UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

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

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

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 þ No o

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 þ No o

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

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

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

As of August 1, 2011 there were 32,958,778 Common Shares of Beneficial Interest outstanding.

 

 

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

INDEX

		Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010.			3
Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2011 and June 30, 2010			4
Consolidated Statements of Equity for the Six Months Ended June 30, 2011 and June 30, 2010			5
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and June 30, 2010			6
Notes to Consolidated Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosure about Market Risk			47
Item 4. Controls and Procedures			47
Part II. Other Information
Item 6. Exhibits			48
Signatures			49
Exhibit Index			50
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Item 1. Financial Information

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

		June 30,				December 31,
		2011				2010
		(unaudited)				(unaudited)
ASSETS
Investments in real estate, at cost
Land		$	36,495			$	37,142
Buildings and improvements			273,964				271,357
			310,459				308,499
Less: accumulated depreciation			(40,168	)			(36,232	)
Investments in real estate, net			270,291				272,267
Cash and cash equivalents			51,344				45,257
Restricted cash held in escrows			9,152				8,593
Loans receivable, net			153,437				110,395
Accounts receivable, net of allowances of $453 and $262, respectively			14,110				12,402
Securities carried at fair value			7,613				33,032
Loan securities carried at fair value			5,418				11,981
Preferred equity investments			10,155				4,010
Equity investments			95,169				81,937
Lease intangibles, net			24,681				26,821
Deferred financing costs, net			1,346				1,158
Assets held for sale			3,702				2,275
TOTAL ASSETS		$	646,418			$	610,128
LIABILITIES
Mortgage loans payable		$	210,751			$	230,443
Series B-1 Cumulative Convertible Redeemable Preferred Shares, $25 per share liquidation preference; 852,000 shares authorized and outstanding at June 30, 2011 and December 31, 2010			21,300				21,300
Secured financing			15,150				—
Revolving line of credit			—				25,450
Accounts payable and accrued liabilities			12,322				12,557
Dividends payable			5,385				4,431
Deferred income			1,016				150
Below market lease intangibles, net			2,312				2,696
Liabilites of held for sale assets			620				33
TOTAL LIABILITIES			268,856				297,060
COMMITMENTS AND CONTINGENCIES
NON-CONTROLLING REDEEMABLE PREFERRED INTEREST
Series C Cumulative Convertible Redeemable Preferred Shares, $25 per share liquidation preference, 144,000 shares authorized and outstanding at June 30, 2011 and December 31, 2010			3,221				3,221
Total non-controlling redeemable preferred interest			3,221				3,221
EQUITY
Winthrop Realty Trust Shareholders’ Equity:
Common Shares, $1 par, unlimited shares authorized; 32,897,554 and 27,030,186 issued and outstanding at June 30, 2011 and December 31, 2010, respectively			32,898				27,030
Additional paid-in capital			626,472				569,586
Accumulated distributions in excess of net income			(299,721	)			(300,782	)
Accumulated other comprehensive loss			—				(63	)
Total Winthrop Realty Trust Shareholders’ Equity			359,649				295,771
Non-controlling interests			14,692				14,076
Total Equity			374,341				309,847
TOTAL LIABILITIES AND EQUITY		$	646,418			$	610,128

See Notes to Consolidated Financial Statements.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenue
Rents and reimbursements		$	11,234			$	9,435			$	22,220			$	18,755
Interest, dividends and discount accretion			5,094				3,590				14,766				6,799
			16,328				13,025				36,986				25,554
Expenses
Property operating			3,987				1,818				8,032				3,767
Real estate taxes			1,087				340				2,342				1,060
Depreciation and amortization			3,312				2,371				6,793				4,671
Interest			3,963				3,666				8,576				7,317
General and administrative			2,758				1,916				5,282				3,823
State and local taxes			48				85				77				99
			15,155				10,196				31,102				20,737
Other income (loss)
Earnings from preferred equity investments			158				85				241				168
Equity in income (loss) of equity investments			2,875				(392	)			1,520				(919	)
Realized gain on sale of securities carried at fair value			7				78				131				773
Unrealized (loss) gain on securities carried at fair value			(723	)			(750	)			163				1,790
Unrealized gain on loan securities carried at fair value			34				3,625				2,847				3,012
Interest income			443				40				536				77
			2,794				2,686				5,438				4,901
Income from continuing operations			3,967				5,515				11,322				9,718
Discontinued operations
Income (loss) from discontinued operations			90				(764	)			137				(517	)
Consolidated net income			4,057				4,751				11,459				9,201
Income attributable to non-controlling interest			(329	)			(175	)			(533	)			(420	)
Net income attributable to Winthrop Realty Trust			3,728				4,576				10,926				8,781
Income attributable to non-controlling redeemable preferred interest			(58	)			(58	)			(117	)			(171	)
Net income attributable to Common Shares		$	3,670			$	4,518			$	10,809			$	8,610
Comprehensive income
Consolidated net income		$	4,057			$	4,751			$	11,459			$	9,201
Change in unrealized gain on available for sale securities			—				(5	)			—				2
Change in unrealized gain on interest rate derivative			—				(28	)			63				12
Comprehensive income		$	4,057			$	4,718			$	11,522			$	9,215
Per Common Share data — Basic
Income from continuing operations		$	0.11			$	0.25			$	0.36			$	0.44
Loss from discontinued operations			—				(0.04	)			—				(0.03	)
Net income attributable to Winthrop Realty Trust		$	0.11			$	0.21			$	0.36			$	0.41
Per Common Share data — Diluted
Income from continuing operations		$	0.11			$	0.25			$	0.36			$	0.44
Loss from discontinued operations			—				(0.04	)			—				(0.03	)
Net income attributable to Winthrop Realty Trust		$	0.11			$	0.21			$	0.36			$	0.41
Basic Weighted-Average Common Shares			32,573				21,175				29,841				20,888
Diluted Weighted-Average Common Shares			32,574				21,177				29,842				21,412

See Notes to Consolidated Financial Statements

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

CONSOLIDATED STATEMENTS OF EQUITY

(unaudited, in thousands, except per share data)

														Accumulated				Accumulated
		Common Shares of								Additional				Distributions				Other				Non-
		Beneficial Interest								Paid-In				in Excess of				Comprehensive				Controlling
		Shares				Amount				Capital				Net Income				Income				Interests				Total
Balance, December 31, 2010			27,030			$	27,030			$	569,586			$	(300,782	)		$	(63	)		$	14,076			$	309,847
Net income attributable to Winthrop Realty Trust			—				—				—				10,926				—				—				10,926
Net income attributable to non-controlling interests			—				—				—				—				—				533				533
Distributions to non-controlling interests			—				—				—				—				—				(194	)			(194	)
Contributions from non-controlling interests			—				—				—				—				—				277				277
Dividends paid or accrued on Common Shares of Beneficial Interest ($0.325 per share)			—				—				—				(9,748	)			—				—				(9,748	)
Dividends paid or accrued on Series C Preferred Shares ($0.8125 per share)			—				—				—				(117	)			—				—				(117	)
Change in unrealized gain on interest rate derivatives			—				—				—				—				63				—				63
Net proceeds from Common Shares offering			5,750				5,750				55,636				—				—				—				61,386
Shares issued pursuant to dividend reinvestment plan			118				118				1,250				—				—				—				1,368
Balance, June 30, 2011			32,898			$	32,898			$	626,472			$	(299,721	)		$	—			$	14,692			$	374,341
Balance, December 31, 2009			20,375			$	20,375			$	498,118			$	(301,317	)		$	(87	)		$	12,111			$	229,200
Net income attributable to Winthrop Realty Trust			—				—				—				8,781				—				—				8,781
Net income attributable to non-controlling interests			—				—				—				—				—				420				420
Distributions to non-controlling interests			—				—				—				—				—				(200	)			(200	)
Contributions from non-controlling interests			—				—				—				—				—				519				519
Dividends paid or accrued on Common Shares of Beneficial Interest ($0.325 per share)			—				—				—				(6,877	)			—				—				(6,877	)
Dividends paid or accrued on Series C Preferred Shares ($0.8125 per share)			—				—				—				(171	)			—				—				(171	)
Change in unrealized gain on available for sale securities			—				—				—				—				2				—				2
Change in unrealized gain on interest rate derivatives			—				—				—				—				12				—				12
Conversion of Series C Preferred Shares to Common Shares			714				714				8,234				—				—				—				8,948
Shares issued pursuant to dividend reinvestment plan			92				92				1,088				—				—				—				1,180
Balance, June 30, 2010			21,181			$	21,181			$	507,440			$	(299,584	)		$	(73	)		$	12,850			$	241,814

See Notes to Consolidated Financial Statements

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

		Six Months Ended
		June 30,
		2011				2010
		(unaudited)				(unaudited)
Cash flows from operating activities
Net income		$	11,459			$	9,201
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including amortization of deferred financing costs)			4,629				3,307
Amortization of lease intangibles			2,337				1,369
Straight-lining of rental income			(709	)			708
Loan discount accretion			(8,793	)			(3,742	)
Discount accretion received in cash			8,540				—
Earnings of preferred equity investments			(241	)			(168	)
Distributions of income from preferred equity investments			60				229
(Income) losses of equity investments			(1,520	)			919
Distributions of income from equity investments			3,813				2,254
Restricted cash held in escrows			1,359				1,656
Gain on sale of securities carried at fair value			(131	)			(773	)
Unrealized gain on securities carried at fair value			(163	)			(1,790	)
Unrealized gain on loan securities carried at fair value			(2,847	)			(3,012	)
Tenant leasing costs			(581	)			(2,349	)
Impairment loss on real estate held for sale			—				1,000
Bad debt expense (recovery)			191				(250	)
Net change in interest receivable			(161	)			(113	)
Net change in accounts receivable			(1,131	)			2,116
Net change in accounts payable and accrued liabilities			1,068				1,307
Net cash provided by operating activities			17,179				11,869
Cash flows from investing activities
Investments in real estate			(4,139	)			(1,753	)
Investment in equity investments			(59,562	)			(12,873	)
Investment in preferred equity investments			(3,942	)			—
Proceeds from sale of equity investments			6,000				—
Return of capital distribution from equity investments			26,130				—
Purchase of securities carried at fair value			(568	)			(1,856	)
Proceeds from sale of securities carried at fair value			26,281				13,174
Proceeds from sale of available for sale securities			—				205
Proceeds from payoff of loan securities			8,748				—
Restricted cash held in escrows			(1,417	)			(2,171	)
Issuance and acquisition of loans receivable			(44,161	)			(26,451	)
Proceeds from sale of loans receivable			—				3,000
Collection of loans receivable			12,717				12
Deposits on acquisition of loans receivable			—				(4,100	)
Net cash used in investing activities			(33,913	)			(32,813	)
Cash flows from financing activities
Proceeds from mortgage loans payable			11,000				—
Principal payments of mortgage loans payable			(30,692	)			(3,392	)
Proceeds from revolving line of credit			27,324				—
Payment of revolving line of credit			(52,774	)			—
Proceeds from note payable			15,150				—
Restricted cash held in escrows			(501	)			1,446
Deferred financing costs			(612	)			(164	)
Contribution from non-controlling interest			277				519
Distribution to non-controlling interest			(194	)			(200	)
Issuance of Common Shares through offering			61,386				—
Issuance of Common Shares under Dividend Reinvestment Plan			1,368				1,180
Dividend paid on Common Shares			(8,794	)			(6,746	)
Dividend paid on Series C Preferred Shares			(117	)			(279	)
Net cash provided by (used in) financing activities			22,821				(7,636	)

(Continued on next page)

See Notes to Consolidated Financial Statements

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, continued)

		Six Months Ended
		June 30,
		2011				2010
		(unaudited)				(unaudited)
Net increase (decrease) in cash and cash equivalents			6,087				(28,580	)
Cash and cash equivalents at beginning of period			45,257				66,493
Cash and cash equivalents at end of period		$	51,344			$	37,913
Supplemental Disclosure of Cash Flow Information
Interest paid		$	8,865			$	7,216
Taxes paid		$	47			$	98
Supplemental Disclosure on Non-Cash Investing and Financing Activities
Dividends accrued on Common Shares		$	5,346			$	3,442
Dividends accrued on Series C Preferred Shares		$	39			$	39
Capital expenditures accrued		$	172			$	165
Transfer from loan securities		$	662			$	—
Loan receivable		$	(11,184	)		$	—
Transfer bridge loan to preferred equity investments		$	(2,022	)		$	—
Transfer Marc Realty seller financing from equity investments		$	12,544			$	—

See Notes to Consolidated Financial Statements

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

1.

Organization

Winthrop Realty Trust (“Winthrop”), a real estate investment trust (“REIT”) under section 856-860 of the Internal Revenue Code is an unincorporated association in the form of a business trust organized in Ohio under a Declaration of Trust dated August 1, 1961, as amended and restated on May 21, 2009, which has as its stated principal business activity the ownership and management of, and lending to, real estate and related investments.

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) ownership of investment properties (“operating properties”); (ii) origination and acquisition of loans and debt securities collaterized directly or indirectly by commercial and multi-family real property, including collateral mortgage-backed securities (collectively “loan assets”); 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 United States 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, 2010 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 six months ended June 30, 2011 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., and the Operating Partnership. All majority-owned subsidiaries and affiliates over which the Trust has financial and operating control and variable interest entities (“VIE’s”) in which the Trust has determined it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Trust accounts for all other unconsolidated joint ventures using the equity method of accounting. Accordingly, the Trust’s share of the earnings of these joint ventures and companies is included in consolidated net income.

Reclassifications

Certain prior year balances have been reclassified in order to conform to the current year presentation. Discontinued operations for the three and six month periods ended June 30, 2011 include the Trust’s properties in Lafayette, Louisiana, Knoxville, Tennessee, and St. Louis, Missouri. Discontinued operations for the three and six month periods ended June 30, 2010 also include the Trust’s properties in Athens, Georgia and Sherman, Texas which were disposed of in 2010.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Out of Period Adjustments

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 determined that this amount was not material to the year ended December 31, 2009 or to the three and six months ended June 30, 2010. As such, a charge of approximately $700,000 was 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.

Investments in Real Estate

Real estate assets are stated at historical cost. Expenditures for repairs and maintenance are expensed as incurred. Significant renovations that extend the useful life of the properties are capitalized. Depreciation for financial reporting purposes is computed using the straight-line method.

Upon the acquisition of real estate, the Trust assesses the fair value of acquired assets (including land, buildings and improvements, and identified intangibles) and acquired liabilities. The Trust allocates purchase price based on these assessments.

Real estate investments and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. When evaluating the carrying amount, the Trust considers the future undiscounted cash flows expected to result from the use and the eventual disposition of the property. Undiscounted cash flows are used to assess recoverability and when warranted, discounted cash flows are used to assess fair value. Cash flow assumptions include market rental rates, lease terms, lease up costs and operating expenses during the hold period as well as proceeds expected to result from the disposition of the property.

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 of 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.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

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								Six Months Ended
		June 30,								June 30,
		2011				2010				2011				2010
Basic
Income from continuing operations		$	3,967			$	5,515			$	11,322			$	9,718
Income attributable to non-controlling interest			(329	)			(175	)			(533	)			(420	)
Preferred dividend of Series C Preferred Shares			(58	)			(58	)			(117	)			(171	)
Income from continuing operations applicable to Common Shares			3,580				5,282				10,672				9,127
Income (loss) from discontinued operations			90				(764	)			137				(517	)
Net income applicable to Common Shares for earnings per share purposes		$	3,670			$	4,518			$	10,809			$	8,610
Basic weighted-average Common Shares			32,573				21,175				29,841				20,888
Income from continuing operations		$	0.11			$	0.25			$	0.36			$	0.44
Income (loss) from discontinued operations			—				(0.04	)			—				(0.03	)
Net income per Common Share		$	0.11			$	0.21			$	0.36			$	0.41
Diluted
Income from continuing operations		$	3,967			$	5,515			$	11,322			$	9,718
Income attributable to non-controlling interest			(329	)			(175	)			(533	)			(420	)
Preferred dividend of Series C Preferred Shares			(58	)			(58	)			(117	)			—
Income from continuing operations applicable to Common Shares			3,580				5,282				10,672				9,298
Income from discontinued operations			90				(764	)			137				(517	)
Net income applicable to Common Shares for earnings per share purposes		$	3,670			$	4,518			$	10,809			$	8,781
Basic weighted-average Common Shares			32,573				21,175				29,841				20,888
Series B-1 Preferred Shares (1)			—				—				—				—
Series C Preferred Shares (2)			—				—				—				522
Stock options (3)			1				2				1				2
Diluted weighted-average Common Shares			32,574				21,177				29,842				21,412
Income from continuing operations		$	0.11			$	0.25			$	0.36			$	0.44
Income from discontinued operations			—				(0.04	)			—				(0.03	)
Net income per Common Share		$	0.11			$	0.21			$	0.36			$	0.41

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Recently Issued Accounting Standards

In April 2011 the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (an “Update”) that provides clarification on which loan modifications meet the criteria to be treated as Troubled Debt Restructurings (“TDR’s”) under Topic 310. The guidance is intended to improve financial reporting by creating greater consistency in the way GAAP is applied for various TDRs by reaffirming the requirements and clarifying the criteria that creditors should use in evaluating whether a restructuring constitutes a TDR. The guidance is effective for interim and/or annual periods beginning on or after June 15, 2011, and early application is permitted. The Trust has adopted this standard which did not have a material impact on its consolidated financial statements.

In May 2011 the FASB issued an Update to Topic 820, Fair Value Measurements which results in changes to common fair value measurement and disclosure requirements. Consequently, the amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. Certain amendments in this update clarify the FASB’s intent about the application of existing fair value measurement requirements. Other amendments change requirements for measuring fair value or for disclosing information about fair value measurements. This amendment will be effective for the Trust beginning with the first reporting period of 2012. The Trust has evaluated this amendment and does not anticipate its adoption will have a material impact on its consolidated financial statements.

In June 2011 the FASB issued an Update that amends Topic 220, Comprehensive Income. In this Update, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, it requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. These changes apply to both annual and interim financial statements and shall be applied retrospectively. This amendment will be effective for the Trust beginning with the first reporting period of 2012. The Trust has evaluated this amendment and does not anticipate its adoption will have a material impact on its consolidated financial statements.

3.

Fair Value Measurements

Cash and cash equivalents, restricted cash in escrows, derivative financial instruments, and certain securities are reported at fair value. The accounting standards establish a framework for measuring fair value as well as disclosures about fair value measurements. They emphasize that fair value is a market based measurement, not an entity-specific measurement. Therefore a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Recurring Measurements

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of June 30, 2011, according to the level in the fair value hierarchy within which those measurements fall (in thousands):

		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical Assets				Observable				Unobservable
		and Liabilities				Inputs				Inputs
Recurring Basis		(Level 1)				(Level 2)				(Level 3)				Total
Assets
Securities carried at fair value		$	7,613			$	—			$	—			$	7,613
Loan securities carried at fair value			—				—				5,418				5,418
		$	7,613			$	—			$	5,418			$	13,031

The table below presents the Trust’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2010, according to the level in the fair value hierarchy within which those measurements fall (in thousands):

		Quoted Prices in
		Active Markets				Significant Other				Significant
		for Identical Assets				Observable				Unobservable
		and Liabilities				Inputs				Inputs
Recurring Basis		(Level 1)				(Level 2)				(Level 3)				Total
Assets
Securities carried at fair value		$	33,032			$	—			$	—			$	33,032
Loan securities carried at fair value			—				—				11,981				11,981
		$	33,032			$	—			$	11,981			$	45,013
Liabilities
Derivative liabilities		$	—			$	63			$	—			$	63

The table below includes a roll forward of the balance sheet amounts from January 1, 2011 to June 30, 2011, including the change in fair value, for financial instruments classified by the Trust within Level 3 of the valuation hierarchy. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement.

		Loan Securities
		Carried at Fair
Six Months Ended June 30, 2011		Value
(in thousands)
Fair value, January 1, 2011		$	11,981
Sales			(662	)
Payoff at par			(8,748	)
Unrealized gain, net			2,847
Fair value, June 30, 2011		$	5,418

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Non-Recurring Measurements

Equity Investments

Equity investments are assessed for other-than-temporary impairment. The determination of fair value of equity investments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each asset as well as the income capitalization approach considering prevailing market capitalization rates. The Trust reviews each investment based on the highest and best use of the investment and market participation assumptions. The significant assumptions used in this analysis include the discount rate and terminal capitalization rate used in the income capitalization valuation. The Trust has determined that the significant inputs used to value its Sealy equity investments fall within Level 3. The Trust recognized other-than-temporary impairment losses of $3,800,000 on these investments during the three and six months ended June 30, 2011.

The table below presents as of June 30, 2011 the Trust’s equity method investments measured at fair value according to the level in the fair value hierarchy within which those measurements fall (in thousands):

		Quoted Prices in
		Active Markets for				Significant Other				Significant
		Identical Assets and				Observable Inputs				Unobservable
Non-Recurring Basis		Liabilities (Level 1)				(Level 2)				Inputs (Level 3)				Total
Equity investments		$	—			$	—			$	8,723			$	8,723
		$	—			$	—			$	8,723			$	8,723

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 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.

For the three months ended June 30, 2011, the Trust recognized net unrealized losses of $689,000 and for the six months ended June 30, 2011 net unrealized gains of $3,010,000. For the three and six months ended June 30, 2010, the Trust recognized net unrealized gains of $2,875,000 and $4,802,000, respectively. The change in fair value of the securities is recorded as an unrealized gain or loss in the Trust’s statement of operations. Income related to securities carried at fair value is recorded as interest and dividend income.

The following table presents as of June 30, 2011 and December 31, 2010 the Trust’s financial assets for which the fair value option was elected (in thousands):

Financial Instruments at Fair Value		June 30, 2011				December 31, 2010
Assets
Securities carried at fair value:
REIT Preferred shares		$	4,333			$	28,547
REIT Common shares			3,280				4,485
Loan securities carried at fair value			5,418				11,981
		$	13,031			$	45,013

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

The table below presents as of June 30, 2011 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				Amount Due
		June 30, 2011				Upon Maturity				Difference
Assets
Loan securities carried at fair value		$	5,418			$	7,494			$	2,076
		$	5,418			$	7,494			$	2,076

4.

Financing, Acquisition and Disposition Activities

Financing Activities

Public Offering — On April 6, 2011, the Trust closed a public offering of 5,750,000 Common Shares at a price of $11.25 per share before underwriters discount and received net proceeds of approximately $61,386,000. A portion of the proceeds were utilized to pay down the Trust’s revolving line of credit.

Sealy Northwest Atlanta Loan - On June 23, 2011 the Trust made a $20,641,000 bridge loan to its Sealy Northwest Atlanta joint venture which holds a 471,952 square foot flex-office complex in Marietta, GA. The Trust’s bridge loan enabled the joint venture to satisfy its $28,750,000 first mortgage loan at a discounted payoff amount of $20,500,000. The bridge loan bears interest at 8% per annum and matures on November 1, 2011. The joint venture is currently negotiating with a third party lender and expects to secure replacement financing prior to November 1, 2011.

Acquisition Activities

450 West 14th Street / 446 High Line LLC Investment — On May 13, 2011, the Trust committed to invest up to $15,000,000 for a preferred equity interest in the entity that holds the leasehold interest in a newly constructed 73% pre-leased 102,000 square foot retail and office property located on the High Line at 450 West 14th Street, New York, New York. The investment is subject to a $54,000,000 first mortgage loan. As of June 30, 2011 the Trust has invested a total of $5,965,000. The Trust accounts for this investment as a preferred equity investment.

Magazine Mezzanine Loan — On June 1, 2011, the Trust acquired from Concord Debt Holdings LLC (“Concord”) for a purchase price of $17,525,000 a $20,000,000 senior mezzanine loan collateralized by a pledge of the equity interest in six cross-collateralized, cross-defaulted apartment communities, totaling 2,106 units located in Orlando, Sarasota, Bradenton and Palm Beach Gardens, Florida. The loan is subordinate to $120,000,000 of senior debt, is currently paying one month LIBOR plus 123 basis points and is scheduled to mature on July 9, 2012. The Trust accounts for this investment as a loan receivable.

Sofitel / LW Sofi LLC Investment — On June 2, 2011, the Trust entered into a 50/50 joint venture with Lexington Realty Trust (“Lexington”) named LW SOFI LLC (“LW SOFI”). The Trust and Lexington each contributed approximately $5,760,000 to LW SOFI. On June 3, LW SOFI acquired from Concord for approximately $11,520,000, 100% of the economic rights and obligations in a $71,530,000 mezzanine loan collateralized by an interest in the Sofitel hotel in New York City. The loan is interest only, bears interest at LIBOR plus 185 basis points and matures on February 1, 2012. The loan is encumbered by a $56,090,000 repurchase obligation that charges interest at a variable interest rate of 1-month LIBOR plus 100 basis points and matures on December 31, 2012. The Trust accounts for this investment using the equity method of accounting.

Vintage Housing Holdings LLC Investment- On March 8, 2011, the first stage of the Vintage Housing Holdings LLC (“Vintage”) transaction closed pursuant to which the Trust acquired developer fees and advances receivable owed by real estate partnerships for a purchase price of $7,000,000. On June 24, 2011, the Trust closed on the second phase of its Vintage transaction to acquire for $18,200,000, plus a contribution of its previously purchased receivables, an effective 75% interest in the Vintage venture entitling the Trust to a 12% preferred return from current cash flow. Vintage owns general partnership interests and certain developer fees and advances receivable from partnerships owning 25 multifamily and senior housing properties comprising approximately 4,200 units located primarily in the Pacific Northwest and California. The Trust accounts for its investment in Vintage using the equity method of accounting.

Sorin / RE CDO Management Investment — On June 29, 2011, the Trust entered into a new joint venture with Gotham Hotel Funding LLC, an affiliate of Atrium Holding Company (“Atrium”), named RE CDO Management LLC (“RE CDO”). The Trust and Atrium each contributed approximately $1,250,000 to RE CDO which purchased certain collateral management agreements and subordinated interests related to two collateralized debt obligation entities that hold loans and loan securities. The Trust accounts for this investment using the equity method of accounting.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Disposition Activity

Marc Realty — On June 1, 2011 the Trust sold to its partner, Marc Realty, for $18,544,000 its equity interest in three properties in its Marc Realty Portfolio (8 South Michigan, 11 East Adams and 29 East Madison). The purchase price was paid $6,000,000 in cash and $12,544,000 in aggregate secured promissory notes which each bear interest at 8% per annum, require payments of interest only and mature on May 31, 2016. Pursuant to the guidance for sales of real estate, the Trust has deferred recognition of the gain of $385,000.

Loan Asset Repayments

Lakeside Eagle Loans — In May 2011 the Trust received repayments on its two non-performing first mortgage loans acquired on March 22, 2011 which the Trust owned through its Lakeside Eagle LLC joint venture with Retail Opportunity Investments Corporation. The Trust received repayments totaling $18,650,000 on its $18,093,000 investment which represented its pro-rata share of the equity investment.

Gotham Hotel Loan — On May 24, 2011 the Trust received repayment on its performing first mortgage loan acquired on February 23, 2011 which the Trust owned through its WRT-46th Street Gotham LLC joint venture with Atrium. The Trust received repayment of $8,638,000 on its $8,037,000 investment which represented its pro-rata share of the equity investment.

Siete Square Loan — On June 9, 2011 the borrower on the Trust’s Sub-Participation B Interest with a carrying amount of $2,500,000 exercised its discount payoff option and repaid the loan in full. The performing loan asset was originally acquired in June 2009 for $2,460,000.

CDH CDO LLC — During the quarter ended June 30, 2011 CDH CDO LLC made various repayments satisfying approximately $3,450,000 on its loan payable to the Trust. As of June 30, 2011 the loan had a balance of $742,000.

Foreclosure Activity

Cypress Pointe Apartments — On April 6, 2011, the Trust was admitted as a member in an entity that holds an approximately $2,500,000 non-performing junior mezzanine loan indirectly secured by a 194 unit apartment complex located in Jacksonville, Florida. The loan matured on March 30, 2011 and the venture commenced foreclosure on its collateral. The Trust currently accounts for its participation in the venture on the equity method of accounting. The Trust has not yet funded any amounts to this venture and consequently the investment balance is currently zero.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

5.

Loans Receivable

The Trust’s loans receivable at June 30, 2011 and December 31, 2010 are as follows (in thousands):

						Carrying Amount								Contractual
				Stated		June 30,				December 31,				Maturity
Description		Loan Position		Interest Rate		2011				2010				Date
Beverly Hilton (1)		B-Note		Libor + 1.74%		$	9,590			$	7,899			08/09/11
Sealy Northwest Atlanta (1)		Whole Loan		8.0%			20,678				—			11/01/11
Westwood (1)		Whole Loan		11.00%			3,637				3,500			10/31/11
Metropolitan Tower		B-Note		Libor + 1.51%			—				10,312
Moffett Towers (1)		B-Note		Libor + 6.48%			23,099				21,752			01/31/12
Siete Square		B-Note		10.37%			—				2,488
160 Spear		B-Note		9.75% (2)			8,662				6,674			06/09/12
160 Spear		Mezzanine		15.00%			4,844				3,029			06/09/12
Magazine (1)		Mezzanine		Libor + 1.23%			17,712				—			07/09/12
Legacy Orchard (1)		Whole Loan		15.00%			9,750				9,750			10/31/14
San Marbeya (1)		Whole Loan		5.88%			26,748				26,966			01/01/15
CDH CDO LLC		Unsecured		12.00%			742				3,498			12/30/15
Rockwell		Mezzanine		12.00%			262				255			05/01/16
Marc 8 South Michigan (1)		Mezzanine		8.0%			4,942				—			05/31/16
Marc 11 East Adams (1)		Mezzanine		8.0%			2,280				—			05/31/16
Marc 29 East Madison (1)		Mezzanine		8.0%			5,405				—			05/31/16
500-512 7th Ave		B-Note		7.19%			9,962				9,954			07/11/16
180 N. Michigan (1)		Mezzanine		8.50% (3)			2,617				1,862			12/31/16
Wellington Tower		Mezzanine		6.79%			2,507				2,456			07/11/17
						$	153,437			$	110,395

The carrying amount of loans receivable includes accrued interest of $697,000 and $558,000 at June 30, 2011 and December 31, 2010, respectively, and cumulative accretion of $10,056,000 and $9,803,000 at June 30, 2011 and December 31, 2010, respectively. The fair value of the Trust’s loans receivable, exclusive of interest receivables was approximately $165,527,000 and $114,477,000 at June 30, 2011 and December 31, 2010, respectively.

As of June 30, 2011, the weighted average coupon on our loans receivable was 6.06% and the weighted average yield to maturity was 12.55%.

With the exception of the San Marbeya loan receivable, none of the loans receivable are directly financed. On January 14, 2011, the Trust restructured the San Marbeya first mortgage loan to create a $15,150,000 senior participation which bears interest at 4.85% and a $15,744,000 junior participation which bears interest at 6.4%. The Trust accounts for the loan participation as a secured borrowing.

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

The following table summarizes the Trust’s interest, dividend and discount accretion income for the three and six months ended June 30, 2011 and 2010 (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Interest, dividends and discount accretion detail:
Interest on loan assets		$	2,687			$	836			$	5,397			$	1,557
Accretion of loan discount			2,289				2,001				8,793				3,742
Interest and dividends on REIT securities			118				753				576				1,500
Total interest, dividends, and discount accretion		$	5,094			$	3,590			$	14,766			$	6,799

At June 30, 2011, the Trust’s loan receivables have accretable discount yet to be recognized as income totaling $13,008,000.

Credit Quality of Loans Receivable and Loan Losses

The Trust evaluates impairment on its loan portfolio on an individual basis and has developed a loan grading system for all of its outstanding loans that are collateralized directly or indirectly by real estate. Grading categories include debt yield, debt service coverage ratio, length of loan, property type, loan type, and other more subjective variables that include property or collateral location, market conditions, industry conditions, and sponsor’s financial stability. Management reviews each category and assigns an overall numeric grade for each loan to determine the loan’s risk of loss and to provide a threshold for the determination of whether a specific allowance analysis is necessary. A loan’s grade of credit quality is determined quarterly.

All loans with a positive score do not require a loan loss allowance. Any loan graded with a neutral score or “zero” is subject to further review of the collectability of the interest and principal based on current conditions and qualitative factors to determine if impairment is warranted. Any loan with a negative score is deemed impaired and management then would measure the specific impairment of each loan separately using the fair value of the collateral less costs to sell.

Management estimates impairment by calculating the estimated fair value less costs to sell of the underlying collateral securing the loan based on the present value of expected future cash flows, and comparing the fair value to the loan’s net carrying value. If the fair value 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.

The table below summarizes the Trust’s loans receivable by internal credit rating at June 30, 2011 (in thousands, except for number of loans).

						Carrying
						Value of
		# of				Loans				# of				Whole				# of								# of				Mezzanine
Internal Credit Quality		Loans (1)				Receivable				Loans				Loans				Loans				B-Notes				Loans				Loans
Greater than zero			14			$	127,089				4			$	60,813				3			$	28,213				7			$	38,063
Equal to zero			2				25,606								—				1				23,099				1				2,507
Less than zero			—				—								—								—								—
Subtotal			16			$	152,695				4			$	60,813				4			$	51,312				8			$	40,570

WINTHROP REALTY TRUST
FORM 10-Q JUNE 30, 2011

Non Performing Loans

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. If and when a loan is brought back into compliance with its contractual terms, the Trust will resume accrual of interest. As of June 30, 2011 and December 31, 2010, there were no past due payments. There was no provision for loan loss recorded during the three and six month periods ended June 30, 2011 and 2010.

Loan Receivable Activity

Activity related to loans receivable is as follows (in thousands):

		January 1, 2011 to				January 1, 2010 to
		June 30, 2011				December 31, 2010
Balance at beginning of period		$	110,395			$	26,101
Purchase and advances			44,161				122,301
Proceeds from sale			—				(12,876	)
Interest (received) accrued, net			161				361
Repayments			(12,717	)			(15,064	)
Loan accretion			8,793				8,782
Discount accretion received in cash			(8,540	)			—
Transfer from loan securities			662				—
Transfer foreclosed loans to investment in real estate			—				(19,210	)
Transfer Marc Realty seller financing from equity investments			12,544				—
Transfer 450 W 14th St bridge loan to preferred equity investments			(2,022	)			—
Balance at end of period		$	153,437			$	110,395

In addition to our initial purchase price of certain loans, we have future funding requirements. At June 30, 2011 we had future funding requirements pursuant to two loans receivable totaling approximately $2,783,000.

6.

Securities Carried at Fair Value

Securities carried at fair value are summarized in the table below (in thousands):

		June 30, 2011								December 31, 2010
		Cost				Fair Value				Cost				Fair Value
REIT Preferred shares		$	2,067			$	4,333			$	15,757			$	28,547
REIT Common shares			2,935				3,280				3,590				4,485
			5,002				7,613				19,347				33,032
Loan securities			1,661				5,418				7,574				11,981
		$	6,663			$	13,031			$	26,921			$	45,013