Attached files
file | filename |
---|---|
EX-31.2 - Winthrop Realty Liquidating Trust | v201279_ex31-2.htm |
EX-32.2 - Winthrop Realty Liquidating Trust | v201279_ex32-2.htm |
EX-31.1 - Winthrop Realty Liquidating Trust | v201279_ex31-1.htm |
EX-32.1 - Winthrop Realty Liquidating Trust | v201279_ex32-1.htm |
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, 2010
Or
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
transition period from ____to ____
Commission
File Number 1-6249
WINTHROP
REALTY TRUST
(Exact
name of Registrant as specified in its certificate of
incorporation)
Ohio
|
34-6513657
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification Number)
|
|
7 Bulfinch Place, Suite 500, Boston,
Massachusetts
|
02114
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(617) 570-4614
|
(Registrant’s
telephone number, including area
code)
|
Indicate
by check mark whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes
¨ No
¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller
reporting company ¨
|
(Do
not check if a smaller reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Exchange
Act Rule12b-2). Yes ¨ No x
As of
November 1, 2010 there were 27,030,286 Common Shares of Beneficial Interest
outstanding.
Page
|
|||||
Part
I.
|
Financial
Information
|
||||
Item
1.
|
Financial
Statements (Unaudited):
|
||||
Consolidated
Balance Sheets as of September 30, 2010 and December 31,
2009
|
3
|
||||
Consolidated
Statements of Operations and Comprehensive Income (Loss) for the Three and
Nine Months Ended September 30, 2010 and September 30,
2009
|
4
|
||||
Consolidated
Statements of Equity for the Nine Months Ended September 30, 2010 and
September 30, 2009
|
5
|
||||
Consolidated
Statements of Cash Flows for the Nine Months Ended September 30, 2010 and
September 30, 2009
|
6
|
||||
Notes
to Consolidated Financial Statements
|
8
|
||||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
34
|
|||
Item
3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
48
|
|||
Item
4.
|
Controls
and Procedures
|
49
|
|||
Part
II.
|
Other
Information
|
||||
Item
6.
|
Exhibits
|
50
|
|||
Signatures
|
50
|
||||
Exhibit
Index
|
|
|
51
|
2
Item
1. Financial Information
WINTHROP
REALTY TRUST
FORM
10-Q – SEPTEMBER 30, 2010
CONSOLIDATED
BALANCE SHEETS
(in
thousands, except per share data)
September
30,
|
December
31,
|
|||||||
2010
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
ASSETS
|
||||||||
Investments
in real estate, at cost
|
||||||||
Land
|
$ | 21,460 | $ | 20,659 | ||||
Buildings
and improvements
|
236,500 | 228,419 | ||||||
257,960 | 249,078 | |||||||
Less:
accumulated depreciation
|
(34,416 | ) | (31,269 | ) | ||||
Investments
in real estate, net
|
223,544 | 217,809 | ||||||
Cash
and cash equivalents
|
102,919 | 66,493 | ||||||
Restricted
cash held in escrows
|
8,889 | 9,505 | ||||||
Loans
receivable, net
|
77,964 | 26,101 | ||||||
Accounts
receivable, net of allowances of $293 and $565,
respectively
|
12,560 | 14,559 | ||||||
Securities
carried at fair value
|
29,893 | 52,394 | ||||||
Loan
securities carried at fair value
|
6,454 | 1,661 | ||||||
Available
for sale securities, net
|
- | 203 | ||||||
Preferred
equity investment
|
3,972 | 4,012 | ||||||
Equity
investments
|
92,691 | 73,207 | ||||||
Lease
intangibles, net
|
24,496 | 22,666 | ||||||
Deferred
financing costs, net
|
1,217 | 1,495 | ||||||
Assets
held for sale
|
3,096 | 3,087 | ||||||
TOTAL
ASSETS
|
$ | 587,695 | $ | 493,192 | ||||
LIABILITIES
|
||||||||
Mortgage
loans payable
|
$ | 211,773 | $ | 216,767 | ||||
Series
B-1 Cumulative Convertible Redeemable Preferred Shares, $25 per share
liquidation preference; 852,000 shares authorized and outstanding at
September 30, 2010 and December 31, 2009
|
21,300 | 21,300 | ||||||
Revolving
line of credit
|
25,450 | - | ||||||
Accounts
payable and accrued liabilities
|
9,852 | 7,401 | ||||||
Dividends
payable
|
4,424 | 3,458 | ||||||
Deferred
income
|
33 | 48 | ||||||
Below
market lease intangibles, net
|
2,348 | 2,849 | ||||||
TOTAL
LIABILITIES
|
275,180 | 251,823 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
NON-CONTROLLING
REDEEMABLE PREFERRED INTEREST
|
||||||||
Series
C Cumulative Convertible Redeemable Preferred Shares, $25 per share
liquidation preference, 144,000 and 544,000 shares authorized and
outstanding at September 30, 2010 and December 31, 2009,
respectively
|
3,221 | 12,169 | ||||||
Total
non-controlling redeemable preferred interest
|
3,221 | 12,169 | ||||||
EQUITY
|
||||||||
Winthrop
Realty Trust Shareholders’ Equity:
|
||||||||
Common
Shares, $1 par, unlimited shares authorized; 26,981,888 and
20,375,483 issued and outstanding at September 30, 2010 and December 31,
2009, respectively
|
||||||||
26,982 | 20,375 | |||||||
Additional
paid-in capital
|
569,121 | 498,118 | ||||||
Accumulated
distributions in excess of net income
|
(300,219 | ) | (301,317 | ) | ||||
Accumulated
other comprehensive loss
|
(93 | ) | (87 | ) | ||||
Total
Winthrop Realty Trust Shareholders’ Equity
|
295,791 | 217,089 | ||||||
Non-controlling
interests
|
13,503 | 12,111 | ||||||
Total
Equity
|
309,294 | 229,200 | ||||||
TOTAL
LIABILITIES AND EQUITY
|
$ | 587,695 | $ | 493,192 |
See Notes
to Consolidated Financial Statements and refer to Note 18 for information
regarding variable interest entities (VIEs) including VIEs for which the Trust
is the primary beneficiary.
3
WINTHROP
REALTY TRUST
FORM
10-Q –SEPTEMBER 30, 2010
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in
thousands, except per share data)
Three
Months Ended
September
30,
|
Nine
Months Ended
September
30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(unaudited)
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
|||||||||||||
Revenue
|
||||||||||||||||
Rents
and reimbursements
|
$ | 9,298 | $ | 10,140 | $ | 28,162 | $ | 30,609 | ||||||||
Interest
and dividends
|
4,948 | 2,496 | 11,747 | 6,462 | ||||||||||||
14,246 | 12,636 | 39,909 | 37,071 | |||||||||||||
Expenses
|
||||||||||||||||
Property
operating
|
1,812 | 1,990 | 5,585 | 5,492 | ||||||||||||
Real
estate taxes
|
952 | 674 | 2,012 | 1,968 | ||||||||||||
Depreciation
and amortization
|
2,393 | 2,598 | 7,092 | 7,987 | ||||||||||||
Interest
|
3,809 | 4,169 | 11,126 | 12,745 | ||||||||||||
Provision
for loss on loans receivable
|
- | - | - | 2,152 | ||||||||||||
General
and administrative
|
2,300 | 1,820 | 6,123 | 5,137 | ||||||||||||
State
and local taxes
|
7 | 14 | 107 | 211 | ||||||||||||
11,273 | 11,265 | 32,045 | 35,692 | |||||||||||||
Other
income (loss)
|
||||||||||||||||
Earnings
(loss) from preferred equity investments
|
85 | 86 | 253 | (2,108 | ) | |||||||||||
Equity
in (loss) earnings of equity investments
|
(409 | ) | 211 | (1,328 | ) | (100,201 | ) | |||||||||
Realized
gain (loss) on sale of securities carried at fair value
|
(185 | ) | 676 | 588 | 3,274 | |||||||||||
Unrealized
gain on securities carried at fair value
|
2,490 | 12,578 | 4,280 | 14,010 | ||||||||||||
Impairment
loss on real estate loan available for sale
|
- | - | - | (203 | ) | |||||||||||
Gain
on extinguishment of debt
|
- | 445 | - | 5,682 | ||||||||||||
Unrealized
gain on loan securities carried at fair value
|
581 | - | 3,593 | - | ||||||||||||
Interest
income
|
17 | 31 | 94 | 145 | ||||||||||||
2,579 | 14,027 | 7,480 | (79,401 | ) | ||||||||||||
Income
(loss) from continuing operations
|
5,552 | 15,398 | 15,344 | (78,022 | ) | |||||||||||
Discontinued
operations
|
||||||||||||||||
Income
(loss) from discontinued operations
|
(1,569 | ) | 74 | (2,160 | ) | 201 | ||||||||||
Consolidated
net income (loss)
|
3,983 | 15,472 | 13,184 | (77,821 | ) | |||||||||||
Income
attributable to non-controlling interest
|
(175 | ) | (315 | ) | (595 | ) | (651 | ) | ||||||||
Net
income (loss) attributable to Winthrop Realty Trust
|
3,808 | 15,157 | 12,589 | (78,472 | ) | |||||||||||
Income
attributable to non-controlling redeemable preferred
interest
|
(59 | ) | - | (230 | ) | - | ||||||||||
Net
income (loss) attributable to Common Shares
|
$ | 3,749 | $ | 15,157 | $ | 12,359 | $ | (78,472 | ) | |||||||
Comprehensive
income (loss)
|
||||||||||||||||
Consolidated
net income (loss)
|
$ | 3,983 | 15,472 | $ | 13,184 | $ | (77,821 | ) | ||||||||
Change
in unrealized gain on available for sale securities
|
- | 10 | 2 | 21 | ||||||||||||
Change
in unrealized gain (loss) on interest rate derivative
|
(20 | ) | 141 | (8 | ) | 406 | ||||||||||
Change
in unrealized loss from equity investments
|
- | - | - | 26,174 | ||||||||||||
Comprehensive
income (loss)
|
$ | 3,963 | $ | 15,623 | $ | 13,178 | $ | (51,220 | ) | |||||||
Per
Common Share data - Basic
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.25 | $ | 0.90 | $ | 0.69 | $ | (4.97 | ) | |||||||
Income
(loss) from discontinued operations
|
(0.07 | ) | - | (0.10 | ) | 0.01 | ||||||||||
Net
income (loss) attributable to Winthrop Realty Trust
|
$ | 0.18 | $ | 0.90 | $ | 0.59 | $ | (4.96 | ) | |||||||
Per
Common Share data - Diluted
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.25 | $ | 0.90 | $ | 0.69 | $ | (4.97 | ) | |||||||
Income
(loss) from discontinued operations
|
(0.07 | ) | - | (0.10 | ) | 0.01 | ||||||||||
Net
income (loss) attributable to Winthrop Realty Trust
|
$ | 0.18 | $ | 0.90 | $ | 0.59 | $ | (4.96 | ) | |||||||
Basic
Weighted-Average Common Shares
|
21,412 | 15,855 | 21,064 | 15,828 | ||||||||||||
Diluted
Weighted-Average Common Shares
|
21,414 | 15,855 | 21,499 | 15,828 |
See Notes
to Consolidated Financial Statements.
4
WINTHROP
REALTY TRUST
FORM
10-Q – SEPTEMBER 30, 2010
CONSOLIDATED
STATEMENTS OF EQUITY
(unaudited)
(in
thousands)
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||
Common Shares
|
Additional
|
Distributions
|
Other
|
|||||||||||||||||||||||||
of Beneficial Interest
|
Paid-In
|
In Excess of
|
Comprehensive
|
Non-Controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Net Income
|
Income (Loss)
|
Interests
|
Total
|
||||||||||||||||||||||
Balance,
December 31, 2009
|
20,375 | $ | 20,375 | $ | 498,118 | $ | (301,317 | ) | $ | (87 | ) | $ | 12,111 | $ | 229,200 | |||||||||||||
Net
income attributable to Winthrop Realty Trust
|
- | - | - | 12,589 | - | - | 12,589 | |||||||||||||||||||||
Net
income attributable to non-controlling interests
|
- | - | - | - | - | 595 | 595 | |||||||||||||||||||||
Distributions
to non-controlling interests
|
- | - | - | - | - | (240 | ) | (240 | ) | |||||||||||||||||||
Contributions
from non-controlling interests
|
- | - | - | - | - | 1,037 | 1,037 | |||||||||||||||||||||
Dividends
paid or accrued on Common Shares of Beneficial Interest ($0.4875 per
share)
|
- | - | - | (11,261 | ) | - | - | (11,261 | ) | |||||||||||||||||||
Dividends
paid or accrued on Series C Preferred Shares ($1.21875 per
share)
|
- | - | - | (230 | ) | - | - | (230 | ) | |||||||||||||||||||
Change
in unrealized gain on available for sale securities
|
- | - | - | - | 2 | - | 2 | |||||||||||||||||||||
Change
in unrealized gain on interest rate derivatives
|
- | - | - | - | (8 | ) | - | (8 | ) | |||||||||||||||||||
Conversion
of Series C Preferred Shares to Common Shares
|
714 | 714 | 8,234 | - | - | - | 8,948 | |||||||||||||||||||||
Stock
issued pursuant to dividend reinvestment plan
|
143 | 143 | 1,652 | - | - | - | 1,795 | |||||||||||||||||||||
Net
proceeds from Common Share offering
|
5,750 | 5,750 | 61,117 | - | - | - | 66,867 | |||||||||||||||||||||
Balance,
September 30, 2010
|
26,982 | $ | 26,982 | $ | 569,121 | $ | (300,219 | ) | $ | (93 | ) | $ | 13,503 | $ | 309,294 |
Accumulated
|
Accumulated
|
|||||||||||||||||||||||||||
Common Shares
|
Additional
|
Distributions
|
Other
|
|||||||||||||||||||||||||
of Beneficial Interest
|
Paid-In
|
In Excess of
|
Comprehensive
|
Non-Controlling
|
||||||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Net Income
|
Income
|
Interests
|
Total
|
||||||||||||||||||||||
Balance,
December 31, 2008
|
15,754 | $ | 15,754 | $ | 460,956 | $ | (213,284 | ) | $ | (15,176 | ) | $ | 10,958 | $ | 259,208 | |||||||||||||
Net
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 | 651 | |||||||||||||||||||||
Distributions
to non-controlling interests
|
- | - | - | - | - | (743 | ) | (743 | ) | |||||||||||||||||||
Contributions
from non-controlling interests
|
- | - | - | - | - | 723 | 723 | |||||||||||||||||||||
Dividends
paid or accrued on Common Shares of Beneficial Interest ($0.75 per
share)
|
- | - | - | (11,875 | ) | - | - | (11,875 | ) | |||||||||||||||||||
Change
in unrealized gain on available for sale securities
|
- | - | - | - | 21 | - | 21 | |||||||||||||||||||||
Change
in unrealized gain on interest rate derivatives
|
- | - | - | - | 406 | - | 406 | |||||||||||||||||||||
Change
in unrealized loss from equity investments
|
- | - | - | - | 26,174 | - | 26,174 | |||||||||||||||||||||
Stock
issued pursuant to dividend reinvestment plan
|
107 | 107 | 940 | - | - | - | 1,047 | |||||||||||||||||||||
Balance,
September 30, 2009
|
15,861 | $ | 15,861 | $ | 461,896 | $ | (291,984 | ) | $ | (222 | ) | $ | 11,589 | $ | 197,140 |
See Notes
to Consolidated Financial Statements.
5
WINTHROP
REALTY TRUST
FORM
10-Q – SEPTEMBER 30, 2010
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands)
Nine
Months Ended
September
30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income (loss)
|
$ | 13,184 | $ | (77,821 | ) | |||
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization (including amortization of deferred financing
costs)
|
5,026 | 5,562 | ||||||
Amortization
of lease intangibles
|
2,064 | 3,647 | ||||||
Straight-lining
of rental income
|
378 | (514 | ) | |||||
(Earnings)
loss of preferred equity investments
|
(253 | ) | 2,843 | |||||
Distributions
from preferred equity investments
|
293 | 2,291 | ||||||
Loss
of equity investments
|
1,328 | 100,201 | ||||||
Distributions
from equity investments
|
3,793 | 1,596 | ||||||
Restricted
cash held in escrows
|
1,207 | (1,009 | ) | |||||
Gain
on sale of securities carried at fair value
|
(588 | ) | (3,274 | ) | ||||
Unrealized
gain on securities carried at fair value
|
(4,280 | ) | (14,010 | ) | ||||
Unrealized
gain on loan securities carried at fair value
|
(3,593 | ) | - | |||||
Impairment
loss on real estate loan available for sale
|
- | 203 | ||||||
Impairment
loss on real estate held for sale
|
2,720 | - | ||||||
Gain
on extinguishment of debt
|
- | (5,682 | ) | |||||
Provision
for loss on loan receivable
|
- | 2,152 | ||||||
Tenant
leasing costs
|
(2,477 | ) | (2,081 | ) | ||||
Bad
debt recovery
|
(612 | ) | (73 | ) | ||||
Net
change in interest receivable
|
(236 | ) | (171 | ) | ||||
Net
change in accounts receivable
|
1,844 | 1,110 | ||||||
Loan
discount accretion
|
(6,087 | ) | (406 | ) | ||||
Net
change in accounts payable and accrued liabilities
|
771 | (653 | ) | |||||
Net
cash provided by operating activities
|
14,482 | 13,911 | ||||||
Cash
flows from investing activities
|
||||||||
Issuance
and acquisition of loans receivable
|
(83,572 | ) | (15,501 | ) | ||||
Investments
in real estate
|
(3,003 | ) | (1,301 | ) | ||||
Investment
in equity investments
|
(24,605 | ) | (2,007 | ) | ||||
Investment
in real estate loan available for sale
|
- | (35,000 | ) | |||||
Purchase
of securities carried at fair value
|
(3,056 | ) | (30,552 | ) | ||||
Proceeds
from preferred equity investments
|
- | 60 | ||||||
Proceeds
from sale of real estate loan available for sale
|
- | 34,797 | ||||||
Proceeds
from sale of securities carried at fair value
|
29,565 | 22,866 | ||||||
Proceeds
from sale of available for sale securities
|
205 | - | ||||||
Proceeds
from sale of loans receivable
|
12,876 | - | ||||||
Restricted
cash held in escrows
|
(2,073 | ) | 2,647 | |||||
Collection
of loans receivable
|
14,900 | 10,980 | ||||||
Net
cash used in investing activities
|
(58,763 | ) | (13,011 | ) |
(Continued
on next page)
See Notes
to Consolidated Financial Statements.
6
WINTHROP
REALTY TRUST
FORM
10-Q – SEPTEMBER 30, 2010
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(unaudited)
(in
thousands, continued)
Nine Months Ended
September 30,
|
||||||||
2010
|
2009
|
|||||||
Cash
flows from financing activities
|
||||||||
Proceeds
from mortgage loans payable
|
$ | - | $ | 49 | ||||
Proceeds
from loan payable
|
- | 19,818 | ||||||
Payment
of loan payable
|
- | (19,818 | ) | |||||
Proceeds
from revolving line of credit
|
25,450 | 35,000 | ||||||
Payment
of revolving line of credit
|
- | (35,000 | ) | |||||
Principal
payments of mortgage loans payable
|
(4,994 | ) | (4,332 | ) | ||||
Restricted
cash held in escrows
|
1,482 | 3,970 | ||||||
Payments
of note payable
|
- | (9,800 | ) | |||||
Deferred
financing costs
|
(165 | ) | (61 | ) | ||||
Contribution
from non-controlling interest
|
1,037 | 723 | ||||||
Distribution
to non-controlling interest
|
(240 | ) | (743 | ) | ||||
Issuance
of Common Shares under Dividend Reinvestment Plan
|
1,795 | 1,047 | ||||||
Issuance
of Common Shares through offering
|
66,867 | - | ||||||
Dividend
paid on Common Shares
|
(10,187 | ) | (13,844 | ) | ||||
Dividend
paid on Series C Preferred Shares
|
(338 | ) | - | |||||
Redemption
of Series B-1 Preferred Shares
|
- | (2,000 | ) | |||||
Net
cash provided by (used in) financing activities
|
80,707 | (24,991 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
36,426 | (24,091 | ) | |||||
Cash
and cash equivalents at beginning of period
|
66,493 | 59,238 | ||||||
Cash
and cash equivalents at end of period
|
$ | 102,919 | $ | 35,147 | ||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||
Interest
paid
|
$ | 10,772 | $ | 12,624 | ||||
Taxes
paid
|
$ | 98 | $ | 124 | ||||
Supplemental
Disclosure on Non-Cash Investing and Financing
Activities
|
||||||||
Dividends
accrued on Common Shares
|
$ | 4,385 | $ | 3,965 | ||||
Dividends
accrued on Series C Preferred Shares
|
$ | 39 | $ | - | ||||
Capital
expenditures accrued
|
$ | 1,643 | $ | 190 | ||||
Redemption
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 | ||||
Transfer
of loan assets to investments in real estate
|
$ | 8,188 | $ | - | ||||
Transfer
of loan assets to investments in lease intangibles
|
$ | 2,032 | $ | - | ||||
Transfer
to investments in real estate from loan assets
|
$ | (8,188 | ) | $ | - | |||
Transfer
to lease intangibles from loan assets
|
$ | (2,032 | ) | $ | - |
See Notes
to Consolidated Financial Statements.
7
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1.
|
Organization
|
Winthrop
Realty Trust (“Winthrop”) 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.
Winthrop
conducts its business through WRT Realty L.P., a Delaware limited partnership
(the “Operating Partnership”). Winthrop is the sole general partner of, and owns
directly and indirectly, 100% of the limited partnership interest in the
Operating Partnership. All references to the “Trust” refer to
Winthrop 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 wholly and partially owned operating properties
(“operating properties”); (ii) origination and acquisition of loans and debt
securities secured directly or indirectly by commercial and multi-family real
property (collectively “loan assets”), including collateral mortgage-backed
securities, and (iii) equity and debt interests in other real estate investment
trusts (“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 Trust’s Annual
Report on Form 10-K for the year ended December 31, 2009 filed with the
SEC. In the opinion of management, all adjustments considered
necessary for fair statements have been included, and all such adjustments are
of a normal recurring nature. The results of operations for the nine months
ended September 30, 2010 are not necessarily indicative of the operating results
for the full year.
The
accompanying unaudited consolidated financial statements represent the
consolidated results of Winthrop, 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 either (i)
owns a controlling interest or (ii) is the primary beneficiary of a variable
interest entity (“VIE”). 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.
Reclassifications
Certain
prior year balances have been reclassified in order to conform to the current
year’s presentation. The Trust’s retail properties in Athens,
Georgia; Lafayette, Louisiana; Knoxville, Tennessee; and Sherman, Texas are
included in discontinued operations for the three and nine month periods ended
September 30, 2010 and 2009. The Trust’s formerly owned Creekwood
Apartments property in Kansas City, Kansas is included in discontinued
operations for the three and nine month periods ended September 30,
2009.
8
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Earnings Per
Share
The Trust
determines basic earnings per share on the weighted average number of Common
Shares of Beneficial Interest (“Common Shares”) outstanding during the period
and reflects the impact of participating securities. The holders of
the Trust’s Series B-1 Cumulative Convertible Redeemable Preferred Shares
(“Series B-1 Preferred Shares”) and the Series C Cumulative Convertible
Redeemable Preferred Shares (“Series C 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 and Series C Preferred Shares
(assuming for this purpose that the conversion price of the Series C Preferred
Shares equals the conversion price for 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 Trust
has calculated earnings per share in accordance with relevant accounting
guidance for participating securities and the two class method. 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
|
Nine Months Ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Basic
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 5,552 | $ | 15,398 | $ | 15,344 | $ | (78,022 | ) | |||||||
Allocation
of undistributed earnings to Series B-1 Preferred Shares
|
- | (839 | ) | - | - | |||||||||||
Income
attributable to non-controlling interest
|
(175 | ) | (315 | ) | (595 | ) | (651 | ) | ||||||||
Preferred
dividend of Series C Preferred Shares
|
(59 | ) | - | (230 | ) | - | ||||||||||
Income
(loss) from continuing operations applicable to Common
Shares
|
5,318 | 14,244 | 14,519 | (78,673 | ) | |||||||||||
Income
(loss) from discontinued operations
|
(1,569 | ) | 74 | (2,160 | ) | 201 | ||||||||||
Net
income (loss) applicable to Common Shares for earnings per share
purposes
|
$ | 3,749 | $ | 14,318 | $ | 12,359 | $ | (78,472 | ) | |||||||
Basic
weighted-average Common Shares
|
21,412 | 15,855 | 21,064 | 15,828 | ||||||||||||
Income
(loss) from continuing operations
|
$ | 0.25 | $ | 0.90 | $ | 0.69 | $ | (4.97 | ) | |||||||
Income
(loss) from discontinued operations
|
(0.07 | ) | - | (0.10 | ) | 0.01 | ||||||||||
Net
income (loss) per Common Share
|
$ | 0.18 | $ | 0.90 | $ | 0.59 | $ | (4.96 | ) | |||||||
Diluted
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 5,552 | $ | 15,398 | $ | 15,344 | $ | (78,022 | ) | |||||||
Allocation
of undistributed earnings to Series B-1 Preferred Shares
|
- | (839 | ) | - | - | |||||||||||
Income
attributable to non-controlling interest
|
(175 | ) | (315 | ) | (595 | ) | (651 | ) | ||||||||
Preferred
dividend of Series C Preferred Shares
|
(59 | ) | - | - | - | |||||||||||
Income
(loss) from continuing operations applicable to Common
Shares
|
5,318 | 14,244 | 14,749 | (78,673 | ) | |||||||||||
Income
(loss) from discontinued operations
|
(1,569 | ) | 74 | (2,160 | ) | 201 | ||||||||||
Net
income (loss) applicable to Common Shares for earnings per share
purposes
|
$ | 3,749 | $ | 14,318 | $ | 12,589 | $ | (78,472 | ) | |||||||
Basic
weighted-average Common Shares
|
21,412 | 15,855 | 21,064 | 15,828 | ||||||||||||
Series
B-1 Preferred Shares (1)
|
- | - | - | - | ||||||||||||
Series
C Preferred Shares (2)
|
- | - | 433 | - | ||||||||||||
Stock
options (3)
|
2 | - | 2 | - | ||||||||||||
Diluted
weighted-average Common Shares
|
21,414 | 15,855 | 21,499 | 15,828 | ||||||||||||
Income
(loss) from continuing operations
|
$ | 0.25 | $ | 0.90 | $ | 0.69 | $ | (4.97 | ) | |||||||
Income
(loss) from discontinued operations
|
(0.07 | ) | - | (0.10 | ) | 0.01 | ||||||||||
Net
income (loss) per Common Share
|
$ | 0.18 | $ | 0.90 | $ | 0.59 | $ | (4.96 | ) |
9
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1)
|
The
Series B-1 Preferred Shares were anti-dilutive for the three and nine
months ended September 30, 2010 and 2009 and are not
included in the weighted-average shares outstanding for the calculation of
diluted earnings per Common
Share.
|
(2)
|
The
Series C Preferred Shares were issued November 1, 2009, were anti-dilutive
for the three months ended September 30, 2010 and were dilutive for the
nine months ended September 30,
2010.
|
(3)
|
The
Trust’s outstanding stock options are dilutive for the three and nine
months ended September 30, 2010. The stock options were
anti-dilutive for the three and nine months ended September 30, 2009 and
are not included in the weighted average shares outstanding for the
calculation of diluted earnings per Common Share for
2009.
|
Recently Issued Accounting
Standards
In July
2010 an amendment was issued to the accounting and disclosure requirements which
outlines specific disclosures that will be required for the allowance for credit
losses and all finance receivables. Finance receivables include loans, lease
receivables and other arrangements with a contractual right to receive money on
demand or on fixed or determinable dates. The new guidance will require
companies to provide detailed disclosures by portfolio segment and class to
enable users of the financial statement to understand the nature of credit risk,
how the risk is analyzed in determining the related allowance for credit losses
and changes to the allowance during the reporting period. Certain
disclosures as of the end of the reporting period required under these
provisions will be effective for the Trust’s December 31, 2010 annual
reporting period. Additional disclosure rules about activity that occurs during
a reporting period will be effective for the Trust’s March 31, 2011 interim
reporting period. The Trust is currently evaluating the required disclosures
which are not expected to have a material impact on its consolidated financial
statements.
In
January 2010 an amendment was issued to the accounting and disclosure
requirements for fair value measurements. This amendment requires more robust
disclosure of valuation techniques and inputs into fair value measurements
and requires amounts and reasons for significant transfers between levels in the
fair value hierarchy to be reported along with disclosure of a company’s policy
for recognizing such transfers. This amendment is effective for the Trust
beginning on January 1, 2010, except for Level 3 sensitivity disclosures, which
are effective for the Trust beginning in fiscal 2011. The Trust has adopted this
standard which did not have a material impact on its consolidated financial
statements.
3.
|
Fair
Value Measurement
|
Cash and cash equivalents, restricted
cash in escrows, derivative financial instruments, and certain securities are
reported at fair value. The fair value measurements are
determined based on the assumptions that market participants would use in
pricing the applicable 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).
10
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table
below presents the Trust’s assets and liabilities which are measured at fair
value on a recurring basis as of September 30, 2010, 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 Other
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 102,919 | $ | - | $ | - | $ | 102,919 | ||||||||
Restricted
cash held in escrows
|
8,889 | - | - | 8,889 | ||||||||||||
Securities
carried at fair value
|
29,893 | - | - | 29,893 | ||||||||||||
Loan
securities carried at fair value
|
- | - | 6,454 | 6,454 | ||||||||||||
$ | 141,701 | $ | - | $ | 6,454 | $ | 148,155 | |||||||||
Liabilities
|
||||||||||||||||
Derivative
liabilities
|
$ | - | $ | 93 | $ | - | $ | 93 |
The table
below presents the Trust’s assets and liabilities which are measured at fair
value on a recurring basis as of December 31, 2009, 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 Other
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 66,493 | $ | - | $ | - | $ | 66,493 | ||||||||
Restricted
cash held in escrow
|
9,505 | - | - | 9,505 | ||||||||||||
Available
for sale securities
|
203 | - | - | 203 | ||||||||||||
Securities
carried at fair value
|
51,702 | - | 692 | 52,394 | ||||||||||||
Loan
securities carried at fair value
|
- | - | 1,661 | 1,661 | ||||||||||||
$ | 127,903 | $ | - | $ | 2,353 | $ | 130,256 | |||||||||
Liabilities
|
||||||||||||||||
Derivative
liabilities
|
$ | - | $ | 84 | $ | - | $ | 84 |
The table
below includes a roll forward (in thousands) of the balance sheet amounts from
January 1, 2010 to September 30, 2010, 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, it is based upon the
significance of the unobservable factors to the overall fair value
measurement.
Nine Months Ended September 30, 2010
|
Securities Carried at
Fair Value
|
Loan Securities
Carried at Fair Value
|
||||||
Fair
value, January 1, 2010
|
$ | 692 | $ | 1,661 | ||||
Purchases,
issuances and settlements, net
|
(692 | ) | 1,200 | |||||
Unrealized
gain, net
|
- | 3,593 | ||||||
Fair
value, September 30, 2010
|
$ | - | $ | 6,454 |
11
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Non-recurring
Measurements
The table
below presents as of September 30, 2010 the Trust’s assets and liabilities which
are measured at fair value as events dictate (non-recurring measurements)
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 Other
Unobservable
Inputs
(Level 3)
|
Total
|
||||||||||||
Assets
held for sale
|
$ | - | $ | - | $ | 3,007 | $ | 3,007 | ||||||||
$ | - | $ | - | $ | 3,007 | $ | 3,007 |
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
measurement attribute for certain financial assets and liabilities. Changes in
fair value for assets and liabilities for which the election is made are
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 to be made on an instrument by instrument basis when it is initially
recorded or upon an event that gives rise to a new basis of accounting for that
asset or liability. The Trust elected the fair value option for all
loan securities and REIT securities acquired subsequent to September 30,
2008.
The Trust
recognized a net unrealized gain of $3,071,000 and $7,873,000 for the three and
nine months ended September 30, 2010,
respectively, and a net unrealized gain of $12,578,000 and $14,010,000 for the
three and nine months ended September 30, 2009 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 or loss in the Trust’s
statements of operations. Income related to securities carried at
fair value is recorded as interest and dividend income.
The
following table presents as of September 30, 2010
and December 31, 2009 the Trust's financial assets for which the fair
value option was elected (in thousands):
Financial Instruments at Fair Value
|
September 30, 2010
|
December 31, 2009
|
||||||
Assets
|
||||||||
Securities
carried at fair value:
|
||||||||
REIT
Debentures
|
$ | - | $ | 18,794 | ||||
REIT
Preferred shares
|
28,252 | 23,950 | ||||||
REIT
Common shares
|
1,641 | 9,650 | ||||||
Loan
securities carried at fair value
|
6,454 | 1,661 | ||||||
$ | 36,347 | $ | 54,055 |
12
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The table
below presents as of September 30, 2010
the difference between fair values and the aggregate contractual amounts
due for which the fair value option has been elected (in
thousands):
Fair Value at
September 30, 2010
|
Amount Due
Upon Maturity
|
Difference
|
||||||||||
Assets
|
||||||||||||
Loan
securities carried at fair value
|
$ | 6,454 | $ | 9,767 | $ | 3,313 | ||||||
$ | 6,454 | $ | 9,767 | $ | 3,313 |
The table
below presents as of December 31, 2009 the difference between fair values and
the aggregate contractual amounts due for which the fair value option has been
elected (in thousands):
Fair Value at
December 31, 2009
|
Amount Due
Upon Maturity
|
Difference
|
||||||||||
Assets
|
||||||||||||
Securities
carried at fair value:
|
||||||||||||
REIT
Debentures
|
$ | 18,794 | $ | 21,191 | $ | 2,397 | ||||||
Loan
securities carried at fair value
|
1,661 | 7,494 | 5,833 | |||||||||
$ | 20,455 | $ | 28,685 | $ | 8,230 |
4.
|
Acquisitions,
Dispositions, and Other Activity
|
Public
Offering
On September 27, 2010 the
Trust closed a public offering of 5,750,000 Common Shares at a price of $12.25
per share before underwriter discounts and received net proceeds of
approximately $67,000,000.
Loan Asset
Acquisitions
1701 E. Woodfield Road, Schaumburg,
Illinois – First Mortgage Loan - On July 1, 2010 the Trust acquired for
$8,200,000 a $10,408,000 performing first mortgage loan collateralized by a
174,400 square foot office building located at 1701 E. Woodfield Road,
Schaumburg, Illinois, a suburb of Chicago. The property is currently owned in a
joint venture with Marc Realty. Simultaneously with the acquisition of this
loan, the venture made a principal payment on the loan of $3,200,000 (50% of
which was contributed by each of the Trust and Marc Realty) and the loan was
modified to reduce the principal balance to $5,000,000 bearing interest at 8%
per annum. On September 28, 2010 the borrower repaid the Trust’s outstanding
$5,000,000 balance of the loan and all accrued interest from proceeds of a new
first mortgage loan.
500-512 Seventh Avenue, New York,
New York – B Note - On July 9, 2010 the Trust acquired for $19,825,000 a
$23,499,000 performing B Note (the “B Note”) in a first mortgage loan which is
subordinate to a $253,679,000 A note in the mortgage loan. The A Note and B Note
are collateralized by a 1,188,000 square foot office building located at 500-512
Seventh Avenue, New York, New York. The B Note bears interest at
7.19% and matures on July 11, 2016. On August 4, 2010, the Trust sold a 50% pari
passu participation interest in the B Note (the “B-2 Participation”) for a
purchase price of $9,859,000 which represented one-half of the purchase price
paid for the B Note less one-half of any principal payments received prior to
the sale of the B-2 Participation.
San Marbeya Apartments, Tempe,
Arizona-First Mortgage Loan - On July 23, 2010 the Trust acquired for
$26,990,000 a $31,106,000 performing first mortgage loan. The loan is
collateralized by a 276 unit apartment complex referred to as San Marbeya
Apartments located in Tempe, Arizona. The loan has a blended interest
rate of 5.88% and matures on January 1, 2015.
13
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Rockwell – Shirley, New York
– Mezzanine Loan - On
August 31, 2010 the Trust acquired from Concord Debt Holdings, LLC (“Concord”)
for $235,000 a $1,497,000 performing mezzanine loan. The loan is collateralized
by a 129,660 square foot industrial/warehouse complex in Shirley, New York. The
loan is subordinate to $17,045,000 of senior debt, has an interest rate of 12%
and matures on May 1, 2016.
Newbury Apartments, Meriden,
Connecticut - Mezzanine
Loan - On September 2, 2010 the Trust acquired from Concord for $550,000
a non-performing mezzanine loan with a face amount of $3,500,000, which bears
interest at 12% per annum and matures on February 1, 2012. The loan is
collateralized by a 180 unit multi-family apartment complex located in Meriden,
Connecticut. The loan is subordinate to a non-performing mortgage loan
with a principal balance of approximately $23,875,000. On October 29,
2010, the Trust foreclosed on the equity interests in the property owner
resulting in the Trust becoming the owner of the property subject to the
mortgage loan. The Trust is currently negotiating with the mortgage lender
with respect to the current defaults on the mortgage loan.
Loan Asset Repayment on a
Non-Performing Loan
Driver Building, San Diego,
California - On August 27, 2010, the Trust received $6,540,000 in full
repayment on a first mortgage loan collateralized by an office building located
in San Diego, California.
Loan
Foreclosure
Deer Valley Medical Center, Deer
Valley, Arizona - On August 6, 2010 WRT-DV LLC (“WRT-DV”) foreclosed on
an 85,597 square foot, Class A medical office building known as the Deer Valley
Professional Center located in Phoenix, Arizona in which WRT-DV held a first
mortgage loan with a carrying amount of $10,257,000. The loan investment balance
was transferred to land, building, tenant improvements, deferred lease cost for
the in-place leases and to intangibles for the value of the above market leases.
The Trust amortizes the value allocated to the in-place leases over the
remaining lease term. The value allocated to the above market leases are
amortized over the remaining lease term as an adjustment to rental
income. The property’s operating results are now included in the
Trust’s operating properties business segment.
Loan Securities
Acquisition
Scripps Center, Costa Mesa,
California – Rake
Bonds - On July 16, 2010 the Trust acquired from Concord for $1,200,000
two rake bonds with an aggregate face amount of $2,273,000. The rake
bonds are subordinate to $17,715,000 of senior debt all of which is
collateralized by a 229,000 square foot office complex referred to as the
Scripps Center located in Costa Mesa, California. The bonds bear interest at
rates ranging from Libor plus 1.39% to Libor plus 1.59% and mature on December
1, 2010.
Investments in Joint
Ventures
Deer Valley Medical Center - On July 21,
2010, prior to the Deer Valley loan foreclosure, the Trust admitted Fenway VI
LLC (“Fenway”), an unrelated third party, as a non-controlling member in WRT-DV,
the entity which holds the Deer Valley assets, in exchange for a capital
contribution of $157,000. Pursuant to the terms of the operating agreement, the
Trust receives a priority return on $7,900,000 of our invested capital, with the
balance of the capital being allocated 96.5% to the Trust and 3.5% to
Fenway.
Peter Cooper Village/Stuyvesant Town
(“PCVST”) Investment - On August 6, 2010 the Trust and affiliates of
Pershing Square Capital Management, L.P. (“Pershing Square”) formed a joint
venture, PSW NYC LLC (“PSW NYC”), for which the Trust invested an initial
capital contribution of $10,125,000. Concurrent with its
formation, PSW NYC, which is owned 22.5% by the Trust and 77.5% by Pershing
Square, acquired 100% of the $300,000,000 face amount of certain Mezzanine Loans
(the “Mezz Loans”) for a purchase price of $45,000,000. The Mezz Loans are
indirectly collateralized by PCVST, an 11,227 unit apartment complex in New York
City. The Mezz loans represent the senior-most mezzanine loan interests in the
property and along with the $3,000,000,000 first mortgage loan secured by the
property, are currently in default.
14
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PSW NYC
initiated foreclosure on the equity interests in the property’s owner. However,
on September 16, 2010, based on a lawsuit initiated by the first mortgage
lenders against PSW NYC, the New York State Supreme Court (the “Trial Court”)
ordered an injunction which precluded PSW NYC from foreclosing. PSW NYC has
appealed the decision to the Appellate Division of the New York Supreme
Court. The Appellate Division denied PSW NYC’s request that the first
mortgage lender be stayed from foreclosing on the property pending the
appeal. Accordingly, if the first mortgage lender were to have
foreclosed, PSW NYC would have been left with only a damage claim. On
October 27, 2010, PSW NYC and the first mortgage lender agreed to settle the
dispute and PSW NYC sold its interest in the Mezz Loans to an affiliate of the
first mortgage lender for $45,000,000 and the matter was voluntarily
dismissed.
Lex-Win Concord LLC (“Lex-Win”) and
Concord Reorganization - On August 26, 2010 the Trust finalized a
settlement agreement which triggered simultaneous transactions that changed the
organizational structure, economics, and governance of the Trust’s equity
investment in Lex-Win and Lex-Win’s wholly owned subsidiary Concord. The
settlement agreement was implemented to resolve a legal action against Concord
filed in May 2009 by a wholly-owned subsidiary of Inland American Real Estate
Trust, Inc. (“Inland”).
As a
result of the reorganization, Lex-Win was dissolved and transferred 100% of its
interest in Concord to its members, the Trust and Lexington Realty Trust
(“Lexington”). The underlying business assets of the former Lex-Win were
separated into two distinct legal investment entities with identical ownership
structures which are the reorganized Concord and a newly formed entity, CDH CDO
LLC (“CDH CDO”). The Trust now holds 33.3% common member interests in each joint
venture together with Lexington, and Inland.
Terms of
the reorganization included a subsidiary of Concord selling 100% of the stock of
Concord Debt Funding Trust (“CDFT”) to the newly formed CDH CDO for $9,500,000.
The consideration was funded by Inland’s initial capital contribution to CDH CDO
and was used by the subsidiary to partially repay its lenders.
There was
no financial statement impact to the Trust as a result of the reorganization
since the investment has been written down to zero as of June 30, 2009, the
Trust has made no additional contributions and it has not recognized any
additional income or loss as a result of the reorganization. In addition,
Concord remains in violation of certain debt covenants to its lenders at
September 30, 2010. 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.
Operating Properties – Other
Activities
On July
25, 2010, the River City property experienced flooding in its basement level and
the parking garage due to the Chicago River overflowing the seawall protecting
the property. The flooding caused substantial damage to the property’s
mechanical and electrical systems resulting in the tenants in the commercial
space being without power for several days. The property’s insurance carrier was
immediately notified. The Trust has accrued approximately $225,000 to cover the
costs associated with the damage and a claim is in process.
Acquisitions &
Dispositions of REIT Securities
During
the quarter ended September 30, 2010 the Trust sold REIT securities and received
net proceeds of approximately $16,391,000. The Trust previously recognized
unrealized gains on the securities of $4,868,000 and as a result recognized a
loss on the sale of these securities of approximately $185,000 exclusive of any
interest or dividends earned.
15
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5.
|
Loans
Receivable
|
The
following table summarizes the Trust’s loans receivable at September 30, 2010
and December 31, 2009 (in thousands):
Carrying Amount
|
||||||||||||||||
Property
|
Location
|
Interest Rate
|
Maturity
|
September 30,
2010
|
December 31,
2009
|
|||||||||||
Metropolitan
Tower (1)
|
New
York, NY
|
Libor
+ 1.5
|
% |
Nov
2010
|
$ | 9,216 | $ | 6,638 | ||||||||
Beverly
Hilton (1)
|
Beverly
Hills, CA
|
Libor
+ 1.74
|
% |
Aug
2011
|
7,163 | 5,384 | ||||||||||
Newbury
Apartments (1) (4)
|
Meriden,
CT
|
12.00 | % |
Feb 2012
|
550 | - | ||||||||||
160
Spear
|
San
Francisco, CA
|
(2 | ) |
Jun
2012
|
5,898 | 4,281 | ||||||||||
160
Spear – Mezzanine
|
San
Francisco, CA
|
15.00 | % |
Jun
2012
|
3,028 | 1,212 | ||||||||||
Siete
Square
|
Phoenix,
AZ
|
(3 | ) |
Jun
2012
|
2,486 | 5,505 | ||||||||||
Crossroads
(1) (5)
|
Englewood,
CO
|
6.07 | % |
Jul
2013
|
8,439 | - | ||||||||||
San
Marbeya Apartments (1)
|
Tempe,
AZ
|
5.88 | % |
Jan
2015
|
27,073 | - | ||||||||||
Rockwell
Automation
|
Shirley,
NY
|
12.00 | % |
May
2016
|
251 | - | ||||||||||
500
- 512 Seventh Avenue
|
New
York, NY
|
7.19 | % |
Jul
2016
|
9,946 | - | ||||||||||
180
North Michigan (1)
|
Chicago,
IL
|
8.50 | % |
Sep
2016
|
1,484 | 717 | ||||||||||
Wellington
Tower (1)
|
New
York, NY
|
6.79 | % |
Jul
2017
|
2,430 | 2,364 | ||||||||||
$ | 77,964 | $ | 26,101 |
(1)
|
The
Trust determined that certain loans receivable are variable interests in
VIEs 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. The Trust
does not have the power to direct the activities of the entity that most
significantly impact the entity’s economic
performance.
|
(2)
|
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, 2010) 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, 2010) at a rate of 9.75% per
annum. As a result, the effective yield on the Trust’s $3,410
cash investment is
40.8%.
|
(3)
|
The
Trust holds a B Participation in this loan. Interest on the B
Participation equals the difference between (i) interest on the entire
outstanding loan principal balance ($7,219 at September 30, 2010) at a
rate of 9.8375% per annum less (ii) interest payable on the outstanding
principal balance of the A Participation ($3,000 at September 30, 2010) at
a rate of 8.0% per annum. As a result, the effective yield on
the Trust’s $2,460 cash investment is
19.4%.
|
(4)
|
The
loan was in default and the Trust foreclosed on the equity interest on
October 29, 2010.
|
(5)
|
The
loan was in default and the Trust foreclosed the property on November 3,
2010.
|
The
carrying amount of loans receivable includes accrued interest of $433,000 and
$197,000 at September 30, 2010 and December 31, 2009, respectively, and
cumulative discount accretion of $7,108,000 and $1,021,000 at September 30, 2010
and December 31, 2009, respectively. For the three and nine months
ended September 30, 2010, the Trust recorded discount accretion into interest
income of $2,345,000 and $6,087,000 respectively. There was no
discount accretion for the three and nine months ended September 30, 2009. The
fair value of the Trust’s loans receivable, exclusive of interest receivables
was approximately $96,376,000 at September 30, 2010.
Loan
Revenue Recognition
Interest
income on performing loans is recognized on the accrual basis over the life of
the investments using the effective interest method. Costs of acquiring loans
are expensed as incurred.
16
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The Trust
considers a loan to be non-performing and places loans on non-accrual status at
such time as management determines it is probable that it will be unable to
collect all amounts due according to the contractual terms of the loan. While on
non-accrual status, based on the Trust's judgment as to collectability of
principal, loans are either accounted for on a cash basis, where interest
income is recognized only upon actual receipt of cash, or on a
cost-recovery basis, where all cash receipts reduce a loan's carrying
value.
For the
three and nine months ended September 30, 2010 and 2009, the Trust did not
recognize any interest income on impaired loans subsequent to the date of their
impairment. The Trust had no impaired loans for the three and nine
months ended September 30, 2010. As of September 30, 2009, the Trust
received $9,000 which was recorded as a cash recovery on impaired
loans.
Loan
Losses
The Trust
performs an analysis for loan losses in instances where it is deemed probable
that the Trust may be unable to collect all amounts of principal and interest
due according to the contractual terms of the loan. If, upon completion of the
valuation, the estimated fair value of the underlying collateral securing the
loan is less than the net carrying value of the loan, an allowance is created
with a corresponding charge to the provision for loan losses. The allowance for
each loan is maintained at a level the Trust believes is adequate to absorb
losses.
There was
no provision for loan loss recorded during the three and nine months ended
September 30, 2010. During the three and nine months ended September 30, 2009,
the Trust recorded a provision for loan loss of $2,152,000 related to loans in
the Marc Realty portfolio.
As of
September 30, 2010 there was no loan loss reserve.
6.
|
Securities
Carried at Fair Value and Loan Securities Carried at Fair
Value
|
Securities
carried at fair value are comprised of debentures, preferred shares, and common
shares for which the Trust has elected the fair value option.
Securities
carried at fair value and loan securities carried at fair value at September 30,
2010 are summarized in the table below (in thousands):
Cost
|
Fair Value
|
|||||||
REIT
Preferred shares
|
$ | 14,867 | $ | 28,252 | ||||
REIT
Common shares
|
1,223 | 1,641 | ||||||
16,090 | 29,893 | |||||||
Loan
securities
|
2,861 | 6,454 | ||||||
$ | 18,951 | $ | 36,347 |
For the
three and nine months ended September 30, 2010, the Trust recognized unrealized
gains on securities carried at fair value of $3,071,000 and $7,873,000
respectively. For the three and nine months ended September 30, 2009,
the Trust recognized unrealized gains on securities carried at fair value of
$12,578,000 and $14,010,000 respectively.
17
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Securities
carried at fair value and loan securities carried at fair value at December 31,
2009 are summarized in the table below (in thousands):
Cost
|
Fair Value
|
|||||||
REIT
Debentures
|
$ | 13,597 | $ | 18,794 | ||||
REIT
Preferred shares
|
14,231 | 23,950 | ||||||
REIT
Common shares
|
8,234 | 9,650 | ||||||
36,062 | 52,394 | |||||||
Loan
securities
|
1,661 | 1,661 | ||||||
$ | 37,723 | $ | 54,055 |
During
the three and nine months ended September 30, 2010 securities were sold for
total proceeds of approximately $16,391,000 and $29,565,000,
respectively. The Trust had previously recognized unrealized gains of
$4,868,000 and $6,810,000 for the three and nine months ended September 30,
2010, respectively, and as a result the Trust recognized losses of $185,000 for
the three months ended September 30, 2010 and gains of $588,000 for the
nine months ended September 30, 2010.
During
the three and nine months ended September 30, 2009 securities were sold for
total proceeds of approximately $6,107,000 and $22,866,000, respectively. The
Trust had previously recognized unrealized gains of $1,099,000 and $1,419,000
for the three and nine months ended September 30, 2009, respectively, and as a
result the Trust recognized gains of $676,000 and $3,274,000 respectively on the
sale of these securities.
The Trust
utilizes the specific identification method for calculating gain or loss on the
sale of securities.
7.
|
Preferred
Equity Investments – Marc Realty
|
The Trust
recognized earnings from preferred equity investments of $85,000 and $253,000
for the three and nine months ended September 30, 2010 and recognized earnings
from preferred equity investments of $86,000 for the three months ended
September 30, 2009 and a loss of $2,108,000 for the nine months ended September
30, 2009 which included impairment losses of $2,186,000 in the second quarter of
2009. The results for the three and nine months ended September 30,
2010 reflect the effects of the restructuring of the preferred equity investment
with Marc Realty in July 2009. Effective with the third quarter
of 2009, 12 of the investments with Marc Realty were deemed to be equity
investments for which the Trust began recognizing its pro-rata share of income
or loss subsequent to June 30, 2009. Prior to June 30, 2009, the
Trust accounted for these 12 investments as preferred equity
investments.
18
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
8.
|
Equity
Investments
|
The
Trust’s equity investments consist of the following at September 30, 2010 and
December 31, 2009 (in thousands):
Venture Partner (1)
|
Equity Investment
|
Nominal % Ownership at
September 30, 2010 (2)
|
September 30,
2010
|
December 31,
2009
|
||||||||||
Marc Realty (2)
|
8
South Michigan LLC
|
50.0 | % | $ | 7,149 | $ | 6,859 | |||||||
Marc Realty (2)
|
11
East Adams Street LLC
|
49.0 | % | 3,273 | 2,963 | |||||||||
Marc Realty (2)
|
29
East Madison Street LLC
|
50.0 | % | 7,820 | 7,750 | |||||||||
Marc Realty (2)
|
Michigan
30 LLC
|
50.0 | % | 11,855 | 11,881 | |||||||||
Marc Realty (2)
|
High
Point Plaza LLC
|
50.0 | % | 6,147 | 5,986 | |||||||||
Marc Realty (2)
|
Brooks
Building LLC
|
50.0 | % | 7,356 | 7,346 | |||||||||
Marc Realty (2)
|
1701
Woodfield LLC
|
50.0 | % | 4,222 | 1,582 | |||||||||
Marc Realty (2)
|
River
Road LLC
|
50.0 | % | 4,177 | 4,075 | |||||||||
Marc Realty (2)
|
3701
Algonquin Road LLC
|
50.0 | % | 2,956 | 2,827 | |||||||||
Marc Realty (2)
|
Enterprise
Center LLC
|
50.0 | % | 3,062 | 3,094 | |||||||||
Marc Realty (2)
|
900
Ridgebrook LLC
|
50.0 | % | 1,764 | 1,661 | |||||||||
Marc Realty (2)
|
Salt
Creek LLC
|
50.0 | % | 2,299 | 1,536 | |||||||||
Sealy
|
Northwest
Atlanta Partners LP
|
60.0 | % | 2,648 | 3,189 | |||||||||
Sealy
|
Airpark
Nashville GP
|
50.0 | % | 3,413 | 4,618 | |||||||||
Sealy
|
Newmarket
GP LLC
|
68.0 | % | 7,091 | 7,840 | |||||||||
Lexington (2)
(3)
|
Lex-Win
Concord LLC
|
— | - | - | ||||||||||
Inland/Lexington
(2)
(3)
|
Concord
Debt Holdings LLC
|
33.3 | % | - | - | |||||||||
Inland/Lexington
(2)
(3)
|
CDH
CDO LLC
|
33.3 | % | - | - | |||||||||
ROIC
|
WRT-ROIC
Riverside LLC
|
50.0 | % | 7,883 | - | |||||||||
Pershing Square
(2)
|
PSW
NYC LLC
|
22.5 | % | 9,576 | - | |||||||||
$ | 92,691 | $ | 73,207 |
|
(1)
|
The
Trust has various venture partners. Further detail is provided for the
equity investments under their respective headings
below.
|
|
(2)
|
The
Trust has determined that all of the equity investments, other than those
with Sealy and ROIC are VIEs. The Trust has determined that it
is not the primary beneficiary of these
investments.
|
|
(3)
|
See
Note 4 for discussion of the reorganization of the Trust’s investment in
Concord. The Lex-Win entity has been dissolved and the assets previously
held through Lex-Win are now separated and held through Concord and CDH
CDO.
|
19
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
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, 2010 (in thousands):
Marc Realty
|
Sealy
|
Concord (1)
|
WRT-
ROIC
|
PSW NYC
|
Total
|
|||||||||||||||||||
Balance
at December 31, 2009
|
$ | 57,560 | $ | 15,647 | $ | - | $ | - | $ | - | $ | 73,207 | ||||||||||||
Contributions
|
6,140 | - | - | 7,800 | 10,665 | 24,605 | ||||||||||||||||||
Equity
in income (loss)
|
1,494 | (1,972 | ) | - | 239 | (1,089 | ) | (1,328 | ) | |||||||||||||||
Distributions/capital
returns
|
(3,114 | ) | (523 | ) | - | (156 | ) | - | (3,793 | ) | ||||||||||||||
Balance
at September 30, 2010
|
$ | 62,080 | $ | 13,152 | $ | - | $ | 7,883 | $ | 9,576 | $ | 92,691 |
(1)
|
Includes
equity investments in Lex-Win, Concord, and CDH
CDO.
|
Marc
Realty
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 were reclassified from loans receivable to
equity investments. As a result, effective with the third quarter of 2009, the
Trust recognizes its pro-rata share of income or loss on 12 separate equity
investments.
The Trust
recorded net income from the Marc Realty equity investments of $1,187,000 and
$1,494,000 for the three and nine months ended September 30, 2010
respectively. Additionally, the Trust received cash distributions of
$3,114,000 from the investments during the nine months ended September 30,
2010.
The
combined summarized balance sheets of the Trust’s Marc Realty venture
investments are as follows (in thousands):
September 30,
2010
|
December 31,
2009
|
|||||||
ASSETS
|
||||||||
Real
estate, net
|
$ | 172,208 | $ | 174,310 | ||||
Cash
and cash equivalents
|
1,783 | 1,100 | ||||||
Receivables
and other assets
|
28,400 | 25,287 | ||||||
Total
Assets
|
$ | 202,391 | $ | 200,697 | ||||
LIABILITIES
AND MEMBERS’ CAPITAL
|
||||||||
Mortgage
and notes payable
|
$ | 86,966 | $ | 94,969 | ||||
Other
liabilities
|
13,050 | 12,722 | ||||||
Members’
Capital
|
102,375 | 93,006 | ||||||
Total
Liabilities and Members’ Capital
|
$ | 202,391 | $ | 200,697 | ||||
Trust’s
share of equity
|
$ | 51,233 | $ | 46,497 | ||||
Basis
differentials (1)
|
13,347 | 13,563 | ||||||
Other-than-temporary
impairment
|
(2,500 | ) | (2,500 | ) | ||||
Carrying
value of the Trust’s investments in the equity investments
|
$ | 62,080 | $ | 57,560 |
20
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
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 (i)
other-than-temporary impairments at the investment level, (ii) a
reallocation of equity at the venture level as a result of the
restructuring, and (iii) certain acquisition, transaction and other costs
incurred by the Trust.
|
The
combined summarized statements of operations of the Trust’s Marc Realty venture
investments are as follows (in thousands):
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
2010
|
September 30,
2009
|
September 30,
2010
|
September 30,
2009 (1)
|
|||||||||||||
Total
revenue
|
$ | 10,134 | $ | 10,101 | $ | 30,515 | $ | 10,101 | ||||||||
Expenses
|
||||||||||||||||
Operating
|
4,040 | 4,299 | 12,501 | 4,299 | ||||||||||||
Interest
|
1,176 | 1,155 | 3,544 | 1,155 | ||||||||||||
Real
estate taxes
|
1,482 | 1,527 | 4,446 | 1,527 | ||||||||||||
Depreciation
and amortization
|
2,534 | 2,298 | 7,228 | 2,298 | ||||||||||||
Other
expense
|
585 | 461 | 1,634 | 461 | ||||||||||||
Total
expenses
|
9,817 | 9,740 | 29,353 | 9,740 | ||||||||||||
Gain
from extinguishment of debt
|
2,205 | 2,205 | ||||||||||||||
Other
Income
|
- | 64 | ||||||||||||||
Total
Other Income
|
2,205 | - | 2,269 | - | ||||||||||||
Net
income
|
$ | 2,522 | $ | 361 | $ | 3,431 | $ | 361 | ||||||||
Trust’s
share of net income
|
$ | 1,259 | $ | 178 | $ | 1,710 | $ | 178 | ||||||||
Amortization
of basis differential
|
(72 | ) | (56 | ) | (216 | ) | (56 | ) | ||||||||
Income
from equity investments
|
$ | 1,187 | $ | 122 | $ | 1,494 | $ | 122 |
(1)
|
Represents
the period from the restructuring date of July 1, 2009 to September 30,
2009.
|
Sealy
As of
September 30, 2010 the Trust owns between 50-68% of three office flex parks
located in the southeastern United States together with its venture partner,
Sealy & Co., Ltd. (“Sealy”), a real estate investment and operating company
headquartered in Dallas, Texas and Shreveport,
Louisiana.
21
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
combined summarized balance sheets of the Sealy venture equity investments are
as follows (in thousands):
September 30,
2010
|
December 31,
2009
|
|||||||
ASSETS
|
||||||||
Real
estate, net
|
$ | 150,050 | $ | 153,565 | ||||
Cash
and cash equivalents
|
481 | 971 | ||||||
Receivables
and other assets
|
13,192 | 14,658 | ||||||
Total
Assets
|
$ | 163,723 | $ | 169,194 | ||||
LIABILITIES
AND MEMBERS’ CAPITAL
|
||||||||
Mortgage
and notes payable
|
$ | 139,750 | $ | 139,750 | ||||
Other
liabilities
|
2,319 | 3,373 | ||||||
Members’
Capital
|
21,654 | 26,071 | ||||||
Total
Liabilities and Members’ Capital
|
$ | 163,723 | $ | 169,194 | ||||
Carrying
value of the Trust’s investments in the equity investments
|
$ | 13,152 | $ | 15,647 |
22
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
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
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
2010
|
September 30,
2009
|
September 30,
2010
|
September 30,
2009
|
|||||||||||||
Total
revenue
|
$ | 3,913 | $ | 4,308 | $ | 12,457 | $ | 13,155 | ||||||||
Expenses
|
||||||||||||||||
Operating
|
709 | 447 | 2,483 | 2,084 | ||||||||||||
Real
estate taxes
|
448 | 456 | 1,341 | 1,437 | ||||||||||||
Interest
|
2,103 | 2,103 | 6,241 | 6,241 | ||||||||||||
Depreciation
and amortization
|
1,617 | 1,773 | 5,008 | 5,406 | ||||||||||||
Other
expenses
|
252 | 283 | 751 | 821 | ||||||||||||
Total
expenses
|
5,129 | 5,062 | 15,824 | 15,989 | ||||||||||||
Net
loss
|
$ | (1,216 | ) | $ | (754 | ) | $ | (3,367 | ) | $ | (2,834 | ) | ||||
Trust’s
share of net loss
|
$ | (741 | ) | $ | (411 | ) | $ | (1,972 | ) | $ | (1,588 | ) |
WRT-ROIC
Riverside
On June
28, 2010 the Trust entered into a 50%-50% joint venture with Retail Opportunity
Investment Corporation (“ROIC”) which purchased the Riverside Plaza loan. At
September 30, 2010, this loan was performing according to its
terms.
Peter Cooper
Village/Stuyvesant Town (“PCVST”)
On August
6, 2010, the Trust entered into a joint venture, with affiliates of Pershing
Square, PSW NYC. (See discussion in Note 4). The Trust made aggregate capital
contributions of $10,665,000 during the quarter ended September 30, 2010 and has
committed to fund an additional $550,000 in the fourth quarter of 2010 to pay
for legal and professional fees related to the PCVST investment.
9.
|
Debt
|
Mortgage Loans
Payable
The Trust
had outstanding mortgage loans payable detailed in the table below of
$211,773,000 and $216,767,000 at September 30, 2010 and December 31, 2009,
respectively. The mortgage loan payments of principal and interest
are generally due monthly, quarterly or semi-annually.
23
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Location of
Collateral
|
Maturity
|
Spread Over
LIBOR/Prime
|
Interest Rate at
September 30, 2010
|
Balance at
September 30,
2010
|
Balance at
December 31,
2009
|
|||||||||||||
Andover,
MA
|
Mar
2011
|
— | 6.60 | % | $ | 6,169 | $ | 6,266 | ||||||||||
S.
Burlington, VT
|
Mar
2011
|
— | 6.60 | % | 2,644 | 2,686 | ||||||||||||
Various
(1)
|
Jun
2011
|
LIBOR+1.75%
|
(2 | ) | 22,844 | 23,761 | ||||||||||||
Chicago,
IL
|
Apr
2012
|
— | 6.00 | % | 9,100 | 9,300 | ||||||||||||
Amherst,
NY
|
Oct
2013
|
— | 5.65 | % | 16,222 | 16,526 | ||||||||||||
Indianapolis,
IN
|
Apr 2015
|
— | 5.82 | % | 4,263 | 4,317 | ||||||||||||
Chicago,
IL
|
Mar
2016
|
— | 5.75 | % | 20,900 | 21,118 | ||||||||||||
Houston,
TX
|
Apr
2016
|
— | 6.37 | % | 61,266 | 63,869 | ||||||||||||
Lisle,
IL
|
Jun
2016
|
— | 6.26 | % | 23,981 | 24,176 | ||||||||||||
Lisle,
IL
|
Mar
2017
|
— | 5.55 | % | 5,600 | 5,600 | ||||||||||||
Orlando,
FL
|
Jul
2017
|
— | 6.40 | % | 38,784 | 39,148 | ||||||||||||
$ | 211,773 | $ | 216,767 |
(1)
|
The
loan, which we refer to as the KeyBank loan, is collateralized by 14
properties.
|
(2)
|
Effective
June 30, 2010, the Trust entered into an interest rate swap agreement in
the notional amount of $20,000,000, effectively converting the floating
interest rate to a fixed rate of 2.675% through June 30,
2011.
|
The fair
value of the Trust’s mortgage loans payable are less than their current carrying
amounts by approximately $10,505,000 at September 30, 2010 and approximately
$25,704,000 at December 31, 2009.
10.
|
Revolving
Line of Credit
|
The Trust
has a line of credit pursuant to which the Trust can borrow on a revolving basis
up to $35,000,000. The Trust exercised its option to extend the term
of the revolving credit line to December 16, 2011. 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 recourse and as such is
effectively collateralized by 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.
The
outstanding balance under the facility was $25,450,000 at September 30, 2010. At
December 31, 2009, 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 $8,000 and $52,000 for the
three and nine months ended September 30, 2010 respectively, and $22,000 and
$61,000 for the three and nine months ended September 30, 2009,
respectively.
The Trust
is in compliance of its financial covenants under its revolving line of credit
as of September 30, 2010.
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.
24
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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 that is
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 nine months ended September 30, 2010 and 2009,
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 instrument’s inception and on an ongoing basis, whether the
derivative instrument is highly effective in achieving offsetting changes in the
cash flows attributable to the hedged item. The Trust has recorded
changes in fair value related to the effective portion of its interest rate swap
contract designated and qualifying as a cash flow hedge totaling $20,000 and
$8,000 of decreased interest expense for the three and nine months ended
September 30, 2010, respectively and $178,000 and $519,000 of increased interest
expense for the three and nine months ended September 30, 2009,
respectively.
The table
below presents information about the Trust’s interest rate swap at September 30,
2010 (in thousands):
Maturity
|
Swap Rate
|
Notional
Amount of
Hedge
|
Cost of Hedge
|
Estimated Fair
Value of Swap in
Other
Comprehensive
Income
|
Unrealized Gain
on Settled Swap
in Other
Comprehensive
Income
|
Change in Swap
Valuations Included
in Other
Comprehensive
Income for the Nine
Months Ended
September 30, 2010
|
||||||||||||||||||
June 2011
|
0.925 | % | $ | 20,000 | (1) | $ | - | $ | (93 | ) | $ | - | $ | (8 | ) |
(1)
|
In
connection with the KeyBank Loan extension, the Trust was required to
provide interest rate protection through the maturity of the extension
(June 30, 2011). The Trust obtained an interest rate swap with
a $20,000 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 2.675%.
|
12.
|
Non-Controlling
Redeemable Preferred Interest
|
The
following table reflects the activity of the Trust’s Series C Preferred Shares
interest for the nine months ended September 30, 2010 (in
thousands):
Amount
|
||||
Balance
at December 31, 2009
|
$ | 12,169 | ||
Conversion
to Common Shares
|
(8,948 | ) | ||
Balance
at September 30, 2010
|
$ | 3,221 |
25
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
13.
|
Common
Shares
|
The
following table sets forth information relating to sales of Common Shares during
the nine months ended September 30, 2010:
Date of Issuance
|
Number of Shares
Issued
|
Price per Share
|
Type of Offering
|
||||||
January
15, 2010
|
47,385 | $ | 12.73 |
DRIP
(1)
|
|||||
April
15, 2010
|
44,181 | $ | 13.75 |
DRIP
(1)
|
|||||
July
15, 2010
|
50,439 | $ | 12.15 |
DRIP
(1)
|
|||||
September
27, 2010
|
5,750,000 | $ | 12.25 | (2) |
Public
Offering
|
|
(1)
|
The
Trust’s Dividend Reinvestment and Stock Purchase
Plan.
|
|
(2)
|
Before underwriting
discount.
|
14.
|
Discontinued
Operations
|
In
October 2009 a tenant of the Trust’s retail net leased properties, The Kroger
Company (“Kroger”), notified the Trust of its intention not to exercise its
lease renewal options on six buildings containing approximately 281,000 square
feet of retail space. Concurrently, Kroger also notified the Trust that it would
be exercising its option to purchase the Athens, Georgia property resulting in
the Trust classifying this property in discontinued operations effective with
the fourth quarter of 2009. Since that time, management has been
actively marketing the remaining locations for lease or sale.
The
Lafayette, Louisiana and Sherman, Texas locations have been classified as
discontinued operations as of September 30, 2010. During the quarter
ended September 30, 2010, management determined that the potential market rents
are not sufficient to cover prospective ground lease payments plus the costs to
convert these properties to multi-tenant facilities. Therefore the Trust has
decided to permit the ownership of the property to revert back to the land owner
as of November 1, 2010. The Trust recorded a $704,000 impairment charge related
to these investments which is included in discontinued operations for the three
months ended September 30, 2010.
The
Knoxville, Tennessee location has also been classified as discontinued
operations as of September 30, 2010. During the quarter ended
September 30, 2010, management determined that after having exercised its
purchase option under its ground lease and acquiring the land in October 2010
the best course of action is to pursue a sale of the real estate. As a result,
the Trust recorded a $626,000 impairment charge which is included in
discontinued operations for the three months ended September 30,
2010.
With
respect to Kroger’s purchase of the Athens, Georgia property, in accordance with
a three party agreement between the Trust, Kroger and the land owner, an
appraisal process was conducted to determine the fair market value of the
property. Accordingly, the Trust recorded an impairment loss of $1,000,000
during the quarter ended June 30, 2010. As a result of the finalization of the
appraisal process during the quarter ended September 30, 2010, the Trust
recorded an additional impairment charge of $390,000 during such
period.
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 a
notice of foreclosure was issued on behalf of the first mortgage
holder. The property was foreclosed in December
2009.
26
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Out
of Period Adjustment
During
the quarter ended June 30, 2010, the Trust identified an error in its year ended
December 31, 2009 allocation of fair value attributable to the building
component of its Athens, Georgia property which was assessed for impairment in
connection with its reclassification as held for sale and its presentation in
discontinued operations. As a result, net loss was understated by
approximately $700,000 for the year ended December 31, 2009. The
Trust has determined that this amount is not material to the year ended December
31, 2009 or the quarter ended June 30, 2010. As such, a charge of
approximately $700,000 has been recorded in the consolidated statement of
operations within discontinued operations as an out of period adjustment in the
second quarter of 2010. There was no impact on cash flow from
operations for the nine months ended September 30, 2010.
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.
Concord CDO-1
Litigation
In
January 2010, the trustee for Concord Real Estate CDO 2006-1, Ltd. (“CDO-1”)
refused to cancel the CDO-1 bonds held by CDFT, now a subsidiary of CDH CDO, and
CDO-1 brought an action in the Delaware Court of Chancery (the “Court”) seeking
declaratory relief that the bonds held by CDFT should be cancelled and no longer
remain outstanding. If the bonds remain outstanding obligations, CDO-1
will not satisfy certain of its par value tests resulting in funds used for
interest payments and distributions on certain of the CDO-1 bonds being used
instead to redeem the most senior class of CDO-1 bonds, thereby reducing the
cash flow to CDFT from CDO-1.
The
parties in the action brought cross summary judgment motions which were heard on
April 21, 2010. On May 14, 2010 the Court ruled in favor of CDO-1 and
that the bonds be deemed cancelled effective January 2010. However, on
June 14, 2010 the trustee for CDO-1 issued a notice to appeal the Court’s
ruling. We anticipate the appeal process to be completed and a decision on the
appeal to be received by the end of 2010 or early 2011. If the Court
upholds the ruling, it is anticipated that the Trust will receive a distribution
of approximately $877,000.
Land Purchase
Commitments
During
the first quarter of 2010, the Trust exercised its option to acquire the land
underlying six of the properties ground leased by the Trust and which were
leased to Kroger as of September 30, 2010. The consummation of the acquisition
of the six land parcels was consummated on November 1, 2010 and the parcels were
acquired for an aggregate purchase price of approximately
$4,209,000.
Tenant
Matters
The lease
term with respect to the Trust’s property located in Churchill, Pennsylvania is
scheduled to expire on December 31, 2010. CBS Corporation (“CBS”), the
lessee of the property, elected not to renew the lease and, in anticipation of
this pending lease termination and surrender of the property, a review of the
condition of the property was performed by the Trust. In the Trust’s view,
the property is in need of substantial repairs and refurbishing in order for the
tenant to comply with the surrender conditions. The Trust advised CBS of
these issues and no resolution was reached with CBS after numerous
discussions. Accordingly, in May 2010 the Trust brought an action in
Pennsylvania State Court, Alleghany County against CBS seeking damages for,
among other things, CBS’ failure to restore the property to the condition
necessary to comply with its surrender obligations. The case is currently
in the discovery phase. Rental revenues from the Churchill property
were $781,000 and $2,342,000 for the three and nine months ended September 30,
2010.
27
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
16.
|
Related-Party
Transactions
|
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 accordance with the terms of the Advisory
Agreement. In addition, FUR Advisors or its affiliate is also
entitled to receive property and construction management fees subject to the
approval of the Independent Trustees of the Trust.
Winthrop
Management
Winthrop
Management L.P. (“Winthrop Management”), 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 receives a property management fee
equal to 3% of the monthly revenues on the properties it manages.
The
following table sets forth the fees and reimbursements paid by the Trust for the
three and nine months ended September 30, 2010 and 2009 to FUR Advisors and
Winthrop Management (in thousands):
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
2010
|
September 30,
2009
|
September 30,
2010
|
September 30,
2009
|
|||||||||||||
Base
Asset Management
|
$ | 1,324 | $ | 800 | $ | 3,517 | $ | 2,372 | ||||||||
WRP
Sub-Management LLC Credit
|
(34 | ) | (60 | ) | (134 | ) | (197 | ) | ||||||||
Property
Management
|
54 | 58 | 170 | 198 | ||||||||||||
Construction
Management
|
- | - | 1 | 3 | ||||||||||||
$ | 1,344 | $ | 798 | $ | 3,554 | $ | 2,376 |
Base
Asset Management Fee
Effective
January 1, 2010, the Advisory Agreement was amended so that the determination of
the issuance price of Common Shares reverted back to the pre 2009 definition
such that the fee is to be calculated on the actual issuance price of Common
Shares instead of a fixed price for Common Shares issued prior to January 1,
2009. This change will result in an increase without giving effect to
any additional shares issuances, to the annual advisory fee payable to FUR
Advisors of approximately $2,100,000 over what would have been paid without the
amendment, which increase will be phased in with 54% of the increase being paid
during 2010 and then 100% of the increase being paid commencing in
2011.
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 (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.
28
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The
operating properties segment includes all of the Trust’s wholly and partially
owned operating properties. Prior to July 1, 2009, the loan assets
segment included all of the Trust’s activities related to real estate loans,
which consisted primarily of the Trust’s investment in Lex-Win Concord LLC and
the 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 preferred equity
investments and tenant improvement and capital expenditure loans 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, 2010 and December 31, 2009 (in
thousands):
September 30,
2010
|
December 31,
2009
|
|||||||
Operating
properties
|
$ | 323,272 | $ | 313,682 | ||||
Loan
assets
|
105,849 | 31,774 | ||||||
REIT
securities
|
29,893 | 52,597 | ||||||
Corporate
|
||||||||
Cash
and cash equivalents
|
102,919 | 66,493 | ||||||
Restricted
cash
|
8,889 | 9,504 | ||||||
Other
|
16,873 | 19,142 | ||||||
Total
Assets
|
$ | 587,695 | $ | 493,192 |
The Trust
defines net operating income for each segment presented as all items of income
and expense directly derived from or incurred by each business segment before
depreciation, amortization and interest expense. 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 REIT securities and expenses incurred by each segment for the three
and nine months ended September 30, 2010 and September 30, 2009 (in
thousands):
29
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September 30,
2010
|
September 30,
2009
|
September 30,
2010
|
September 30,
2009
|
|||||||||||||
Operating
Properties
|
||||||||||||||||
Rents
and reimbursements
|
$ | 9,298 | $ | 10,140 | $ | 28,162 | $ | 30,609 | ||||||||
Operating
expenses
|
(1,812 | ) | (1,990 | ) | (5,585 | ) | (5,492 | ) | ||||||||
Real
estate taxes
|
(952 | ) | (674 | ) | (2,012 | ) | (1,968 | ) | ||||||||
Equity
in (loss) income of Sealy Northwest Atlanta
|
(192 | ) | 19 | (541 | ) | (223 | ) | |||||||||
Equity
in loss of Sealy Airpark Nashville
|
(248 | ) | (289 | ) | (681 | ) | (861 | ) | ||||||||
Equity
in loss of Sealy Newmarket
|
(301 | ) | (141 | ) | (750 | ) | (504 | ) | ||||||||
Equity
in income of Marc Realty investment
|
1,187 | 122 | 1,494 | 122 | ||||||||||||
Net
operating income
|
6,980 | 7,187 | 20,087 | 21,683 | ||||||||||||
Depreciation
and amortization expense
|
(2,393 | ) | (2,598 | ) | (7,092 | ) | (7,987 | ) | ||||||||
Interest
expense
|
(3,196 | ) | (3,453 | ) | (9,596 | ) | (10,397 | ) | ||||||||
Operating
properties net income
|
1,391 | 1,136 | 3,399 | 3,299 | ||||||||||||
Loan
Assets
|
||||||||||||||||
Interest
|
4,185 | 1,040 | 9,484 | 2,247 | ||||||||||||
Equity
in earnings of preferred equity investment of Marc Realty
|
85 | 86 | 253 | 78 | ||||||||||||
Impairment
loss on preferred equity investment
|
- | - | - | (2,186 | ) | |||||||||||
Equity
in income (loss) of Lex-Win Concord
|
- | 500 | - | (67,065 | ) | |||||||||||
Impairment
loss on Lex-Win Concord
|
- | - | - | (31,670 | ) | |||||||||||
Unrealized
gain on loan securities carried at fair value
|
581 | - | 3,593 | - | ||||||||||||
Equity
in income of ROIC Riverside
|
234 | - | 239 | - | ||||||||||||
Equity
in loss of PSW NYC
|
(1,089 | ) | - | (1,089 | ) | - | ||||||||||
Provision
for loss on loans receivable
|
- | - | - | (2,152 | ) | |||||||||||
Unrealized
loss on available for sale loans
|
- | - | - | (203 | ) | |||||||||||
Net
operating income (loss)
|
3,996 | 1,626 | 12,480 | (100,951 | ) | |||||||||||
General
and administrative expense
|
(186 | ) | (190 | ) | (222 | ) | (212 | ) | ||||||||
Loan
assets net income (loss)
|
3,810 | 1,436 | 12,258 | (101,163 | ) | |||||||||||
REIT
Securities
|
||||||||||||||||
Interest
and dividends
|
763 | 1,456 | 2,263 | 4,215 | ||||||||||||
(Loss)
gain on sale of securities carried at fair
value
|
(185 | ) | 676 | 588 | 3,274 | |||||||||||
Unrealized
gain on securities carried at fair value
|
2,490 | 12,578 | 4,280 | 14,010 | ||||||||||||
Net
operating income
|
3,068 | 14,710 | 7,131 | 21,499 | ||||||||||||
Interest
expense
|
- | - | - | (75 | ) | |||||||||||
REIT
securities net income
|
3,068 | 14,710 | 7,131 | 21,424 | ||||||||||||
Net
Income (Loss)
|
8,269 | 17,282 | 22,788 | (76,440 | ) | |||||||||||
Reconciliations
to GAAP Net Income (Loss):
|
||||||||||||||||
Corporate
Income (Expense)
|
||||||||||||||||
Interest
income
|
17 | 31 | 94 | 145 | ||||||||||||
Interest
expense
|
(613 | ) | (716 | ) | (1,530 | ) | (2,273 | ) | ||||||||
Gain
on extinguishment of debt
|
- | 445 | - | 5,682 | ||||||||||||
General
and administrative
|
(2,114 | ) | (1,630 | ) | (5,901 | ) | (4,925 | ) | ||||||||
State
and local taxes
|
(7 | ) | (14 | ) | (107 | ) | (211 | ) | ||||||||
Income
(loss) from continuing operations before non-controlling
interest
|
5,552 | 15,398 | 15,344 | (78,022 | ) | |||||||||||
Non-controlling
interest
|
(175 | ) | (315 | ) | (595 | ) | (651 | ) | ||||||||
Income
(loss) from continuing operations attributable to Winthrop Realty
Trust
|
5,377 | 15,083 | 14,749 | (78,673 | ) | |||||||||||
Income
(loss) from discontinued operations attributable to Winthrop Realty
Trust
|
(1,569 | ) | 74 | (2,160 | ) | 201 | ||||||||||
Net
Income (Loss) Attributable to Winthrop Realty Trust
|
$ | 3,808 | $ | 15,157 | $ | 12,589 | $ | (78,472 | ) | |||||||
Capital
Expenditures
|
||||||||||||||||
Operating
properties
|
$ | 2,929 | $ | 550 | $ | 4,646 | $ | 1,132 |
30
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
18.
|
Variable Interest
Entities
|
Consolidated Variable
Interest Entities
Andover Operating Property -
The lease agreement executed in January 2010 on the Andover,
Massachusetts property gives the tenant an option to purchase the building for a
fixed price of $10,500,000. The option is exercisable at the tenant's discretion
at any point during the lease term. As a result of the fixed price
purchase option contained in this lease agreement, the Trust has determined that
its Andover, Massachusetts property is a variable interest entity for which the
Trust is the primary beneficiary since it has the power to direct activities
that most significantly impact the economics of the property.
The
carrying amounts of the Trust's Andover property include building of $6,315,000,
lease intangibles of $1,553,000 and mortgage debt of $6,169,000. Prior to the
execution of the lease agreement, the Andover property was not considered a VIE
but it has been consolidated since its acquisition. For this reason,
no gain or loss has been recognized in connection with the Trust's determination
that it is the primary beneficiary of the VIE.
Deer Valley Medical Center Operating
Property – The Trust has concluded that its venture, WRT-DV, is a
VIE. This assessment is primarily based on the fact that the equity
investment at risk is not sufficient to finance its activities without
additional subordinated financial support.
Pursuant
to the terms of WRT-DV’s operating agreement, the Trust receives a priority
return on $7,900,000 of its invested capital, with the balance of the capital
being allocated 96.5% to the Trust and 3.5% to its joint venture partner,
Fenway. The Trust has effectively all control rights with respect to
WRT-DV. Therefore the Trust has determined it is the primary beneficiary and
consolidates the venture which owns the operating property.
The
carrying amounts of the Deer Valley property include land and building of
$8,157,000 and lease intangibles of $1,998,000. There is no
mortgage debt associated with this property.
Variable Interest Entities
Not Consolidated
Equity
Method Investments
Concord and CDH CDO – The
Trust has a one-third equity interests in each of the separate entities that
resulted from the Trust’s reorganization of its Lex-Win investment, Concord and
CDH CDO (the “Concord Investments”). The Trust has determined that
each of the Concord Investments are variable interests in VIE’s because the
equity investment at risk is not sufficient to finance their activities without
additional subordinated financial support.
Lexington,
Inland and the Trust, three of the variable interest holders, hold identical
one-third membership interests in each of the Concord Investment entities. By
design and in practice, they share equally in the economics and the
decision-making. Further, Lexington, Inland and the Trust which are otherwise
unrelated parties, each have one-third of the voting rights of the equity of the
Concord Investments. An affiliate of FUR Advisors is responsible for day-to-day
administration and operations of the Concord investments, but decisions that
most significantly impact the entity’s economic performance are jointly decided
through their voting interests. Each member is deemed to have shared
power, such that no party is considered to have the power to direct the
activities of the VIE. In addition, there is no principal agency
relationship through transfer restrictions that would indicate a primary
beneficiary exists.
At
September 30, 2010, the carrying value of the Trust’s Concord Investments is
zero. The Trust does not have the current intent to provide financial or other
support to the Concord Investments and the obligations of the Concord
Investments are non-recourse to the Trust.
Marc Realty Equity Investment -
The Trust has concluded that the 12 Marc Realty equity investments are
variable interests in VIEs. This assessment is primarily based on the
fact that the underlying entities do not have sufficient equity at risk to
permit them to finance their activities without additional subordinated
financial support.
31
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
While the
Trust maintains certain protective rights under the terms of the agreements
governing the Marc Realty investments, the power to direct the activities that
most significantly impact the economics of the Marc Realty investments is vested
in Marc Realty as the managing member. As such, management has
concluded that the Trust is not the primary beneficiary of these Marc Realty
investments. The Trust's investment in the Marc Realty equity
investments at September 30, 2010 was $62,080,000.
PSW NYC – The Trust has
concluded that its 22.5% investment in PSW NYC is a variable interest in a VIE.
This assessment is primarily based on the fact that the entity does not have
sufficient equity at risk to permit them to finance their activities without
additional subordinated financial support. The Trust does not have the power to
direct the activities that most significantly impact the economics of PSW NYC
and management has therefore concluded that the Trust is not the primary
beneficiary.
Loans Receivable and Loan Securities
- The Trust has reviewed its loans receivable and loan securities and
certain of these assets have been identified as variable interests in a VIE
because the equity investment at risk is not considered sufficient for the
entity to finance its activities without additional subordinated financial
support.
Certain
loans receivable and loan securities which have been determined to be VIEs are
performing assets, meeting their debt service requirements, and the borrowers
hold title to the collateral. In these cases the borrower has the power to
direct the activities that most significantly impact the economic performance of
the VIE, including management and leasing activities. In the event of default
under these loans the Trust only has protective rights and has the risk to
absorb losses only to the extent of its loan investment. The borrower has been
determined to be the primary beneficiary for these performing
assets.
The
borrowing entity for certain other loans receivable which are in default have
been determined to be VIEs. The Trust is the process of exercising its remedies
through foreclosure (judicial or non-judicial, as applicable) proceedings on
these assets. In certain cases a receiver has not been appointed and
in other instances a court-appointed receiver manages the property under a court
order pending the final disposition of the foreclosure. The receiver manages the
property’s day to day operations. The Trust can consult and
work with the receiver but in the end the only recourse is to petition the court
to direct the activities of the receiver. The receiver acts independently and
ultimately is answerable only to the court. Although it is expected that
foreclosure and transfer of ownership of the loan collateral to the Trust is a
likely outcome of the foreclosure proceeding, the receiver has control of the
activities of the collateral until such time as the receiver is discharged
following the consummation of the foreclosure proceeding. Therefore, as the
Trust does not believe it has the ability to direct the activities that most
significantly impact the economics of the investment, the Trust is not
considered to be the primary beneficiary.
The Trust
has determined that it does not currently have the power to direct the
activities of the ventures collateralizing any of its loans receivable and loan
securities. For this reason, management believes that it does not
control, nor is it the primary beneficiary of these ventures. Accordingly, the
Trust accounts for these investments under the guidance for loans receivable and
real estate debt investments.
19.
|
Subsequent
Events
|
Legacy Partners Realty Fund
II - On October 22, 2010 the Trust acquired for $9,750,000 a
performing corporate loan which had an outstanding balance of principal and
accrued interest of approximately $39,000,000. Immediately upon
consummation of the acquisition of the loan, the loan was restructured to: (i)
provide the borrower with the right to payoff the loan after the first 12 months
at a discounted amount of $9,750,000; (ii) modify the interest rate to an amount
equal to a 15% annual return on the $9,750,000; (iii) extend the term until
October 31, 2014; (iv) collateralize the loan with a first mortgage on a 16.35
acre parcel of land in San Jose, California, a $3,000,000 letter of credit and
other assets.
Westwood Business Park - On
October 29, 2010 the Trust acquired for $4,100,000 a first mortgage secured by
four class B office buildings, containing 91,100 square feet of office space in
Phoenix, Arizona. Upon acquisition of the loan, the borrower made a principal
payment of $600,000 and the loan was restructured to reduce the then outstanding
principal to $3,500,000 and to provide for a future funding component which
allows the borrower to draw up to $400,000 to fund 50% of the tenant improvement
and leasing commission costs on new leases. The loan bears interest at 11% and
matures on October 31, 2011, subject to a six month extension. A
principal of the borrower has guaranteed $1,000,000 of the principal amount plus
all future funding advances.
32
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Moffett Towers, Sunnyvale,
California - On October 29, 2010 the Trust acquired at
par a $21,158,000 senior participation in a B Note secured by a first mortgage
lien on a 951,000 square foot, recently constructed class A office complex
located in Sunnyvale, California. The loan bears interest at 7.98%,
matures on January 31, 2012 and is subject to one six-month
extension.
33
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
ITEM 2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Management’s Discussion and Analysis of
Financial Condition and Results of operations include a discussion of our
unaudited consolidated financial statements and footnotes thereto for the nine
months ended September 30, 2010 as compared with the nine months ended September
30, 2009. These unaudited financial statements are prepared in conformity with
accounting principles generally accepted in the United States of America which
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.
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. As a result of our emphasis on total return, while we seek
to achieve a stable, predictable dividend for our shareholders, we do not select
or manage our investments for short-term dividend growth, but rather towards
achieving overall superior total return. We believe this approach
will ultimately result in long term increased share value.
We are a diversified REIT
and as such
we are able to
invest in transactions which a dedicated REIT with
narrow investment parameters would be unable to consider. In addition, because of our
size we are able to make investments in transactions that are smaller and would
generally be disregarded by large institutional investors. With the
exception of those asset types and locations in which we have self
imposed
restrictions on investing, we have a broad range for investment
opportunities. This includes different investment types,
sectors, and geographic areas all at varying levels in the capital
stack.
As a
diversified REIT, we operate in three strategic business segments: (i) operating
properties; (ii) loan assets; and (iii) REIT securities. We acquire assets
through direct ownership as well as through strategic alliances and
ventures. Our primary sources of income are rental income and tenant
recoveries from leases of our operating properties, interest income and discount
accretion from our loan assets, and interest and dividend income and
appreciation from our investments in REIT securities.
Acquisitions
We continue to broaden our portfolio
with the
acquisition of additional assets. During the quarter ended
September 30, 2010 we invested approximately $67,125,000 in new loan
assets. Our recent acquisitions which are detailed in Item 1.,
Notes 4 and 19, are a direct result of an investment approach which targets loan
investments with significant underlying collateral value, future income return
potential and in certain cases, non-performing loans with the possibility, if
not the likelihood, that our debt position will be converted into equity
participation.
34
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Loan
Assets
Our loan
asset portfolio has grown considerably since the third quarter of 2009 and
includes a combination of whole loans, B-notes and mezzanine loans. During the
quarter ended September 30, 2010 we acquired approximately $67,125,000 of loan
assets. As of September 30, 2010 our portfolio of loan assets totaled
$105,849,000 and generated interest earnings of $9,484,000 for the nine months
ended September 30, 2010, as compared to interest earnings of $2,247,000 for the
nine months ended September 30, 2009.
Operating
Properties
During
2010 we expect that our operating property portfolio, which consists of 37
properties containing 8.2 million square feet, will continue to have leasing and
expense containment issues.
We expect
that rental income from our operating properties will decline in 2011 as a
result of the non-renewal of six properties in our retail portfolio as well as
the expiring lease at our Churchill property for which the previous contractual
rents are above current market rents. Rental revenues for the nine months ended
September 30, 2010 included $3,308,000 from the seven properties for which the
tenants did not exercise renewal options.
During
the quarter ended September 30, 2010 we made no property acquisitions
although we converted
our distressed Deer Valley first mortgage loan to equity ownership and allocated
our loan cost of approximately $10,220,000 between our real estate assets and
related lease intangibles. Although there were no dispositions of
operating properties during the current quarter three properties were
transferred into discontinued operations. (See Item 1, Note
14.)
Consolidated Operating Properties -
At September 30, 2010 our consolidated operating properties were 94.2%
leased compared to 94.8% at June 30, 2010. We experienced a small decline in
occupancy at our Indianapolis, Indiana property which was offset by increased
occupancy at our Chicago, Illinois (Ontario) property and one of our Lisle,
Illinois properties. The remaining properties’ occupancy remains
stable.
Equity Investments in
Operating Properties
Sealy - As of September 30, 2010,
we continue to hold equity interests in three real estate ventures with Sealy
& Co which have an aggregate of approximately 2.1 million rentable square
feet consisting of 18 office flex buildings and 13 light distribution and
service center properties. The investment properties are located in Northwest
Atlanta, Georgia, Atlanta, Georgia and Nashville, Tennessee and had occupancies
of 75%, 67% and 88%, respectively, at September 30, 2010 as compared to
occupancy of 71%, 69% and 89%, at June 30, 2010. Occupancy rates
include all signed leases, including those undergoing tenant
improvements. Our Georgia properties continue to have historically
low occupancy but are performing in line with the market and we have not lost
any tenants to competing properties. Finally, our Nashville, Tennessee property
has experienced an increase in occupancy as several competitors continue to
suffer from flood damage. The properties are being aggressively
marketed for lease. Although reporting a loss of $741,000 and
$1,972,000 for the three and nine months ended September 30, 2010 due primarily
to depreciation and amortization, the properties generated sufficient cash flow
to service debt and meet capital expenditure needs. We received cash
distributions from operations of $209,000 and $523,000 for the three and nine
months ended September 30, 2010, respectively.
The Sealy
properties have $139,750,000 of mortgage debt at September 30, 2010 with no
maturities until January 2012.
Marc Realty - As of September
30, 2010, we, together with Marc Realty, held equity interests in 12 properties
which consist of an aggregate of approximately 1,977,000 rentable square feet of
office and retail space which were 81.7% and 83.5% occupied at September 30,
2010 and June 30, 2010, respectively.
35
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Five
downtown Chicago properties contain approximately 959,000 rentable square feet
of the aggregate Marc Realty portfolio and accounted for $37,453,000 of our
September 30, 2010 carrying value. These five properties had occupancy of 82.9%
at September 30, 2010, compared to 86.8% occupancy at June 30,
2010. They offer significant stability to our overall investment due
to their size, locality, tenant composition and consistent results during times
of difficult market conditions. The balance of the portfolio,
representing seven properties and $24,627,000 of our September 30, 2010 carrying
value, contain approximately 1,018,000 square feet. This part of the
portfolio is located in the Chicago suburbs and was 80.6% occupied at September
30, 2010 compared to 80.4% occupied at June 30, 2010.
The Marc
Realty properties are encumbered with $86,966,000 of mortgage debt currently,
with no debt maturing in 2010, $19,367,000 maturing in 2011 and the remainder in
2012 or later.
REIT
Securities
We have
had significant returns from our REIT securities after having invested
approximately $71,867,000 since the fourth quarter of 2008. Because
of our view of the market, we have reduced our investment activity in REIT
securities and are now realizing those returns through the sale of the
securities. Accordingly, during the quarter ended September 30, 2010
we sold securities on which we had previously recognized unrealized gains of
approximately $4,877,000, generating net proceeds of approximately $16,391,000
and recorded realized losses of $185,000 on the sales. Additionally,
during the quarter we recognized unrealized gains of $2,490,000 on our remaining
REIT securities.
Debt
Maturities
We have a
$35,000,000 line of credit the term of which we extended for one year to
December 16, 2011. At September 30, 2010 we had borrowed $25,450,000
under the facility. This amount was drawn down in July in connection with new
loan acquisitions.
At
September 30, 2010, our balance sheet contains mortgage debt payable of
$211,773,000. During the second quarter of 2010 we exercised our option to
extend the loan which is collateralized by our 14 properties through June 2011.
As of September 30, 2010 we have no outstanding mortgage debt that is maturing
until March 2011. The debt maturing in March 2011 is collateralized by our
Andover, Massachusetts property and our South Burlington, Vermont property. We
are currently seeking to refinance these loans.
We
continually evaluate our debt maturities and, based on our current assessment,
we believe there are viable financing and refinancing alternatives for debts as
they mature that will not materially adversely impact our liquidity or our
expected financial results.
Liquidity
and Capital Resources
At
September 30, 2010, we held $102,919,000 in unrestricted cash and cash
equivalents and $29,893,000 in REIT securities. In addition, as of
September 30, 2010 we have $9,550,000 available to draw on our $35,000,000
revolving line of credit.
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 our credit
facility, and issuance of equity and debt securities will provide the necessary
capital required for our future investment and financing
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 are
dependent on raising capital through equity and debt issuances or forming
ventures with investors to obtain funds with which to expand our
business.
36
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Our
primary sources of funds include:
|
·
|
the
use of cash and cash equivalents;
|
|
·
|
rents
and reimbursements received from our operating
properties;
|
|
·
|
payments
received under our loan assets;
|
|
·
|
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 facility; and
|
|
·
|
asset
specific borrowings.
|
Public
Offering
On September 27, 2010 we
closed a public offering of 5,750,000 Common Shares at a price of $12.25 per
share
before
underwriter discount, and received net proceeds of
approximately $67,000,000 which we intend to use for
the acquisition of additional investments as opportunities
arise.
Cash
Flows
Our
liquidity based upon cash and cash equivalents increased by approximately
$36,426,000 from $66,493,000 at December 31, 2009 to $102,919,000 at September
30, 2010.
Our cash
flow activities for the nine months ended September 30, 2010 are summarized as
follows (in thousands):
Net
cash flow provided by operating activities
|
$ | 14,482 | ||
Net
cash flow used in investing activities
|
(58,763 | ) | ||
Net
cash flows provided by financing activities
|
80,707 | |||
Increase
in cash and cash equivalents
|
$ | 36,426 |
Operating
Activities
For the
nine months ended September 30, 2010, our operating activities generated net
income of $13,184,000 and positive cash flow of $14,482,000. Our cash
provided by operations reflects our net income adjusted by: (i) non-cash items
of $3,397,000; (ii) $4,086,000 of distributions from non-consolidated interests;
and (iii) a net decrease due to changes in other operating assets and
liabilities of $6,221,000. See our discussion of Results of
Operations below for additional details on our operations.
Investing
Activities
Cash used
in investing activities of $58,763,000 for the nine months ended September
30, 2010 was comprised primarily of the following:
|
·
|
$81,001,000
for the acquisition of eight new loans
receivable;
|
|
·
|
$2,571,000
for additional loan advances on the 160 Spear and 180 North Michigan
properties;
|
|
·
|
$10,665,000
for investment in our PSW NYC joint
venture;
|
|
·
|
$7,800,000
for investment in our Riverside loan joint
venture;
|
|
·
|
$6,140,000
for investment in our Marc Realty equity
investments;
|
|
·
|
$2,113,000
to fund a tenant improvement escrow for the Deer Valley Medical
Center;
|
|
·
|
$3,056,000
for purchases of REIT securities carried at fair value;
and
|
|
·
|
$3,003,000
for investment in capital and tenant improvements at our operating
properties.
|
37
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
These
uses of cash flow were offset primarily by:
|
·
|
$29,565,000
in proceeds from the sale of securities carried at fair
value;
|
|
·
|
$9,876,000
in proceeds from the sale at par value of 50% interest in the 500-512
Seventh Avenue B Participation;
|
|
·
|
$3,000,000
in proceeds from the sale at par value of the Siete Square A
Participation;
|
|
·
|
$6,540,000
received on full satisfaction of the Driver loan;
and
|
|
·
|
$8,200,000
received on full satisfaction of the 1701 E. Woodfield Road
loan.
|
Financing
Activities
Cash
provided by financing activities of $80,707,000 for the nine months ended
September 30, 2010 was comprised primarily of the following:
|
·
|
$66,867,000
in proceeds from the issuance of 5,750,000 Common Shares pursuant to our
public offering; and
|
|
·
|
$25,450,000
drawn down on our Revolving Line of
Credit.
|
These
sources of cash flow were offset primarily by:
|
·
|
$10,187,000
for dividend payments on our Common
Shares;
|
|
·
|
$4,994,000
for mortgage loan repayments; and
|
|
·
|
$338,000
for dividend payments on our Series C Preferred
Shares.
|
Future
Cash Commitments
Land
Purchases
During
the first quarter of 2010, we exercised our option to acquire the land
underlying six of the properties currently under ground leases which are leased
to the Kroger Company. The consummation of the acquisition of the six land
parcels was consummated on November 1, 2010 at an aggregate purchase price of
approximately $4,209,000.
Capital
Contributions
In
addition to our initial capital contribution of $10,125,000 to PSW NYC to cover
the acquisition of the Mezz Loans, we made additional capital contributions of
$540,000 during the quarter ended September 30, 2010. We expect to
fund an approximate $550,000 of additional contributions in the fourth quarter
of 2010.
We
continue to make capital contributions in our joint ventures with Marc Realty to
fund capital improvements. Although we are not required to make this
funding we anticipate future contributions will be required. We believe
that cash on hand will provide the necessary capital to meet these
commitments.
Common
Share Dividends
In paying
dividends we seek to have our quarterly dividends track cash flow from
operations. While we intend to continue paying dividends each quarter,
they will depend on the actual cash flow, financial condition, capital
requirements, utilization of available capital losses and net operating loss
carry forwards, distribution requirements for REITs under the Internal Revenue
Code, and such other factors as our Board of Trustees deem relevant.
Subject to the foregoing, we expect to continue distributing our current cash
flow from operations after reserving normal and customary amounts thereby
allowing us to maintain adequate capital reserves. In addition, when
deemed prudent or necessitated by applicable distribution requirements for REITs
under the Internal Revenue Code, we may make one or more special distributions
during any particular year. Additionally, during a favorable
investing environment, we expect that we will utilize our carry forward capital
losses to shelter gains from the disposition of our assets so we may use the
proceeds for investment. 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 these various
factors.
38
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
During
2010 we have paid a quarterly dividend of $0.1625 per Common Share for the
fourth quarter of 2009 and for the each of the first, second and third quarters
of 2010.
Comparability of Financial
Data from Period to Period
The
comparability of financial data from period to period is affected by several
items including (i) the timing of our property acquisitions and leasing
activities, (ii) the purchases and sales of assets and investments, (iii) when
material other-than-temporary impairment losses on assets in our portfolio are
taken and (iv) the reclassification of assets. In this regard, the
comparability of financial results for nine months ended September 30, 2010 with
those periods in 2009 were impacted by the write-down of our investment in
Lex-Win Concord during the second quarter of 2009 and the reclassification of
certain Marc Realty assets from an aggregated preferred equity investment to 12
individual common equity investments as of July 1, 2009.
Results of
Operations
Our
results are discussed below by business segment:
Ø
|
Operating
Properties – our wholly and partially owned operating properties including
from and after July 1, 2009, our 12 Marc Realty equity
investments;
|
Ø
|
Loan
Assets – our senior and mezzanine real estate loans as well as commercial
mortgage-backed securities including, prior to July 1, 2009, our Marc
Realty equity investments;
|
Ø
|
REIT
Securities – our ownership of equity and debt securities in other real
estate investment trusts; and
|
Ø
|
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,
2010
|
December 31,
2009
|
|||||||
Operating
properties
|
$ | 323,272 | $ | 313,682 | ||||
Loan
assets
|
105,849 | 31,774 | ||||||
REIT
securities
|
29,893 | 52,597 | ||||||
Corporate
|
||||||||
Cash
and cash equivalents
|
102,919 | 66,493 | ||||||
Restricted
cash
|
8,889 | 9,504 | ||||||
Other
|
16,873 | 19,142 | ||||||
Total
Assets
|
$ | 587,695 | $ | 493,192 |
The
increase in loan assets was due primarily to our $80,965,000 of investments to
acquire eight loans during the second and third quarters of 2010, a $10,665,000
investment in our PSW NYC venture and a $7,800,000 investment in our Riverside
loan joint venture. Loan assets were reduced by $14,900,000 as a result of two
loans being paid off in full and by $12,876,000 as a result of the sale of
portions of two loans. Loan assets were further reduced by $10,220,000 as a
result of our foreclosure on the Deer Valley property which collateralized one
of our loan assets. As a result of the foreclosure, this asset is now included
in our operating properties segment.
The
decrease in REIT securities was primarily the result of the sale of securities
carried at fair value for proceeds of $29,565,000.
39
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
The
decrease in other assets resulted primarily from a $1,999,000 reduction in
accounts receivable and prepaid expenses.
Comparison
of Nine Months ended September 30, 2010 versus Nine Months ended September 30,
2009
The
following table summarizes our results from continuing operations by business
segment for the nine months ended September 30, 2010 and 2009 (in
thousands):
For the Nine Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Operating
properties (1)
|
$ | 3,399 | $ | 3,299 | ||||
Loan
assets (1)
|
12,258 | (101,163 | ) | |||||
REIT
securities
|
7,131 | 21,424 | ||||||
Corporate
income (expenses)
|
(7,444 | ) | (1,582 | ) | ||||
Income
(loss) from continuing operations
|
$ | 15,344 | $ | (78,022 | ) |
|
(1)
|
As
of July 1, 2009, in restructuring our preferred equity investment in Marc
Realty, 12 of our investments in the Marc Realty portfolio were classified
as equity investments and are included in the operating properties
segment.
|
Operating
Properties
The
following table summarizes results from continuing operations for our operating
properties business segment for the nine months ended September 30, 2010 and
2009 (in thousands):
For the Nine Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Rents
and reimbursements
|
$ | 28,162 | $ | 30,609 | ||||
Operating
expenses
|
(5,585 | ) | (5,492 | ) | ||||
Real
estate taxes
|
(2,012 | ) | (1,968 | ) | ||||
Equity
in loss of Sealy Northwest Atlanta
|
(541 | ) | (223 | ) | ||||
Equity
in loss of Sealy Airpark Nashville
|
(681 | ) | (861 | ) | ||||
Equity
in loss of Sealy Newmarket
|
(750 | ) | (504 | ) | ||||
Equity
in income of Marc Realty investments
|
1,494 | 122 | ||||||
Operating
income
|
20,087 | 21,683 | ||||||
Depreciation
and amortization expense
|
(7,092 | ) | (7,987 | ) | ||||
Interest
expense
|
(9,596 | ) | (10,397 | ) | ||||
Net
income
|
$ | 3,399 | $ | 3,299 |
Operating
income from our operating properties, which we define as all items of income and
expense directly derived from or incurred by this business segment before
depreciation, amortization and interest expense, decreased by $1,596,000
compared to the prior year period. The decrease was due primarily
to:
|
·
|
a
decrease of $613,000 in rents and reimbursements at our Andover,
Massachusetts property due to the expiration of the lease in place at
December 31, 2009. This space was leased effective March 18,
2010;
|
|
·
|
a
decrease of $340,000 in rents and reimbursements from our net lease
portfolio due to a reduction in rent pursuant to a restructuring which
provided for a decrease in rent and a 10-year extension of the lease for
our Plantation, Florida property as of April 1,
2009;
|
|
·
|
a
decrease of $364,000 in rents and reimbursements at our Chicago, Illinois
(Ontario) property due to an approximate 5.0% decrease in average
occupancy for the nine months September 30, 2010 as compared to the nine
months ended September 30, 2009;
|
40
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
|
·
|
a
decrease of $627,000 in rents and reimbursements from two of our Lisle,
Illinois properties due to an approximate 20.5% decrease in average
occupancy at one of the properties and an approximate 11.0% decrease at
the other property for the nine months ended September 30, 2010 as
compared to the nine months ended September 30,
2009;
|
|
·
|
a
decrease of $530,000 in rents and reimbursements at our River City
property primarily as a result of reduced escalation charges in
2010;
|
|
·
|
operating
expenses of $374,000 and $161,000 incurred during 2010 at our Burlington,
Vermont and Andover, Massachusetts properties, respectively, which were
net leased during 2009;
|
|
·
|
an
increase of $300,000 in legal and professional fees incurred as a result
of the litigation with our tenant at our Churchill, Pennsylvania property
in 2010; and
|
|
·
|
a
$384,000 increase in losses from our Sealy equity investments due
primarily to a $318,000 increase in loss related to the Northwest Atlanta,
office complex which experienced a 7% decrease in occupancy at September
30, 2010 from September 30, 2009. Losses from the Sealy
portfolio are primarily the result of non-cash depreciation and
amortization expenses. We received cash distributions of
$523,000 from the Sealy equity investments for the nine months ended
September 30, 2010.
|
Partially
offset by:
|
·
|
a
$1,372,000 increase in equity earnings in 2010 representing our share of
operations from our 12 Marc Realty equity investments for the nine months
ended September 30, 2010. The increase is primarily the result
of forgiveness of debt income of $2,207,000 at the 1701 East Woodfield
property of which our share was $1,103,000. We received cash
distributions of $3,114,000 from the Marc Realty equity investments during
the nine months ended September 30, 2010;
and
|
|
·
|
a
$351,000 bad debt recovery at our Burlington, Vermont property with
respect to a tenant bankruptcy
claim.
|
Depreciation
and amortization expense decreased by $895,000 primarily as a result of values
assigned to leases in place at the time of acquisition being fully amortized
during 2009. Also, during 2010 interest expense related to our
operating properties decreased by $801,000 primarily as a result of normal
amortization of mortgage loans payable.
41
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Loan
Assets
The
following table summarizes results from our loan assets business segment for the
nine months ended September 30, 2010 and 2009 (in thousands):
For the Nine Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
income
|
$ | 9,484 | $ | 2,247 | ||||
Equity
in earnings (loss) of preferred equity investment in Marc
Realty
|
253 | 78 | ||||||
Impairment
loss on preferred equity investment
|
- | (2,186 | ) | |||||
Equity
in loss of Lex-Win Concord
|
- | (67,065 | ) | |||||
Impairment
loss of Lex-Win Concord
|
- | (31,670 | ) | |||||
Unrealized
gain on loan securities carried at fair value
|
3,593 | - | ||||||
Equity
in income of ROIC Riverside
|
239 | - | ||||||
Equity
in loss of PSW NYC
|
(1,089 | ) | ||||||
Unrealized
loss on available for sale loans
|
- | (2,152 | ) | |||||
Provision
for loss on loan receivable
|
- | (203 | ) | |||||
Operating
income (loss)
|
12,480 | (100,951 | ) | |||||
General
and administrative expense
|
(222 | ) | (212 | ) | ||||
Net
income (loss)
|
$ | 12,258 | $ | (101,163 | ) |
Operating
income from loan assets, which we define as all items of income and expense
directly derived from or incurred by this business segment before general and
administrative expense, increased by $113,431,000 from a loss of $100,951,000
for the nine months ended September 30, 2009 to income of $12,480,000 for the
nine months ended September 30, 2010. The increase was due primarily
to:
|
·
|
a
$98,735,000 reduction in losses recognized on our equity investment in
Lex-Win Concord. Our equity investment in Lex-Win Concord was
written down to zero as of June 30, 2009. We had no income or
loss recognition for this investment for the nine months ended September
30, 2010;
|
|
·
|
a
$7,237,000 increase in interest income due primarily to $5,945,000
recognized on loan assets acquired subsequent to September 30, 2009 which
was partially offset by a reduction of $689,000 of interest on our tenant
improvement and capital expenditure loans related to the Marc Realty
investments which are now reported in the operating properties segment as
of July 1, 2009;
|
|
·
|
a
$3,593,000 unrealized gain on loan securities carried at fair value
recognized in the nine months ended September 30, 2010;
and
|
|
·
|
a
reduction of impairment from the prior year resulting in a $2,361,000
increase in earnings from our preferred equity investment in Marc
Realty;
|
Partially
offset by:
|
·
|
a
$1,089,000 loss recognized on our 2010 investment in our PSW NYC
venture.
|
42
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
REIT Securities
The
following table summarizes results from our REIT securities business segment for
the nine months ended September 30, 2010 and 2009 (in thousands):
For the Nine Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
and dividends
|
$ | 2,263 | $ | 4,215 | ||||
Gain
on sale of securities carried at fair value
|
588 | 3,274 | ||||||
Unrealized
gain on securities carried at fair value
|
4,280 | 14,010 | ||||||
Operating
income
|
7,131 | 21,499 | ||||||
Interest
expense
|
- | (75 | ) | |||||
Net
income
|
$ | 7,131 | $ | 21,424 |
Operating
income from REIT securities, which we define as all items of income and expense
directly derived from or incurred by this business segment before interest
expense, decreased by $14,368,000 from $21,499,000 for the
nine months ended September 30, 2009 to $7,131,000 for the
nine months ended September 30, 2010. The decrease was due primarily
to:
|
·
|
a
$9,730,000 decrease in unrealized gain on securities carried at fair
value;
|
|
·
|
a
$1,952,000 decrease in interest and dividend income primarily due to the
sale of various securities; and
|
|
·
|
a
$588,000 realized gain on the sale of securities carried at fair value for
the nine months ended September 30, 2010 as compared to a gain of
$3,274,000 recognized in the same period last
year.
|
Corporate
The
following table summarizes results from our corporate business segment for the
nine months ended September 30, 2010 and 2009 (in thousands):
For the Nine Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
income
|
$ | 94 | $ | 145 | ||||
Interest
expense
|
(1,530 | ) | (2,273 | ) | ||||
Gain
on extinguishment of debt
|
- | 5,682 | ||||||
General
and administrative
|
(5,901 | ) | (4,925 | ) | ||||
State
and local taxes
|
(107 | ) | (211 | ) | ||||
Operating
loss
|
$ | (7,444 | ) | $ | (1,582 | ) |
The
increase in operating loss from corporate operations for the comparable periods
was due primarily to:
|
·
|
a
$5,682,000 gain on extinguishment of debt recognized in 2009 resulting
from our 2009 purchases of 1,017,105 Series B-1 Preferred
Shares at a discount to their liquidation value;
and
|
|
·
|
a
$976,000 increase in general and administrative expenses due primarily to
an increase in the base management fee of $1,207,000 partially offset by a
reduction in corporate legal expenses of
$359,000.
|
Partially
offset by:
|
·
|
a
$743,000 decrease in corporate interest expense due to lower aggregate
payments in 2010 on our Series B-1 Preferred Shares as a result of fewer
Series B-1 Preferred Shares outstanding during
2010.
|
State
income taxes were $107,000 and $211,000 for the nine months ended September 30,
2010 and 2009, respectively, due primarily to our estimate of taxable income for
state purposes, after deductions for dividends paid and after the utilization of
net operating loss carry forwards, where applicable.
43
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Discontinued
Operations
Discontinued
operations consists of our Athens, Georgia; Lafayette, Louisiana; Knoxville,
Tennessee; and Sherman, Texas retail properties and our apartment complex in
Kansas City, Kansas which was foreclosed in December 2009.
Loss from
discontinued operations increased by $2,361,000 from income of $201,000 for the
nine months ended September 30, 2009 to a loss of $2,160,000 for the nine months
ended September 30, 2010. The loss in 2010 is due primarily to
impairment charges of $2,720,000 recognized during the period.
The
operations of the foregoing properties are classified as discontinued operations
for all periods presented.
Comparison
of Three Months ended September 30, 2010 versus Three Months ended September 30,
2009
The
following table summarizes our results from continuing operations by business
segment for the three months ended September 30, 2010 and 2009 (in
thousands):
For the Three Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Operating
properties
|
$ | 1,391 | $ | 1,136 | ||||
Loan
assets
|
3,810 | 1,436 | ||||||
REIT
securities
|
3,068 | 14,710 | ||||||
Corporate
income (expenses)
|
(2,717 | ) | (1,884 | ) | ||||
Income
(loss) from continuing operations
|
$ | 5,552 | $ | 15,398 |
Operating
Properties
The
following table summarizes results from continuing operations for our operating
properties business segment for the three months ended September 30, 2010 and
2009 (in thousands):
For the Three Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Rents
and reimbursements
|
$ | 9,298 | $ | 10,140 | ||||
Operating
expenses
|
(1,812 | ) | (1,990 | ) | ||||
Real
estate taxes
|
(952 | ) | (674 | ) | ||||
Equity
in income (loss) of Sealy Northwest Atlanta
|
(192 | ) | 19 | |||||
Equity
in loss of Sealy Airpark Nashville
|
(248 | ) | (289 | ) | ||||
Equity
in loss of Sealy Newmarket
|
(301 | ) | (141 | ) | ||||
Equity
in income of Marc Realty investments
|
1,187 | 122 | ||||||
Operating
income
|
6,980 | 7,187 | ||||||
Depreciation
and amortization expense
|
(2,393 | ) | (2,598 | ) | ||||
Interest
expense
|
(3,196 | ) | (3,453 | ) | ||||
Net
income
|
$ | 1,391 | $ | 1,136 |
Operating
income from our operating properties for the nine months ended September 30,
2010 decreased by $207,000 over the prior year period. The decrease
was due primarily to:
·
|
a
decrease of $458,000 in rents and reimbursements from our River City
property as a result of an approximate 6.3% decreases in average occupancy
for the three month ended September 30, 2010 as compared to the three
months ended September 30,
2009;
|
44
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
|
·
|
a
decrease of $122,000 in rents and reimbursements at our Andover,
Massachusetts property due to the expiration of the lease in place at
December 31, 2009. This space was leased effective March 18,
2010 at a lower rental rate;
|
|
·
|
A
decrease of $176,000 in rents and reimbursements at our Chicago, Illinois
(Ontario) property due to an approximate 6.3% decrease in average
occupancy for the three months ended September 30, 2010 as compared to the
three months ended September 30,
2009;
|
|
·
|
a
decrease of $217,000 in rents and reimbursements from two of our Lisle,
Illinois properties due to an approximate 24.0% decrease in average
occupancy at one of the properties and an approximate 8.1% decrease at the
other property for the three months ended September 30, 2010 as compared
to the three months ended September 30,
2009;
|
|
·
|
operating
expenses of $125,000 and $32,000 incurred during 2010 at our Burlington,
Vermont and Andover, Massachusetts properties, respectively, which were
net leased during 2009;
|
|
·
|
a
$330,000 increase in losses from our Sealy equity investments due
primarily to a $211,000 increase in loss related to our Northwest Atlanta,
Georgia office complex primarily as a result of a decrease in occupancy
for the three months ended September 30, 2010 as compared to the three
month ended September 30, 2009. Losses from the Sealy portfolio
are primarily the result of non-cash depreciation and amortization
expenses. We received cash distributions of $209,000 from the
Sealy equity investments for the three months ended September 30,
2010;and
|
|
·
|
an
increase of $127,000 of expenses incurred as a result of our litigation
with our tenant at our Churchill, Pennsylvania property in
2010.
|
Partially
offset by:
|
·
|
a
$225,000 bad debt recovery at our Jacksonville, Florida property with
respect to a tenant bankruptcy
claim;
|
|
·
|
a
$164,000 increase in rents and reimbursements at our Jacksonville, Florida
as a result of leasing space that was vacated in 2009;
and
|
|
·
|
an
increase of $1,065,000 in equity income in 2010 representing our share of
operations from our 12 Marc Realty equity investments for the three months
ended September 30, 2010. The increase is primarily the result
of forgiveness of debt income of $2,207,000 at the 1701 East Woodfield
property of which our share was $1,103,000. We received cash
distributions of $1,174,000 from the Marc Realty equity investments during
the three months ended September 30,
2010.
|
Depreciation
and amortization expense decreased by $205,000 primarily as a result of values
assigned to leases in place at the time of acquisition being fully amortized
during 2009. Also, during 2010 interest expense related to our
operating properties decreased by $257,000 primarily as a result of normal
amortization of the mortgage loans payable.
45
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
Loan
Assets
The
following table summarizes results from our loan assets business segment for the
three months ended September 30, 2010 and 2009 (in thousands):
For the Three Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
income
|
$ | 4,185 | $ | 1,040 | ||||
Equity
in earnings of preferred equity investment in Marc
Realty
|
85 | 86 | ||||||
Equity
in earnings of Lex-Win Concord
|
- | 500 | ||||||
Unrealized
gain on loan securities carried at fair value
|
581 | - | ||||||
Equity
in income of ROIC Riverside
|
234 | - | ||||||
Equity
in loss of PSW NYC
|
(1,089 | ) | - | |||||
Operating
income
|
3,996 | 1,626 | ||||||
General
and administrative expense
|
(186 | ) | (190 | ) | ||||
Net
income
|
$ | 3,810 | $ | 1,436 |
Operating
income from loan assets increased by $2,370,000 from $1,626,000 for the three
months ended September 30, 2009 to $3,996,000 for the three months ended
September 30, 2010. The increase was due primarily to:
|
·
|
a
$581,000 unrealized gain on loan securities carried at fair value
recognized during the three months ended September 30, 2010;
and
|
|
·
|
a
$3,145,000 increase in interest income due primarily to $2,794,000
recognized on loan assets acquired subsequent to September 30,
2009.
|
Partially
offset by:
|
·
|
a
$1,089,000 loss recognized on our 2010 investment in our PSW NYC
venture.
|
REIT Securities
The
following table summarizes results from our REIT securities business segment for
the three months ended September 30, 2010 and 2009 (in thousands):
For the Three Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
and dividends
|
$ | 763 | $ | 1,456 | ||||
Gain
(loss) on sale of securities carried at fair value
|
(185 | ) | 676 | |||||
Unrealized
gain on securities carried at fair value
|
2,490 | 12,578 | ||||||
Operating
income
|
3,068 | 14,710 | ||||||
Interest
expense
|
- | - | ||||||
Net
income
|
$ | 3,068 | $ | 14,710 |
Operating
income from REIT securities decreased by $11,642,000 from $14,710,000 for the
three months ended September 30, 2009 to $3,068,000 for the three months ended
September 30, 2010. The decrease was due primarily to:
|
·
|
a
$10,088,000 decrease in unrealized gain on securities carried at fair
value;
|
|
·
|
a
$693,000 decrease in interest and dividend income primarily due to the
sale of certain securities; and
|
46
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
|
·
|
a
$185,000 realized loss on the sale of securities carried at fair value for
the three months ended September 30, 2010 as compared to a gain of
$676,000 recognized in the same period last
year.
|
Corporate
The
following table summarizes results from our corporate business segment for the
three months ended September 30, 2010 and 2009 (in thousands):
For the Three Months Ended
|
||||||||
September 30,
2010
|
September 30,
2009
|
|||||||
Interest
income
|
$ | 17 | $ | 31 | ||||
Interest
expense
|
(613 | ) | (716 | ) | ||||
Gain
on extinguishment of debt
|
- | 445 | ||||||
General
and administrative
|
(2,114 | ) | (1,630 | ) | ||||
State
and local taxes
|
(7 | ) | (14 | ) | ||||
Operating
loss
|
$ | (2,717 | ) | $ | (1,884 | ) |
The
increase in operating loss from corporate operations for the comparable periods
was due primarily to:
|
·
|
a
$445,000 gain on extinguishment of debt recognized in 2009 resulting from
our purchase of 100,000 Series B-1 Preferred Shares at a discount to their
liquidation value; and
|
|
·
|
a
$484,000 increase in general and administrative expenses due primarily to
an increase in the base management fee of
$549,000.
|
Partially
offset by:
|
·
|
a
$103,000 decrease in corporate interest expense due to lower aggregate
payments in 2010 of $250,000 on our Series B-1 Preferred Shares as a
result of fewer Series B-1 Preferred Shares outstanding during 2010 which
was partially offset by a $152,000 increase in interest expense on our
KeyBank line of credit as a result of our $25,450,000 borrowing in July
2010.
|
State
income taxes were $7,000 and $14,000 for the three months ended September 30,
2010 and 2009, respectively, due primarily to our estimate of taxable income for
state purposes, after deductions for dividends paid and after the utilization of
net operating loss carry forwards, 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, 2009.
Recently Issued Accounting
Standards
See Item
1. Financial Statements – Note 2.
47
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
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 partially mitigate the potential negative
effects of interest rate fluctuations on our cash flow and
earnings.
Our
liabilities include both fixed and variable rate. We seek to limit our risk to
interest rate fluctuations through match financing on our loan assets as well as
through hedging transactions. In this regard, we entered into an
interest rate swap agreement, with a notional amount of $20,000,000, which
commenced June 30, 2010 and will expire June 30, 2011 which effectively converts
the interest rate on that portion of principal from a floating rate of Libor
plus 1.75% to a fixed rate of 2.675%.
The fair
value of our debt, based on discounted cash flows at the current rate at which
similar loans would be made to borrowers with similar credit ratings for the
remaining term of such debt, was less than its carrying value of $211,773,000 at
September 30, 2010 and $216,767,000 at December 31, 2009 by approximately
$10,505,000 at September 30, 2010 and approximately $25,704,000 at December 31,
2009.
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, 2010 (in thousands):
Change in LIBOR(2)
|
||||||||||||||||
-0.26%
|
1%
|
2%
|
3%
|
|||||||||||||
Change
in consolidated interest expense
|
$ | (73 | ) | $ | 283 | $ | 566 | $ | 849 | |||||||
Pro-rata
share of change in interest expense of debt on
non-consolidated entities (1)
|
(20 | ) | 77 | 237 | 424 | |||||||||||
(Increase)
decrease in net income
|
$ | (93 | ) | $ | 360 | $ | 803 | $ | 1,273 |
|
(1)
|
Represents
our pro-rata share of a change in interest expense in our Marc Realty
equity investments. The amount does not reflect our equity
investment in Concord which has been written down to
zero.
|
|
(2)
|
The
one-month LIBOR rate at September 30, 2010 was
0.25625%.
|
We may
utilize various financial instruments to mitigate the potential negative impact
of interest rate fluctuations on our cash flows and earnings, including hedging
strategies, depending on our analysis of the interest rate environment and the
costs and risks of such strategies. In addition, our variable rate
loan assets and loan securities with a face value aggregating $34,767,000
outstanding as of September 30, 2010 and December 31, 2009, partially mitigate
our exposure to change in interest rates.
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. At the present time, the
one counterparty of these arrangements is KeyBank. We do not
anticipate that this counterparty will fail to meet its
obligations. There can be no assurance that we will adequately
protect against the foregoing risks and that we will ultimately realize an
economic benefit.
48
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our reports filed with the SEC is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer
(CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely
decisions regarding required disclosure.
As of
September 30, 2010, 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, 2010.
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.
49
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
PART
II. OTHER INFORMATION
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.
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 Trust
|
|||
Date:
November 8, 2010
|
By:
|
/s/ Michael L. Ashner
|
|
Michael
L. Ashner
|
|||
Chief
Executive Officer
|
|||
Date:
November 8, 2010
|
By:
|
/s/ Thomas C. Staples
|
|
Thomas
C. Staples
|
|||
Chief
Financial Officer
|
50
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
EXHIBIT
INDEX
Exhibit
|
Description
|
Page
Number
|
||
3.1
|
Second
Amended and Restated Declaration of Trust as of May 21, 2009 -
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
|
By-laws
of Winthrop Realty Trust as amended and restated on November 3, 2009 -
Incorporated by reference to Exhibit 3.1 to the Trust’s Current Report on
Form 8-K filed November 6, 2009
|
-
|
||
3.3
|
Amendment
to By-laws - Incorporated by reference to Exhibit 3.1 to the Trust’s
Current Report on Form 8-K filed March 6, 2010
|
-
|
||
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
|
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.
|
-
|
||
10.2
|
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
|
-
|
||
10.3
|
Amendment
No. 1 to Second Amended and Restated Advisory Agreement - Incorporated by
reference to Exhibit 10.30 to the Trust’s Quarterly Report on Form 10-Q
for the period ended March 31, 2009.
|
|||
10.4
|
Amendment
No. 2 to Second Amended and Restated Advisory Agreement - Incorporated by
reference to Exhibit 10.1 to the Trust’s Form 8-K filed January 29,
2010
|
51
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
10.5
|
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.
|
-
|
||
10.6
|
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.
|
-
|
||
10.7
|
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.
|
-
|
||
10.8
|
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.
|
-
|
||
10.9
|
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.
|
-
|
||
10.10
|
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.
|
-
|
||
10.11
|
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.
|
-
|
||
10.12
|
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.
|
-
|
||
10.13
|
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.
|
-
|
||
10.14
|
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
|
-
|
||
10.15
|
Agreement,
dated as of July 1, 2009, among Gerald Nudo, Laurence Weiner and WRT
Realty L.P.
|
-
|
||
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.
|
-
|
52
WINTHROP
REALTY TRUST
FORM
10-Q SEPTEMBER 30, 2010
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.
|
-
|
||
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
|
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.
|
-
|
||
10.22
|
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.
|
-
|
||
10.23
|
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.
|
-
|
||
10.24
|
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
|
-
|
||
10.25
|
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.
|
-
|
||
10.26
|
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.
|
-
|
||
10.27
|
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, 2009
|
-
|
||
10.28
|
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, 2009
|
-
|
||
31
|
Certifications
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
*
|
||
32
|
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
*
|
* filed
herewith
53