


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





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 in
Part II “Item 1A – Risk Factors” in this quarterly report on Form 10-Q 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
nine months ended September 30, 2009 as compared to the three and nine months
ended September 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 and managing 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., Ltd., which we refer to as Sealy, 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  venture with Lexington Realty Trust, which we refer to
as Lexington, and, since August 2008, Inland America Concord Sub LLC. As of June
30, 2009, we determined that the decline in the fair value of our investment in
Concord is other-than-temporary, and wrote down our investment in Concord to
zero for financial statement purposes. While we and our partners continue to
work towards some equity recovery, we do not plan to make any future investments
through Concord.




36




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


As of
September 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.  Average occupancy at our consolidated properties was approximately
93% for the nine months ended September 30, 2009.  As of September 30,
2009 our consolidated properties were approximately 85%
leased.   The decline in occupancy at September 30, 2009 was
primarily due to the loss in 2009 of two tenants who occupied a combined 460,000
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 $61,691,000 as of September 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 appreciation from our
investments in REIT securities.  The comparability of financial data
from period to period is affected by several items including 1) the timing of
our property acquisition and leasing activities, 2) the purchases and sales of
assets and investments, 3) taking material other-than-temporary impairment
losses on assets in our portfolio and 4) the reclassification of
assets.  In this regard, the comparability of financial results for
the current periods were significantly impacted by the write-down of our
investment in Concord to zero during the second quarter of 2009 and the
reclassification of certain Marc Realty assets from preferred equity to
individual equity investments during the third quarter of
2009.





With
respect to our debt exposure, each of our investment platforms and equity
investments is essentially a stand-alone business, such that any potential
liabilities which might occur are limited to that specific platform or
investment and are not recourse to our other assets.  Consequently,
our risk of loss is in each case limited to our investment in that particular
venture.  Inclusive of extension rights, none of our borrowings are
scheduled to mature in 2009.  As of September 30, 2009 there was
$1,870,000 of scheduled principal payments on mortgage loans remaining in
2009.  After giving effect to extension rights, approximately
$15,784,000 is scheduled to be paid down or mature in 2010 and $207,800,000 is
scheduled to be paid down or mature in 2011 or later.





The
weakness in the economy since late 2007 and the subsequent disruption of the
capital and credit markets to date has affected profitability and limited the
availability of financing and the ability to raise equity
capital.  During the first half of 2009 we addressed the issues facing
our assets with a view towards revising our business plans as necessary in order
to weather the downturn in the economy. For example, we executed the lease
extension with Bell South at the Plantation, Florida property which resulted in
a short term reduced rental rate but extended the lease for ten years and we
initiated and executed the Marc Realty portfolio restructuring. Under the Marc
Realty restructure we transferred our interest in properties which we perceived
to have less opportunity for superior returns on a risk adjusted basis and
increased our interest in the downtown Chicago properties. In exchange Marc
Realty relinquished $12,500,000 of deferred returns due to them.  In
addition to stabilizing our existing assets, at the same time we continued to
monitor and pursue new opportunities in the market.  Toward that end,
we capitalized on the market mispricing of senior REIT securities and invested
$30,552,000 primarily in REIT preferred and debt securities during the first
nine months of 2009. For the period ended September 30, 2009, we have recorded
an aggregate realized and unrealized gain of $17,284,000 on our
securities.  Additionally, in June 2009 the Trust acquired from
Concord for $44,000,000 two first mortgage loans with a face value of
$81,015,000.




We
strategically position ourselves by monitoring asset pricing and developing
appropriate infrastructure for collecting and evaluating current market data. We
have been patient during this unstable time and we believe we are poised to take
advantage of the surplus of sound investment opportunities that we see on the
horizon as we did earlier this year with our acquisition of other REIT
securities and our targeted loan acquisitions.




In order
to better position ourselves to take advantage of investment opportunities, in
October 2009 we 1) commenced a rights offering to shareholders of record on
October 22, 2009 enabling them to purchase up to an aggregate of 4,974,911
Common Shares at a price of $9.05 per share and 2) offered to the holders of our
Series B-1 Preferred Shares the right to convert such shares into an equivalent
number of Series C Preferred Shares.  If the rights offering is fully
subscribed we will raise approximately $45,000,000 which, we believe can be
invested accretively within a reasonable time period and which we believe,
together with our existing liquid assets, provides liquidity sufficient to
target a variety of investments.  As a result of the Series B-1/Series C
transaction, we believe that due to the reduction in our outstanding Series B-1
Preferred Shares to 852,000 shares which have a liquidation value of
$21,300,000, it provides us greater flexibility in the future to raise capital
through the sale of additional preferred shares as the Series C Preferred Shares
permit the issuance of pari passu preferred shares, subject to certain
limitations, whereas the Series B-1 Preferred Shares do not.




37




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


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 to grow 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 from our loan assets and loan
  securities;


·
            the
      issuance of equity and debt
securities;


·
            interest
      and dividends received from investments in REIT
  securities;


·
            cash
      distributions from joint ventures;


·
            borrowings
      under our credit facilities; and


·
            asset
      specific borrowings.





At
September 30, 2009, we had cash and cash equivalents of
$35,147,000.  In addition, we had other liquid assets consisting of
securities carried at fair value and available for sale securities totaling
$61,691,000.





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





·
            the
      acquisition of 1,017,105 of our Series B-1 Preferred Shares with a
      liquidation value of $25,428,000 for $19,081,000 in cash, resulting in a
      net gain of $5,682,000;


·
            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
  $1,526,000;


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


·
            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;


·
            the
      restructuring of our preferred equity investment in Marc
      Realty;


·
            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.





Cash
Flows





Operating
Activities





Although
our operating activities generated a net loss of $77,821,000 for the nine months
ended September 30, 2009, operating activities generated positive cash flow of
$13,911,000.  Our cash provided by operations reflects our net loss
adjusted by: (i) non-cash items of $90,046,000 including equity in losses of
partially-owned entities, unrealized losses on securities carried at fair value,
depreciation and amortization expense and the effect of straight-lining of
rental income; (ii) $3,887,000 of distributions from non-consolidated
interests; and (iii) a net decrease due to changes in other operating
assets and liabilities of $2,201,000.  See our discussion of our
Results of Operations below for additional details on our
operations.




38


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


Investing
Activities





Cash used
in investing activities of $13,011,000 for the nine months ended September
30, 2009 was comprised 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;


·
            $30,552,000
      for purchases of securities carried at fair
  value;


·
            $13,050,000
      for acquisitions of loans receivable, primarily the Siete Square loan and
      the balance of the 160 Spear loan;


·
            $2,451,000
      for additional loan advances related to the Marc Realty
      portfolio;


·
            $2,007,000
      for investment in our equity investment in Marc Realty;
  and


·
            $1,301,000
      for tenant improvements on our operating
  properties.





These
uses of investing cash flows were offset primarily by:





·
            $34,797,000
      in proceeds from the sale of the 160 Spear A
  Note;


·
            $22,866,000
      in proceeds from the sale of securities carried at fair
    value;


·
            $10,980,000
      in proceeds from the repayment of loans receivable which were primarily
      short term loans made to Concord;
and


·
            $2,647,000
      in net proceeds, primarily related to the release of funds held in escrow
      from the qualified intermediary for the sale of our Biloxi, Mississippi
      property.





Financing
Activities





Cash used
in financing activities of $24,991,000 for the nine months ended September
30, 2009 was comprised primarily of the following:





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


·
            $19,818,000
      for repayment of borrowings on our loan
payable;


·
            $9,800,000
      for payment of the note payable to
CitiBank;


·
            $13,844,000
      for dividend payments on our Common Shares;
and


·
            $4,332,000
      for mortgage loan repayments.





These
uses of financing cash flows were offset primarily by:





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


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


·
            $3,970,000
      of proceeds, primarily related to the application of escrow funds held as
      cash collateral and utilized to pay off the CitiBank note
      payable.





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.  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 our actual cash flow 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. 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.




39




WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009


We paid
regular quarterly dividends $0.40625 per Series B-1 Preferred Share in each of
the first three 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 as commercial mortgage-backed
      securities including our investment in Concord and prior to July 1, 2009
      our Marc Realty venture properties;REIT
      Securities – our activities related to the ownership of equity and debt
      securities in other real estate investment trusts;
    and


·
            Corporate
      - non-segment specific results which include interest on cash reserves,
      general and administrative expenses and other non-segment specific income
      and expense items.





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





September 30,
                      2009
                    
                    
                    December 31,2008Operating
      properties (1)
                    
                    $
                    337,773
                    
                    
                    $
                    286,780Loan
      assets and loan securities (1)
                    
                    
                    13,663
                    
                    
                    
                    146,560REIT
      securities
                    
                    
                    61,786
                    
                    
                    
                    36,796CorporateCash
      and cash equivalents
                    
                    
                    35,147
                    
                    
                    
                    59,238Other
                    
                    
                    24,287
                    
                    
                    
                    48,720Total
      Assets
                    
                    $
                    472,656
                    
                    
                    $
                    578,094





(1)
            As
      of July 1, 2009, in conjunction with the restructuring of our preferred
      equity investment in Marc Realty, our investments in the Included
      Properties in the Marc Realty portfolio are now classified as equity
      investments and are included in the operating properties
      segment.




Total
assets decreased by $105,438,000, or 18.2%, from $578,094,000 at December 31,
2008 to $472,656,000 at September 30, 2009.  Cash and cash equivalents
decreased by $24,091,000.  In addition, we experienced decreases as
described below of $75,269,000 in loan assets and loan securities (exclusive of
the transfer of $57,628,000 related to the reclassification of our mezzanine
loans and tenant improvement and capital expenditure loans in the Marc Realty
portfolio from the loan assets and loan securities segment to the operating
properties segment) and of $24,433,000 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 nine months ended
September 30, 2009 and a $31,670,000 other-than-temporary impairment recognized
by us on this investment at June 30, 2009 as well as a $4,695,000 other
comprehensive income reclassification adjustment.




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 net reduction of funds
held in escrow of approximately $5,608,000.  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.




Our
results of operations and changes in financial position are discussed
below.




40




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


Comparison
of Nine Months ended September 30, 2009 versus Nine Months ended September 30,
2008





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





2009
                  
                  
                  2008Operating
      properties
                  
                  $
                  3,512
                  
                  
                  $
                  3,403Loan
      assets and loan securities
                  
                  
                  (101,149
                  )
                  
                  
                  (9,992
                  )REIT
      securities
                  
                  
                  21,424
                  
                  
                  
                  1,035Corporate
      expenses
                  
                  
                  (1,608
                  )
                  
                  
                  (9,832
                  )Consolidated  loss
      from continuing operations
                  
                  $
                  (77,821
                  )
                  
                  $
                  (15,386
                  )





Operating
Properties





2009
                    
                    
                    2008Rents
      and reimbursements
                    
                    $
                    32,074
                    
                    
                    $
                    32,533Operating
      expenses
                    
                    
                    (5,981
                    )
                    
                    
                    (5,517
                    )Real
      estate taxes
                    
                    
                    (2,059
                    )
                    
                    
                    (2,180
                    )Equity
      in loss of Sealy Northwest Atlanta
                    
                    
                    (223
                    )
                    
                    
                    (364
                    )Equity
      in loss of Sealy Airpark Nashville
                    
                    
                    (861
                    )
                    
                    
                    (913
                    )Equity
      in loss of Sealy Newmarket
                    
                    
                    (504
                    )
                    
                    
                    (90
                    )Equity
      in income of Marc Realty investments
                    
                    
                    122
                    
                    
                    
                    -Operating
      income
                    
                    
                    22,568
                    
                    
                    
                    23,469Depreciation
      and amortization expense
                    
                    
                    (8,276
                    )
                    
                    
                    (8,948
                    )Interest
      expense
                    
                    
                    (10,780
                    )
                    
                    
                    (11,118
                    )Net
      income
                    
                    $
                    3,512
                    
                    
                    $
                    3,403





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





·
            a
      $459,000 decrease in rents and reimbursements due primarily
      to:


-
            a
      decrease of $681,000 on our wholly-owned net lease portfolio due to the
      reduced rent pursuant to the restructuring and 10 year extension of the
      lease for our Plantation, Florida property as of January 1,
      2009;


-
            a
      decrease of $263,000 at our Jacksonville, Florida property due to the loss
      of two tenants who occupied approximately 80% of the
    property;


-
            a
      decrease of $344,000 at our Lisle, Illinois properties due to an
      approximate 7% decrease in occupancy at one of the properties in
      2009;





Partially
offset by:





-
            an
      increase of $107,000 at our Ontario property as a result of a $255,000
      increase in rental revenue due to an approximate 2% increase in average
      occupancy which was partially offset by a $155,000 decline in revenue from
      the parking facility in 2009;


-
            an
      increase of $570,000 at our River City property due to an approximate 5%
      increase in average occupancy in
2009;


-
            an
      increase of $95,000 at our Creekwood Apartments property due to an
      approximate 8% increase in average occupancy in
  2009;


·
            a
      $464,000 increase in operating expenses due primarily to increased cost of
      $322,000 at our River City property  and a $113,000 increase in
      legal and professional fees related to tenant
  disputes;


·
            a
      $221,000 increase in losses from our Sealy equity investments due
      primarily to a $414,000 increase in 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 $986,000 from the Sealy equity investments for the
      nine months ended September 30, 2009;
and




41




WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009


·
            income
      of $122,000 for the three months ended September 30, 2009 representing our
      50% share of operations at our twelve Marc Realty equity
      investments.  We received distributions of $110,000 during the
      three months ended September 30, 2009. Prior to July 1, 2009, these
      investments were included in the loan assets and loan securities
      segment.





Depreciation,
amortization, 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
                  
                  $
                  2,247
                  
                  
                  $
                  1,171Equity
      in earnings (loss) of preferred equity investment
                  
                  
                  (2,108
                  )
                  
                  
                  2,518Equity
      in loss of Lex-Win Concord
                  
                  
                  (98,735
                  )
                  
                  
                  (13,953
                  )Gain
      on sale of mortgage backed securities
                  
                  
                  -
                  
                  
                  
                  454Provision
      for loss on loan receivable
                  
                  
                  (2,152
                  )
                  
                  
                  -Unrealized
      loss on available for sale loans
                  
                  
                  (203
                  )
                  
                  
                  -Gain
      on sale of other assets
                  
                  
                  -
                  
                  
                  
                  24Operating
      loss
                  
                  
                  (100,951
                  )
                  
                  
                  (9,786
                  )General
      and administrative expense
                  
                  
                  (198
                  )
                  
                  
                  -Interest
      expense
                  
                  
                  -
                  
                  
                  
                  (206
                  )Net
      loss
                  
                  $
                  (101,149
                  )
                  
                  $
                  (9,992
                  )





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





·
            a
      $84,782,000 increase in equity in loss from Lex-Win Concord due primarily
      to our allocable share of the loss from Concord of $71,889,000 for the
      nine months ended September 30, 2009 which represents an increase of
      $57,936,000 over the loss allocated for the nine months ended September
      30, 2008.  In addition, we recorded a $31,670,000
      other-than-temporary impairment loss in 2009 to reduce our equity
      investment in Lex-Win Concord to
zero.


·
              a
      $4,626,000 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
      $1,605,000 decrease in earnings as a result of having a lower investment
      balance in 2009;


-
            a
      $181,000 decrease in gains on sale of real estate;
  and


-
            a
      $186,000 increase in other-than-temporary impairments.  We
      recognized $2,186,000 of other-than-temporary impairments on four of our
      mezzanine loans during the nine months ended September 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;





Partially
offset by:





·
            a
      $1,076,000 increase in interest income due primarily to $1,476,000
      recognized on two loan assets acquired in June 2009 which was partially
      offset by a reduction of $422,000 of interest on our tenant improvement
      and capital expenditure loans which are now reported in the operating
      properties segment as of July 1,
2009.




42


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


REIT Securities





2009
                  
                  
                  2008Interest
      and dividends
                  
                  $
                  4,215
                  
                  
                  $
                  91Gain
      on sale of securities
                  
                  
                  3,274
                  
                  
                  
                  2,029Impairment
      loss on available for sale securities
                  
                  
                  -
                  
                  
                  
                  (207
                  )Unrealized
      gain on securities carried at fair value
                  
                  
                  14,010
                  
                  
                  
                  -Equity
      in loss of Lex-Win Acquisition, LLC
                  
                  
                  -
                  
                  
                  
                  (878
                  )Operating
      income
                  
                  
                  21,499
                  
                  
                  
                  1,035Interest
      expense
                  
                  
                  (75
                  )
                  
                  
                  -Net
      income
                  
                  $
                  21,424
                  
                  
                  $
                  1,035





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





·
            a
      $4,124,000 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 nine months ended September 30,
      2009;


·
            a
      $14,010,000 unrealized gain on securities carried at fair value recognized
      in 2009; and


·
            a
      $1,245,000 increase in gain on sale of
  securities.





Corporate





2009
                    
                    
                    2008Interest
      income
                    
                    $
                    145
                    
                    
                    $
                    1,425General
      and administrative
                    
                    
                    (4,951
                    )
                    
                    
                    (5,119
                    )Interest
      expense
                    
                    
                    (2,273
                    )
                    
                    
                    (5,903
                    )Gain
      on extinguishment of debt
                    
                    
                    5,682
                    
                    
                    
                    -State
      and local taxes
                    
                    
                    (211
                    )
                    
                    
                    (235
                    )Operating
      loss
                    
                    $
                    (1,608
                    )
                    
                    $
                    (9,832
                    )





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





·
            a
      $5,682,000 gain on early extinguishment of debt resulting from our 2009
      purchases of 1,017,105 of our Series B-1 Preferred Shares at a discount to
      their liquidation value;


·
            a
      $3,630,000 decrease in corporate interest expense due primarily to lower
      aggregate payments in 2009 of $2,945,000 on our Series B-1 Preferred
      Shares as a result of fewer Series B-1 Preferred Shares outstanding during
      2009 and a reduction of costs of $695,000 related to our KeyBank line of
      credit; and


·
            a
      $168,000 decrease in general and administrative expenses due primarily to
      a reduction in the base management fee of $827,000 which was partially
      offset by a $518,000 increase in professional fees and a $116,000 increase
      in dues, subscriptions and reporting fees.  The increase in
      professional fees was primarily the result of a $193,000 increase in audit
      related expense, $140,000 of legal expenses related to due diligence on
      certain investments not consummated, $89,000 of legal expenses related to
      our new shelf registration and an increase of $101,000 for legal expenses
      related to general representation;





Partially
offset by:





·
            a $1,280,000
      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 nine months of 2009
      versus 2008.




43


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


State
income taxes were $211,000 and $235,000 for the nine months ended September 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.





Comparison
of Three Months ended September 30, 2009 versus Three Months ended September 30,
2008





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





2009
                  
                  
                  2008Operating
      properties
                  
                  $
                  1,214
                  
                  
                  $
                  1,024Loan
      assets and loan securities
                  
                  
                  1,443
                  
                  
                  
                  4,370REIT
      securities
                  
                  
                  14,710
                  
                  
                  
                  37Corporate
      expenses
                  
                  
                  (1,895
                  )
                  
                  
                  (3,073
                  )Consolidated  income
      from continuing operations
                  
                  $
                  15,472
                  
                  
                  $
                  2,358





Operating
Properties





2009
                  
                  
                  2008Rents
      and reimbursements
                  
                  $
                  10,642
                  
                  
                  $
                  10,873Operating
      expenses
                  
                  
                  (2,158
                  )
                  
                  
                  (1,848
                  )Real
      estate taxes
                  
                  
                  (704
                  )
                  
                  
                  (766
                  )Equity
      in income (loss) of Sealy NorthwestAtlanta
                  
                  
                  19
                  
                  
                  
                  (128
                  )Equity
      in loss of Sealy Airpark Nashville
                  
                  
                  (289
                  )
                  
                  
                  (363
                  )Equity
      in loss of Sealy Newmarket
                  
                  
                  (141
                  )
                  
                  
                  (90
                  )Equity
      in income of Marc Realty investments
                  
                  
                  122
                  
                  
                  
                  -Operating
      income
                  
                  
                  7,491
                  
                  
                  
                  7,678Depreciation
      and amortization expense
                  
                  
                  (2,695
                  )
                  
                  
                  (2,980
                  )Interest
      expense
                  
                  
                  (3,582
                  )
                  
                  
                  (3,674
                  )Net
      income
                  
                  $
                  1,214
                  
                  
                  $
                  1,024





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





·
            a
      $231,000 decrease in rents and reimbursements due primarily
      to:


-
            a
      decrease of $340,000 on our wholly-owned net lease portfolio due to the
      reduced rent pursuant to the restructuring and extension of the lease for
      our Plantation, Florida property as of January 1,
  2009;


-
            a
      decrease of $253,000 at our Jackonsville, Florida property due to the loss
      of two tenants who occupied approximately 80% of the
    property;


-
            a
      decrease of $150,000 at our Lisle, Illinois properties due to an
      approximate 9% decrease in occupancy at one of the properties in
      2009;





Partially
offset by:





-
            an
      increase of $151,000 at our Ontario property due to an approximate 4%
      increase in average occupancy for the three months ended September 30,
      2009;


-
            an
      increase of $307,000 at our River City property due to an approximate 3%
      increase in average occupancy for the three months ended September 30,
      2009;


-
            an
      increase of $37,000 at our Creekwood Apartments property due to an
      approximate 10% increase in average occupancy for the three months ended
      September 30, 2009;


·
            a
      $310,000 increase in operating expenses due primarily to increased costs
      of $197,000 at our River City property and a $113,000 increase in legal
      and professional fees related to tenant
  disputes;




44


WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


·
            a
      $170,000 decrease in losses from our Sealy equity
      investments.  Losses from the Sealy portfolio are primarily the
      result of non-cash depreciation and amortization expenses.  We
      received cash distributions of $321,000 from the Sealy equity investments
      for the three months ended September 30, 2009;
  and


·
            income
      of $122,000 in 2009 representing our 50% share of operations at our 12
      Marc Realty equity investments.  We received cash distributions
      of $110,000 from the Marc investments during the three months ended
      September 30, 2009.





Depreciation,
amortization, 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
                  
                  $
                  1,040
                  
                  
                  $
                  342Equity
      in earnings of preferred equity investment
                  
                  
                  86
                  
                  
                  
                  1,100Equity
      in earnings of Lex-Win Concord
                  
                  
                  500
                  
                  
                  
                  2,904Gain
      on sale of other assets
                  
                  
                  -
                  
                  
                  
                  24Operating
      income
                  
                  
                  1,626
                  
                  
                  
                  4,370General
      and administrative expense
                  
                  
                  (183
                  )
                  
                  
                  -Net
      income
                  
                  $
                  1,443
                  
                  
                  $
                  4,370





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





·
            a
      $2,404,000 decrease in earnings from Lex-Win Concord due to our write off
      of its investment to zero.  The income for the three months
      ended September 30, 2009 represents a distribution received for its share
      of asset management fees;


·
            a
      $1,014,000 decrease in equity in earnings from our preferred equity
      investment, Marc Realty, primarily due to the restructuring of this
      investment which resulted in a majority of this investment being
      classified in the operating properties segment effective July 1, 2009;
      and


·
            a
      $183,000 increase in professional fees incurred related to the acquisition
      of new loan assets;





Partially
offset by:





·
            a
      $698,000 increase in interest income due primarily to $1,025,000 of
      interest recognized on two loan assets acquired in June 2009 which was
      partially offset by a $422,000 decrease resulting from the transfer on
      July 1, 2009 of the tenant improvement and capital expenditure loans to
      the operating properties segment.





REIT Securities





2009
                  
                  
                  2008Interest
      and dividends
                  
                  $
                  1,456
                  
                  
                  $
                  37Gain
      on sale of securities
                  
                  
                  676
                  
                  
                  
                  -Unrealized
      gain on securities carried at fair value
                  
                  
                  12,578
                  
                  
                  
                  -Operating
      income
                  
                  
                  14,710
                  
                  
                  
                  37Interest
      expense
                  
                  
                  -
                  
                  
                  
                  -Net
      income
                  
                  $
                  14,710
                  
                  
                  $
                  37





45




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


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





·
            a
      $12,578,000 unrealized gain on securities carried at fair value as a
      result of an increase in market value during the three months ended
      September 30, 2009;


·
            a
      $676,000 gain on sale of securities;
and


·
            an
      increase of $1,419,000 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 during
  2009.





Corporate





2009
                    
                    
                    2008Interest
      income
                    
                    $
                    31
                    
                    
                    $
                    761General
      and administrative
                    
                    
                    (1,642
                    )
                    
                    
                    (1,566
                    )Interest
      expense
                    
                    
                    (715
                    )
                    
                    
                    (2,255
                    )Gain
      on extinguishment of debt
                    
                    
                    445
                    
                    
                    
                    -State
      and local taxes
                    
                    
                    (14
                    )
                    
                    
                    (13
                    )Operating
      loss
                    
                    $
                    (1,895
                    )
                    
                    $
                    (3,073
                    )





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





·
            a
      $1,540,000 decrease in corporate interest expense due primarily to lower
      aggregate payments of $940,000 in 2009 on our Series B-1 Preferred Shares
      as a result of fewer Series B-1 Preferred Shares outstanding during 2009
      and a reduction of costs of $605,000 related to our KeyBank line of
      credit; and


·
            a
      $445,000 gain on extinguishment of debt resulting from our purchase of
      $100,000 of our Series B-1 Preferred Shares at a discount to their
      liquidation value;





Partially
offset by:





·
            a
      $76,000 increase in general and administrative expenses due primarily to a
      $226,000 increase in professional fees which was partially offset by the
      reduction in the base management fee of $176,000.  The increase
      in professional fees was primarily the result of a $74,000 increase in
      audit related expense, $29,000 of legal expenses related to due diligence
      on certain investments not consummated, $54,000 of legal expense related
      to our new shelf registration, and $57,000 of legal expenses related to
      general representation; and


·
            a
      $730,000 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 $14,000 and $13,000 for the three months ended September 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.





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.




46




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 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 September 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 September 30, 2009 (in thousands):





Change
      in LIBOR(2)-0.25%
                          
                          
                          1%
                          
                          
                          2%
                          
                          
                          3%Change
      in consolidated interest expense
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -Pro-rata
      share of change in interest expense of debt on
      non-consolidated entities (1)
                          
                          
                          (48
                          )
                          
                          
                          196
                          
                          
                          
                          392
                          
                          
                          
                          588Non-controlling
      interests share
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -(Increase)
      decrease in net income
                          
                          $
                          (48
                          )
                          
                          $
                          196
                          
                          
                          $
                          392
                          
                          
                          $
                          588





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


(2)
            The
      one month LIBOR rate at September 30, 2009 was
  0.25%.





Market
Value Risk




Our hedge
transactions 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 one counterparty of
these arrangements is KeyBank.  At the present time, due to the loan
interest rate environment, our hedge transaction represents a liability to
us.  We have 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.




47




WINTHROP
REALTY TRUST
 FORM
10-Q SEPTEMBER 30, 2009


As of
September 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
September 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.





48


WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009





PART
II. OTHER INFORMATION





ITEM
      1A.
            RISK
      FACTORS





This
report and the following discussion of risk factors contain forward-looking
statements as discussed in Part I, Item 2, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations”.  Our actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including the risks and uncertainties described
below and elsewhere in this report.  These risks and uncertainties are not
the only ones we may face.  Additional risks and uncertainties of which we
are not aware, or that we currently deem immaterial, may also become important
factors that affect our financial condition, results of operations and cash
flows.





We, our
assets and the entities in which we invest are subject to a number of risks
customary for REITs, property owners, loan originators and holders and equity
investors as well as a number of risks involved in our investment policy that
not all REITs may have.  Material factors that may adversely affect
our business operations and financial conditions are summarized
below.  As used in this Risk Factors section and except as expressly
provided otherwise, references to the terms “we”, “our” or “us” include both the
trust and its ventures, including Concord.





We
may not be able to invest our cash reserves in suitable
investments.




As of
September 30, 2009, we had approximately $35,147,000 of cash and cash
equivalents available for investment.  Our ability to generate
increased revenues is dependent upon our ability to grow our asset base by
investing these funds, as well as additional funds which we may raise or borrow,
in real estate related assets that will ultimately generate favorable
returns.




We
are subject to significant competition and we may not compete
successfully.




We have
significant competition with respect to our acquisition of operating properties
and our acquisition and origination of loan assets with many other companies,
including other REITs, insurance companies, commercial banks, private investment
funds, hedge funds, specialty finance companies and other investors some of
which may have a lower cost of funds and access to funding sources that are not
available to us.




Investing
through ventures presents additional risks.




Our
investments in ventures present additional risks such as our having differing
objectives than our partners from time to time or the entities in which we
invest or our becoming involved in disputes or possibly competing with those
persons in investments unrelated to our joint venture.  In addition,
we rely on the internal controls and financial reporting controls of these
entities and their failure to comply with applicable standards may adversely
affect us.




Investing
in private companies involves specific risks.




We have
held and may acquire additional ownership interests in private companies not
subject to the reporting requirements of the SEC.  Investments in
private businesses involve a higher degree of business and financial risk, which
can result in substantial losses and accordingly should be considered
speculative.  There is generally no publicly available information
about these private companies, and we will rely significantly on the due
diligence of our advisor to obtain information in connection with our investment
decisions.




Many
of our investments are illiquid, and we may not be able to adjust our portfolio
in response to changes in economic and other conditions, which may result in
losses to us.




Many of
our investments are relatively illiquid and, therefore, our ability to sell
properties and purchase other properties, loan assets, loan securities and debt
promptly in response to a change in economic or other conditions may be limited.
The requirements of the Code with regard to REITs also may limit our ability to
sell investments. These considerations could make it difficult for us to dispose
of properties, even if a disposition were in the best interest of our
shareholders.  As a result, our ability to adjust our portfolio in
response to changes in economic and other conditions may be relatively limited,
which may result in losses to us.


49


WINTHROP
REALTY TRUST


FORM
10-Q SEPTEMBER 30, 2009





We
leverage our portfolio, which may adversely affect our return on our investments
and may reduce cash available for distribution.




We seek
to leverage our portfolio through borrowings.  Our return on
investments and cash available for distribution to holders of our preferred and
common shares may be reduced to the extent that changes in market conditions
make new borrowings or refinancing of existing debt difficult or even impossible
or cause the cost of our financings to increase relative to the income that can
be derived from the assets.  Our debt service payments reduce the cash
available for distributions to holders of preferred and common
shares.  We may not be able to meet our debt service obligations and,
to the extent that we cannot, we risk the loss of some or all of our assets to
foreclosure or forced sale to satisfy our debt obligations.  A
decrease in the value of the assets may lead to a requirement that we repay
certain credit facilities.  We may not have the funds available, or be
able to arrange for refinancings, to satisfy such repayments.




We may change our
investment and operational policies.




We may
change our investment and operating strategy either voluntarily or as result of
the severe downturn in the economy, including our policies with respect to
investments, acquisitions, growth, operations, indebtedness, capitalization and
distributions, at any time without the consent of our shareholders, which could
result in our making investments that are different from, and possibly riskier
than, our current investments.  A change in our investment strategy
may increase our exposure to interest rate risk, default risk and real estate
market fluctuations, all of which could adversely affect our share price and our
ability to make distributions.




Interest
rate fluctuations may reduce our investment return.




Certain
of our loan obligations or loan assets have floating interest
rates.  In such cases, an increase in interest rates would increase
our loan obligations while a decrease in interest rates would decrease the
interest received on our loan assets.  Where possible we seek to
mitigate these risks by acquiring interest rate cap agreements, rate collars and
other similar protections.  To the extent we have not mitigated these
risks or our actions are ineffective, a fluctuation in interest rates could
negatively impact our cash flow due to an increase in loan obligations or a
decrease in interest received on our loan assets.




We
engage in hedging transactions that may limit gains or result in
losses.




We have
and may continue to use hedging instruments in our risk management strategy to
limit the effects of changes in interest rates on our operations.  A
hedge may not be effective in eliminating all of the risks inherent in any
particular position.  Further, we have and could continue to recognize
losses on a hedge position which reduces the cash available for
distribution.  In addition, we run the risk of default by a
counterparty to a hedging arrangement




We
must manage our investments in a manner that allows us to rely on an exemption
from registration under The Investment Company Act in order to avoid the
consequences of regulation under that Act.




We intend
to operate so that we are exempt from registration as an investment company
under the Investment Company Act of 1940, as amended. Therefore, the assets that
we may invest in, or acquire, are limited by the provisions of the Investment
Company Act and the rules and regulations promulgated thereunder. If we are
required to make investments in order to be exempt from registration, such
investments may not represent an optimum use of our capital when compared to
other available investments.




We
may not be able to obtain capital to make investments.




As a
REIT, we are dependent primarily on external financing to fund the growth of our
business because one of the requirements for a REIT is that it distribute at
least 90% of its net taxable income, excluding net capital gains, to its
shareholders.  Accordingly, to the extent we are unable to obtain debt
or equity financing it will likely have a material adverse affect on our
financial condition and results of operations, our stock price and our ability
to pay dividends to our shareholders.


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10-Q SEPTEMBER 30, 2009





We
have significant distribution obligations to holders of our preferred
shares.




The
provisions of our Series B-1 preferred shares and Series C preferred shares
currently require us to make annual distributions presently aggregating
approximately $2,268,500 before any distributions may be made on our common
shares.




Our
ratio of total debt to total entity value may increase.




If our
ratio of total debt to total entity value (total market equity value of our
common and preferred shares plus debt) increases, it may increase the risk of
default on our loan-debt obligations and limit our ability to obtain additional
equity or debt financing, either of which would adversely affect our financial
condition and results of operations.





Covenants
in our debt instruments could adversely affect our financial condition and our
ability to make future investments.




The
mortgages on our properties contain customary covenants such as those that limit
our ability, without the prior consent of the lender, to further mortgage the
applicable property.  Our credit facilities contain, and other loans
that we may obtain in the future contain, customary restrictions, requirements
and other limitations on our ability to incur indebtedness.  These
restrictions can include, among other things, a limitation on our ability to
incur debt based upon the level of our ratio of total debt to total assets, our
ratio of secured debt to total assets, our ratio of EBITDA to interest expense
and fixed charges, and a requirement for us to maintain a certain level of
unencumbered assets to unsecured debt. Our ability to borrow under our credit
facility with KeyBank, National Association is subject to compliance with
certain other covenants  including the absence of factors both within
and outside of our control which would cause a material adverse change in the
loan syndication, financial or capital market conditions.  In
addition, failure to comply with our covenants could cause a default under the
applicable debt instrument, and we may then be required to repay such debt with
funds from other sources which may not be available to us, or be available only
on unattractive terms.  Concord is subject to similar risks with
respect to its credit facilities as well as the additional risks discussed
below.




Future
issuances and sales of equity or debt interests pursuant to an outstanding
registration statement may affect the market price of our common
shares.




The
actual issuance of additional common or preferred shares or the sale of debt
securities by us may decrease the market price of our common
shares.




If
we issue preferred equity or debt we may be exposed to additional restrictive
covenants and limitations on our operating flexibility, which could adversely
affect our ability to pay dividends.




If we
decide to issue preferred equity or debt in the future, it is likely that they
will be governed by an indenture or other instrument containing covenants that
may restrict our operating flexibility.




Additional
issuances of common shares may negatively impact our dividend rate payable on
our common shares.




In paying
dividends on our common shares we endeavor to have our dividends track cash flow
from operations, both recurring and nonrecurring.  Accordingly, as we issue
additional common shares, the per share dividend will likely decrease until such
time as we can deploy the proceeds from such issuance of common shares in
investments which increase our recurring and nonrecurring cash
flow.


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Our
due diligence may not reveal all of the liabilities associated with a proposed
investment and may not reveal other weaknesses.




There can
be no assurance that due diligence by our advisor in connection with a new
investment will uncover all relevant facts which could adversely affect the
value of the investment or that the investment will be successful.




We
may fail to remain qualified as a REIT, which would reduce the cash available
for distribution to our shareholders.




Qualification
as a REIT for federal income tax purposes is governed by highly technical and
complex provisions of the Code for which there are only limited judicial or
administrative interpretations.  Our qualification as a REIT also
depends on various facts and circumstances that are not entirely within our
control.  In addition, legislation, new regulations, administrative
interpretations or court decisions might change the tax laws with respect to the
requirements for qualification as a REIT or the federal income tax consequences
of qualification as a REIT.




If, with
respect to any taxable year, we were to fail to maintain our qualification as a
REIT, we would not be able to deduct distributions to our shareholders in
computing our taxable income and would have to pay federal corporate income tax
(including any applicable alternative minimum tax) on our taxable income. If we
had to pay federal income tax, the amount of money available to distribute to
our shareholders would be reduced for the year or years involved. In addition,
we would be disqualified from treatment as a REIT for the four taxable years
following the year during which qualification was lost and thus our cash
available for distribution to our shareholders would be reduced in each of those
years, unless we were entitled to relief under relevant statutory
provisions.





Although
we currently intend to operate in a manner designed to allow us to continue to
qualify as a REIT, future economic, market, legal, tax or other considerations
might cause us to revoke the REIT election. In that event, we and our
shareholders would no longer be entitled to the federal income tax benefits
applicable to a REIT.




In
order to maintain our status as a REIT, we may be forced to borrow funds or sell
assets during unfavorable market conditions.




As a
REIT, we must distribute at least 90% of our annual REIT taxable income, subject
to certain adjustments, to our shareholders.  To the extent that we
satisfy the REIT distribution requirement but distribute less than 100% of our
taxable income, we will be subject to federal corporate income tax on our
undistributed taxable income.  In addition, we will be subject to a 4%
nondeductible excise tax if the actual amount that we pay to our shareholders in
a calendar year is less than a minimum amount specified under federal tax
laws.




From time
to time, we may have taxable income greater than our cash flow available for
distribution to our shareholders (for example, due to substantial non-deductible
cash outlays, such as capital expenditures or principal payments on
debt).  If we did not have other funds available in these situations,
we could be required to borrow funds, sell investments at disadvantageous prices
or find alternative sources of funds to make distributions sufficient to enable
us to pay out enough of our taxable income to satisfy the REIT distribution
requirement and to avoid income and excise taxes in a particular
year.  These alternatives could increase our operating costs and
diminish our rate of growth.




Factors
that may cause us to lose our New York Stock Exchange listing.




We might
lose our listing on the NYSE depending on a number of factors, including failure
to qualify as a REIT, or our not meeting the NYSE’s requirements, including
those relating to the number of shareholders, the price of our common shares and
the amount and composition of our assets.


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Ownership
limitations in our bylaws may adversely affect the market price of our common
shares.




Our
bylaws contain an ownership limitation that is designed to prohibit any transfer
that would result in our being “closely-held” within the meaning of Section
856(h) of the Code.  This ownership limitation, which may be waived by
our Board of Trustees, generally prohibits ownership, directly or indirectly, by
any single shareholder of more than 9.8% of our common shares.  Our
Board of Trustees has waived this ownership limitation on a number of
occasions.  Unless the Board of Trustees waives the restrictions or
approves a bylaw amendment, common shares owned by a person or group of persons
in excess of 9.8% of our outstanding common shares are not entitled to any
voting rights, are not considered outstanding for quorum or voting purposes, and
are not entitled to dividends, interest or any other distributions with respect
to the common shares.  The ownership limit may have the effect of
inhibiting or impeding a change of control or a tender offer for our common
shares.




Any
one of a prolonged economic slowdown, a lengthy or severe recession or continued
instability in the credit market could harm our operations and
viability.




A
prolonged economic slowdown, a lengthy or severe recession and the continued
instability in the credit market has and will affect our operations and
viability in a number of ways including:




·
              Depressed prices for our
      assets;
 
 ·
              Decreases in interest income
      received or increases in interest expenses
  paid;
 
 ·
              Fewer potential purchasers for
      our assets;
 
 ·
              Increased risk of default on loan
      assets and loan securities;
 
 ·
              Inability to obtain new or
      replacement financing;
 
 ·
              Inability to sell additional debt
      or equity securities; and
 
 ·
              Increased likelihood of margin
      calls on Concord’s repurchase
facilities.




Risks incidental
to the ownership and operation of real estate assets.




The value
of an investment in us depends upon our financial performance and the value of
our operating properties, both those presently held as well as future
investments, which are subject to the risks normally associated with the
ownership, operation and disposal of real estate properties and real estate
related assets, including:




·
              adverse changes in general and
      local economic conditions which affect the demand for real estate
      assets;
 
 ·
              competition from other
      properties;
 
 ·
              changes in interest rates and the
      availability of financing;
 
 ·
              the cyclical nature of the real
      estate industry and possible oversupply of, or reduced demand for, space
      in the markets in which our properties are
  located;
 
 ·
              the attractiveness of our
      properties to tenants and
purchasers;
 
 ·
              how well we manage our
      properties;
 
 ·
              changes in market rental rates
      and our ability to rent space on favorable
  terms;
 
 ·
              the financial condition of our
      tenants and borrowers including bankruptcy or insolvency of tenants and
      borrowers;




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·
              the need to periodically
      renovate, repair and re-lease space and the costs
      thereof;
 
 ·
              increases in maintenance,
      insurance and operating
costs;
 
 ·
              civil unrest, armed conflict or
      acts of terrorism against the United States;
  and
 
 ·
              earthquakes floods and other
      natural disasters or acts of God that may result in uninsured
      losses.


In
addition, applicable federal, state and local regulations, zoning and tax laws
and potential liability under environmental and other laws may affect real
estate values. Further, throughout the period that we own real property,
regardless of whether or not a property is producing any income, we must make
significant expenditures, including those for property taxes, maintenance,
insurance and related charges and debt service. The risks associated with real
estate investments may adversely affect our operating results and financial
position, and therefore the funds available for distribution to you as
dividends.




Failure
to renew expiring leases could adversely affect our financial
condition.




We are
subject to the risk that, upon expiration, leases may not be renewed, the space
may not be relet, or the terms of renewal or reletting, including the cost of
any required renovations, may be less favorable than the current lease
terms.  This risk is substantial with respect to our net leased
properties as single tenants lease 100% of each property.  Nineteen of
our properties, containing an aggregate of approximately 2,896,000 square feet
of space are net leased to seven different tenants.  Leases accounting
for approximately 16% of the aggregate annualized base rents from our operating
properties for 2008, representing approximately 14% of the net rentable square
feet at the properties, are scheduled to expire in 2009. Other leases grant
tenants early termination rights upon payment of a termination
penalty.  Lease expirations will require us to locate new tenants and
negotiate replacement leases with new tenants.  The costs for tenant
improvements, tenant concessions and leasing commissions, with respect to new
leases, are traditionally greater than costs relating to renewal
leases.  If we are unable to promptly relet or renew leases for all or
a substantial portion of the space subject to expiring leases, or if the rental
rates upon such renewal or reletting are significantly lower than expected, our
revenue and net income could be adversely affected.




We are subject to risks associated
with the financial condition of our tenants.




The
current credit and capital market crisis and economic slowdown will likely have
a negative impact on our tenants due to a downturn in their
business.  This negative impact could result in the tenant’s inability
to make rental payments when due.  In addition, a tenant may seek the
protection of bankruptcy, insolvency or similar laws, which could result in the
rejection and termination of such tenant’s lease and cause a reduction in our
cash flow.  If this were to occur at a net lease property, the entire
property would become vacant.




We cannot
evict a tenant solely because of its filing for bankruptcy.  A
bankruptcy court, however, may authorize a tenant to reject and terminate its
lease.  In such a case, our claim against the tenant for past due rent
and unpaid future rent would be subject to a statutory cap that might be
substantially less than the remaining rent owed under the lease.  In
any event, it is unlikely that a bankrupt tenant will pay in full the amount it
owes us under a lease.  The loss of rental payments from tenants could
adversely affect our cash flows and operating results.




The loss of a
major tenant could adversely affect our financial condition.




We are
and expect that we will continue to be subject to a degree of tenant
concentration at certain of our operating properties and the properties securing
our loan assets and loan securities.  In the event that a tenant
occupying a significant portion of one or more of our properties or whose rental
income represents a significant portion of the rental revenue at such property
or properties were to experience financial weakness, default on its lease, elect
not to renew its lease or file bankruptcy it would negatively impact our
operations and cash flows.  Similarly, if a tenant occupying a
significant portion of one or more of the properties securing our loan assets or
loan securities or whose rental income represents a significant portion of the
rental revenue at such property or properties experiences financial weakness,
defaults on its lease, elects not to renew its lease or files for bankruptcy, it
would negatively impact our operations and cash flows.


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We may be unable
to refinance our existing debt or preferred share financings or obtain favorable
refinancing terms.




We are
subject to the normal risks associated with debt and preferred share financings,
including the risk that our cash flow will be insufficient to meet required
payments of principal and interest on debt and distributions and redemption
payments to holders of preferred shares and the risk that indebtedness on our
properties, or unsecured indebtedness, will not be able to be renewed, repaid or
refinanced when due, or that the terms of any renewal or refinancing will not be
as favorable as the terms of such indebtedness.  This risk is
exacerbated by the recent capital market crisis which has resulted in tightened
lending requirements for real estate related assets and in some cases the
inability to refinance real estate indebtedness.  If we were unable to
refinance indebtedness or preferred share financings on acceptable terms, or at
all, we might be forced to dispose of one or more of our properties on
disadvantageous terms, which might result in losses to us, which could have a
material adverse affect on us and our ability to pay distributions to our
holders of preferred shares and common shares.  Furthermore, if a
property is mortgaged or a loan pledged to secure payment of indebtedness and we
are unable to meet the debt payments, the lender could foreclose upon the
property or the loan, appoint a receiver or obtain an assignment of rents and
leases or pursue other remedies, all with a consequent loss of revenues and
asset value to us.  Foreclosures could also create taxable income
without accompanying cash proceeds, thereby hindering our ability to meet the
REIT distribution requirements.




With
respect to upcoming maturities, none of our loans are scheduled to mature in
2009, inclusive of extension rights. As of September 30, 2009 there are
$1,870,000 of scheduled principal payments on mortgage loans remaining in
2009.  After giving effect to extension rights, approximately
$15,784,000 is scheduled to be paid down or mature in 2010 and $207,800,000 is
scheduled to be paid down or mature in 2011 or later.




Some
of our potential losses may not be covered by insurance.




We will
use our discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance
coverage on our investments at a reasonable cost and on suitable
terms.  This may result in insurance coverage that, in the event of a
substantial loss, would not be sufficient to pay the full current market value
or current replacement cost of the lost investment and also may result in
certain losses being totally uninsured.  Inflation, changes in
building codes, zoning or other land use ordinances, environmental
considerations, lender imposed restrictions and other factors also might make it
not feasible to use insurance proceeds to replace the property after such
property has been damaged or destroyed.  Under such circumstances, the
insurance proceeds, if any, received by us might not be adequate to restore our
economic position with respect to such property.  With respect to our
net leased properties, under the lease agreements for such properties, the
tenant is required to adequately insure the property, but their failure or
inability to have adequate coverage might adversely affect our economic position
with respect to such property.




Compliance
with the Americans with Disabilities Act and fire, safety and other regulations
may require us to make unanticipated expenditures that adversely affect our
ability to pay dividends.




All of
our properties are required to comply with the Americans with Disabilities Act,
which we refer to as the ADA.  The ADA has separate compliance
requirements for “public accommodations” and “commercial facilities,” but
generally requires that buildings be made accessible to people with
disabilities.  Although we believe that our properties are in
compliance with the ADA, it is possible that we may incur additional
expenditures which, if substantial, could adversely affect our results of
operations, our financial condition and our ability to pay
dividends.




In
addition, we are required to operate our properties in compliance with fire and
safety regulations, building codes and other land use regulations, as they may
be adopted by local, state and federal governmental agencies and bodies and
become applicable to our properties.  We may be required to make
substantial capital expenditures to comply with those requirements and these
expenditures could have an adverse affect on our ability to pay
dividends.


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We
may incur costs to comply with environmental laws.




The
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with future
legislation, may adversely affect our operating costs.  Under various
federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the
costs of removal or remediation of hazardous or toxic substances on or under the
property.  Environmental laws often impose liability whether or not
the owner or operator knew of, or was responsible for, the presence of such
hazardous or toxic substances and whether or not such substances originated from
the property.  In addition, the presence of hazardous or toxic
substances, or the failure to remediate such property properly, may adversely
affect our ability to borrow by using such property as collateral.  We
maintain insurance related to potential environmental issues on our currently
non-net leased properties which may not be adequate to cover all possible
contingencies.




The
loans we invest in are subject to delinquency, foreclosure and
loss.




Our
commercial real estate loan assets and loan securities are directly and
indirectly secured by income producing property. These loans are subject to
risks of delinquency and foreclosure as well as risk associated with the capital
markets. The ability of a borrower to repay a loan secured by an income
producing property typically is dependent primarily upon the successful
operation of such property rather than upon the existence of independent income
or assets of the borrower.  If a borrower were to default on a loan,
it is possible that we would not recover the full value of the
loan.




The
subordinate loan assets we invest in may be subject to risks relating to the
structure and terms of the transactions, and there may not be sufficient funds
or assets remaining to satisfy our subordinate notes, which may result in losses
to us.




We invest
in loan assets that are subordinate in payment and collateral to more senior
loans.  If a borrower defaults or declares bankruptcy, after the more
senior obligations are satisfied, there may not be sufficient funds or assets
remaining to satisfy our subordinate notes.  Because each transaction
is privately negotiated, subordinate loan assets can vary in their structural
characteristics and lender rights, including our rights to control the default
or bankruptcy process.  The subordinate loan assets that we invest in
may not give us the right to demand foreclosure as a subordinate
debtholder.  Furthermore, the presence of intercreditor agreements may
limit our ability to amend the loan documents, assign the loans, accept
prepayments, exercise remedies and control decisions made in bankruptcy
proceedings relating to borrowers.  Bankruptcy and borrower litigation
can significantly increase the time needed for us to acquire possession of
underlying collateral in the event of a default, during which time the
collateral may decline in value.  In addition, there are significant
costs and delays associated with the foreclosure process.




We
invest in subordinate mortgage-backed securities which are subject to a greater
risk of loss than senior securities. We may hold the most junior class of
mortgage-backed securities which are subject to the first risk of loss if any
losses are realized on the underlying mortgage loans.




We invest
in a variety of subordinate loan securities, and sometimes hold a “first loss”
subordinate holder position. The ability of a borrower to make payments on the
loan underlying these securities is dependent primarily upon the successful
operation of the property rather than upon the existence of independent income
or assets of the borrower since the underlying loans are generally non-recourse
in nature. In the event of default and the exhaustion of any equity support,
reserve funds, letters of credit and any classes of securities junior to those
in which we invest, we will not be able to recover all of our investment in the
securities purchased.




The
widening of credit spreads has had and will continue to have a negative impact
on the value of Concord’s assets.




The fair
value of Concord’s loan assets and loan securities is dependent upon the yield
demanded on these assets by the market based on the underlying
credit.  A large supply of these loan assets and loan securities
combined with reduced demand will generally cause the market to require a higher
yield on these loan assets and loan securities, resulting in a higher, or
“wider,” spread over the benchmark rate of such loan assets and loan
securities.  Under these conditions such as those that we are
currently experiencing, the value of loan assets and loan securities in
Concord’s portfolio has and will decline.   Such changes in the
market value of Concord’s portfolio has and will adversely affect Concord’s net
equity through their impact on unrealized gains or losses on available-for-sale
loan assets and loan securities, and therefore Concord’s cash flow since Concord
would be unable to realize gains through sale of such loan assets and loan
securities.  Also, they have and could continue to adversely affect
Concord’s ability to borrow and access capital.


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Concord
prices its assets based on its assumptions about future credit spreads for
financing of those assets.  Concord has obtained in the past longer
term financing for its assets using structured financing techniques, such as
Concord Real Estate CDO 2006-1, Ltd., which we refer to as
CDO-1.  Such issuances entail interest rates set at a spread over a
certain benchmark, such as the yield on United States Treasury obligations,
swaps or LIBOR.  If the spread that investors are paying on structured
finance vehicles over the benchmark widens and the rates Concord charges on its
securitized assets are not increased accordingly, this may reduce Concord’s
income or cause losses.




The
deterioration of the credit markets has had an adverse impact on the ability of
borrowers to obtain replacement financing.




The
deterioration of credit markets has made it extremely difficult for borrowers to
obtain mortgage financing.  The inability of borrowers to obtain
replacement financing has led and will likely continue to lead to more loan
defaults thereby resulting in expensive and time consuming foreclosure actions
and/or negotiated extensions to existing loans beyond their current expirations
on terms which may not be as favorable to us as the existing loans.




The
repurchase agreements that Concord uses to finance its investments may require
it to provide additional collateral.





If the
market value of the loan assets and loan securities pledged or sold by Concord
to counterparties decline in value, which decline is determined, in most cases,
by the repurchase counterparties, Concord may be required by the repurchase
counterparties to provide additional collateral or pay down a portion of the
funds advanced.  Posting additional collateral to support its
repurchase facilities will reduce Concord’s return on assets and liquidity as
well as limit its ability to leverage its assets.  If Concord cannot
post additional collateral, Concord will be required to satisfy the margin calls
in cash.  Accordingly, if Concord is required to use its cash, or if
it does not have sufficient cash, to meet such requirements, absent additional
capital from us and/or others, it will result in a rapid deterioration of
Concord’s financial condition and solvency as well as the loss of assets to the
repurchase counterparties, thereby adversely affecting the trust’s investment in
Concord.  In this regard, Concord is required to reduce the
outstanding balance under its repurchase agreement with Column Financial, Inc.
which had an outstanding balance of approximately $79,313,000 as of September
30, 2009, to $60,000,000 by December 31, 2009. It is expected this reduction
will be satisfied, if at all, from sales of certain assets pledged under the
repurchase agreement.




The
credit and capital market deterioration has significantly strained Concord’s
liquidity.




The
inability of Concord to obtain replacement financing coupled with pending
maturities and margin calls on its repurchase obligations has significantly
strained Concord’s liquidity as cash from operations is required to be used
primarily to satisfy repayments under repurchase agreements and margin
calls.  Until there is a recovery in the credit and capital markets
and depending on the timing and extent of margin calls and loan defaults,
Concord will likely have to utilize its cash flow to meet regular debt service
payments as well as margin calls on its repurchase facilities and preferred
distribution payments.  In addition, if alternative financing is not
available or the level of defaults on Concord’s loan assets and loan securities
increases, Concord may not have sufficient liquidity to satisfy its debt
obligations which may require Concord to liquidate assets at unfavorable
pricing, and thereby adversely affect the recovery of the trust’s investment in
Concord.




We
may not recover any of our equity investment in Concord.




As of
June 30, 2009, we wrote down our investment in Concord to zero.  While
the write down 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, there can be no assurance that we will recover any
of our investment in Concord.




In
addition, as of August 26, 2009, Concord’s independent registered public
accounting firm reissued its audit report, dated March 1, 2009, relating to
Concord’s financial statements at December 31, 2008 to raise substantial doubt
as to Concord’s ability to continue as a going concern because Concord had
suffered losses from operations and was in violation of certain debt covenants,
a s a result of certain events that occurred subsequent to the date of their
original report.


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Credit
ratings assigned to Concord’s investments are subject to ongoing evaluations and
we cannot be sure that the ratings currently assigned to Concord’s investments
will not be downgraded.




Some of
Concord’s investments are rated by the major rating agencies.  The
credit ratings on these investments are subject to ongoing evaluation by credit
rating agencies.  If rating agencies assign a lower rating or reduce,
or indicate that they may reduce, their ratings of Concord’s investments, the
market value of those investments could significantly decline, which could have
an adverse affect on Concord’s financial condition by causing additional margin
calls and making it more difficult to replace assets in CDO-1.




The
coverage tests in Concord’s CDO-1 may have a negative impact on Concord’s
operating results and cash flows.




CDO-1
contains coverage tests, including over-collateralization tests, which are used
primarily to determine whether and to what extent principal and interest
proceeds on the underlying collateral debt securities and other assets may be
used to pay principal and interest on the subordinate classes of bonds in
CDO-1.  In the event the coverage tests are not met, distributions
otherwise payable to Concord may be re-directed to pay principal on the highest
bond classes.  Therefore, Concord’s failure to satisfy the coverage
tests could adversely affect Concord’s operating results and cash
flows.




Certain
coverage tests which may be applicable to Concord’s interest in CDO-1 (based on
delinquency levels or other criteria) may also restrict Concord’s ability to
receive net income from assets pledged to secure CDO-1.  If Concord’s
assets fail to perform in accordance with their terms, Concord’s
over-collateralization or other credit enhancement expense associated with CDO-1
will increase.





Our
investments in REIT securities are subject to specific risks relating to the
particular REIT issuer of the securities and to the general risks of investing
in equity interests of REITs.




Our
investments in REIT securities involve special risks. These risks include many,
if not all, of the foregoing risks which apply to an investment in us,
including: (i) risks generally incident to interests in real property; (ii)
risks associated with the failure to maintain REIT qualification; and (iii)
risks that may be presented by the type and use of a particular commercial
property.




Ability
of our advisor to operate properties directly affects our financial
condition.




Other
than for severe economic conditions or natural forces which may be unanticipated
or uncontrollable, the ultimate value of our assets and the results of our
operations will depend on the ability of our advisor to operate and manage our
assets in a manner sufficient to maintain or increase revenues and control our
operating and other expenses in order to generate sufficient revenues to pay
amounts due on our indebtedness and to pay dividends to our
shareholders.




We
are dependent on our advisor and the loss of our advisor’s key personnel could
harm our operations and adversely affect the value of our shares.




We have
no paid employees.  Our officers are employees of our
advisor.  We have no separate facilities and are completely reliant on
our advisor, which has significant discretion as to the implementation of our
investment and operating strategies.  We are subject to the risk that
our advisor will terminate its advisory agreement and that no suitable
replacement will be found to manage us.  Furthermore, we are dependent
on the efforts, diligence, skill, network of business contacts and close
supervision of all aspects of our business by our advisor and, in particular,
Michael Ashner, chairman of our Board of Trustees and our chief executive
officer, Carolyn Tiffany, our president, and Peter Braverman, our executive vice
chairman, as well as our other executive officers.  While we believe
that we could find replacements for these key personnel, the loss of their
services could harm our operations and adversely affect the value of our
shares.


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The incentive fee
payable to our advisor may
be substantial.




Pursuant
to the terms of the advisory agreement, our advisor is entitled to receive an
incentive fee equal to 20% of any amounts available for distribution in excess
of a threshold amount.  The incentive fee is only payable at such
time, if at all, (i) when holders of our common shares receive aggregate
distributions above a threshold amount (effectively a return of capital plus 7%
per annum) or (ii) upon termination of the advisory agreement, if the value of
our assets exceed the threshold amount based on then current market values and
appraisals.  That is, the incentive fee is not payable annually but
only at such time, if at all, as shareholders have received the threshold amount
or, if the advisory agreement is terminated, if the assets of the trust exceed
the threshold amount.  At September 30, 2009 the threshold amount was
approximately $352,473,000, which was equivalent to $20.24 for each of our
common shares on a fully diluted basis.  At such time as shareholders’
equity in our financial statements exceeds the threshold amount, we will record
a liability equal to approximately 20% of the difference between shareholders’
equity and the threshold amount in accordance with GAAP.




Termination
of the Advisory Agreement may be costly.




Termination
of the advisory agreement either by us or our advisor may be costly. Upon
termination of the advisory agreement, our advisor is entitled to a termination
fee equal to the incentive fee based on an appraised valuation of our assets
assuming we were then liquidated. The amount payable on termination of the
advisory agreement could be substantial which may have a negative effect on the
price of our shares.





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.


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REALTY TRUST


FORM
10-Q SEPTEMBER 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:  November
      9, 2009
                By:
                /s/ Michael L. AshnerMichael
      L. AshnerChief
      Executive OfficerDate:  November
      9, 2009
                By:
                /s/ Thomas C. StaplesThomas
      C. StaplesChief
      Financial Officer





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EXHIBIT
INDEX





Exhibit
                
                Description
                
                Page Number3.1
                
                Second
      Amended and Restated Declaration of Trust as of May 21, 2009 0
      Incorporated by reference to Exhibit 3.1 to the Trust’s Quarterly Report
      on Form 10-Q for the period ended June 30, 2009.3.2
                
                Bylaws
      of the Trust as amended and restated on November 3, 2009 - Incorporated by
      reference to Exhibit 3.1 to the Trust’s Form 8-K filed November 6,
      2009.
                
                -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.
                
                -4.6
                
                Certificate
      of Designations for Series C Cumulative Convertible Redeemable Preferred
      Shares of Beneficial Interest - Incorporated by reference to Exhibit 4.1
      to the Trust’s Form 8-K filed November 2, 2009.10.1
                
                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.
                
                -





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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.
              
              -




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FORM
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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
              
              -10.30
              
              Form
      of Series B-1 and Series C Preferred Share Purchase Agreement, dated
      November 1, 2009 - Incorporated by reference to Exhibit 10.1 to the
      Trust’s Form 8-K filed November 2, 200910.31
              
              Investor
      Rights Agreement (Series C Preferred Shares), dated November 1, 2009,
      between Winthrop Realty Trust and the investors party thereto - -
      Incorporated by reference to Exhibit 10.2 to the Trust’s Form 8-K filed
      November 2, 200931
              
              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


63