4.	Acquisition, Disposition, Leasing and Financing Activities

Operating Properties

Operating Properties - Acquisition and Financing Activities

1515 Market Street – loan modification, equity acquisition and refinancing – On December 12, 2012, the Trust acquired for $58,650,000 a $70,000,000 non-performing first mortgage loan collateralized by a 20 story, 514,000 square foot office building located at 1515 Market Street, Philadelphia, Pennsylvania (“1515 Market Street”). On February 1, 2013 the Trust entered into a loan modification agreement which extended the maturity date to February 1, 2016, increased the loan balance to $71,629,000, from $70,000,000, and changed the interest rate to be the greater of 7.5% or LIBOR plus 6.5%.

Simultaneously with the modification of the loan, the Trust acquired, for $10,000, an indirect 49% equity interest in the entity (“1515 Market Owner”) that owns 1515 Market Street and the general partner interest in 1515 Market Owner. Management has determined that this entity is a variable interest entity (“VIE”) and the Trust is the primary beneficiary of the VIE. As a result, the Trust has consolidated this property as of February 1, 2013. All intercompany transactions have been eliminated in consolidation. For segment reporting purposes, this investment will be classified within the operating properties segment as of February 1, 2013. Prior to consolidation, the investment was part of the loan asset segment.

On April 25, 2013 1515 Market Owner obtained a $43,000,000 non-recourse first mortgage loan (the “1515 First Mortgage”) from an unaffiliated third party. The 1515 First Mortgage bears interest at LIBOR plus 2.0% per annum, requires monthly payments of interest only and matures on May 1, 2016. On the same date, the 1515 Market Owner entered into an interest rate swap agreement which effectively fixes LIBOR at 0.50% for the term of the 1515 First Mortgage. The Trust received $38,472,000 of loan proceeds from the 1515 First Mortgage financing which reduced the balance on the mortgage loan it holds to $33,157,000. The loan balance can be increased through future funding advances up to an aggregate of $6,000,000 to cover tenant improvements, capital expenditures and leasing commissions. For each $500,000 of future advances, the interest rate increases by 0.10%. As of December 31, 2013 the Trust had advanced an additional $1,500,000 resulting in a 0.3% increase in the interest rate. The loan modification also provides the Trust with a 40% participation interest in the case of a capital event. At December 31, 2013 the loan the Trust holds had a balance of $36,171,000 inclusive of accrued interest, and entitles it to interest in an amount equal to a rate of 14.3% (subject to increase by 0.10% for each additional $500,000 advance by the Trust). At December 31, 2013 the Trust’s investment in this loan was $21,098,000 resulting in an effective interest rate on its cash investment in this asset of 19.6%.

Summit Pointe Apartments – property acquisition – On October 25, 2013 the Trust contributed $4,962,000 for an 80% equity interest in a newly formed venture. On the same date, the venture acquired a 184 unit garden apartment complex known as Summit Pointe Apartments located in Oklahoma City, Oklahoma for a gross purchase price of $14,500,000. In connection with the acquisition, the venture assumed an existing $9,248,000 first mortgage loan. The loan bears interest at a rate of 5.7% per annum, requires monthly payments of principal and interest and matures in February 2021. Pursuant to the terms of the venture agreement, the Trust holds an equity interest which entitles the Trust to an 8% priority return from cash flow and, upon disposition of the property, a minimum priority return equal to a 12% IRR. The Trust is the managing member of the venture and has a majority voting interest. The Trust has control akin to that of a general partner and therefore consolidates the venture as of October 25, 2013, the date of acquisition.

Luxury Residential – property acquisition – On October 31, 2013 the Trust acquired through a wholly owned venture four newly constructed luxury apartment buildings for an aggregate purchase price of $246,000,000. The properties are located in Phoenix, Arizona; Stamford, Connecticut; Houston, Texas and San Pedro, California. The properties consist of an aggregate of 761 unsold residential condominium or apartment units and approximately 25,000 square feet of retail space. The acquisition was funded with a $150,000,000 first mortgage loan which is cross collateralized by all four properties. The loan bears interest at a rate of LIBOR plus 2%, requires monthly payments of interest only and matures on October 31, 2016 with two one year extension options. The balance of the purchase was funded from cash on hand. On the same date, the venture entered into an interest rate swap agreement which effectively fixes LIBOR at 0.69% for the initial term of the first mortgage. In addition, the venture acquired two interest rate caps, each with a notional amount of $50,000,000 for an aggregate cost of $390,000. The initial cap is effective for the first one year extension period and caps LIBOR at 4%. The second cap is effective for the second one year extension period and caps LIBOR at 5%.

On November 6, 2013, New Valley LLC (“New Valley”) contributed approximately $16,365,000 to the entity that acquired the properties in exchange for an indirect 16.3% interest in the properties. The Trust retained an 83.7% interest in the venture and has the right to make all decisions with respect to each of the properties, other than the Stamford, Connecticut property, subject to obtaining New Valley’s consent to certain major decisions. New Valley has the right at any time after November 6, 2015 (or in certain instances prior thereto), but on or prior to November 6, 2016, to have its interest in the venture redeemed for a 50% interest in the Stamford, Connecticut property.

The following table summarizes the allocation of the aggregate purchase price of 1515 Market Street, Summit Pointe Apartments and Luxury Residential at their respective dates of acquisition (in thousands):


	1515 Market Street			Summit Pointe Apartments			Luxury Residential			Total
Land	$	18,627		$	1,328		$	26,805		$	46,760
Building		21,860			11,962			214,505			248,327
Other improvements		73			1,126			197			1,396
Fixtures and equipment		—			263			1,895			2,158
Tenant improvements		1,407			—			72			1,479
Lease intangibles		14,943			283			2,860			18,086
Above market lease intangibles		2,867			—			49			2,916
Net working capital acquired		1,132			284			(2,096	)		680
Below market lease intangibles		(620	)		—			(383	)		(1,003	)

Total fair value of assets acquired		60,289			15,246			243,904			320,799
Long term liabilities assumed		(60,279	)		(9,248	)		—			(69,527	)
Assumed debt premium		—			(712	)		—			(712	)

Net assets acquired	$	10		$	5,286		$	243,904		$	250,560

Intangible assets acquired and intangible liabilities assumed for 1515 Market Street, Summit Pointe Apartments and Luxury Residential consisted of the following (in thousands):


	Carrying Value			Weighted Average Amortization Period (years)
Intangible assets:
In place lease intangibles	$	9,435			4.4
Above market lease intangibles		2,916			6.0
Tenant relationship value		7,388			13.3
Lease commissions, legal and marketing fees		1,263			4.4


Total	$	21,002			7.0

Intangible liabilities:
Below market lease intangibles	$	(1,003	)		4.0

1515 Market Street contributed approximately $9,488,000 of revenue and a loss of approximately $3,805,000 for the period from February 1, 2013 through December 31, 2013. Summit Pointe Apartments contributed approximately $335,000 of revenue and a loss from continuing operations of approximately $474,000 for the period from October 25, 2013 through December 31, 2013. Luxury Residential contributed approximately $3,874,000 of revenue and a loss of approximately $2,097,000 for the period from October 31, 2013 through December 31, 2013.

The accompanying unaudited pro forma information for the years ended December 31, 2013, 2012 and 2011 is presented as if the acquisition of (i) 1515 Market Street on February 1, 2013, (ii) Summit Pointe Apartments on October 25, 2013 and (iii) Luxury Residential on October 31, 2013, had occurred on January 1, 2012 and the acquisition of (i) Waterford Place on April 17, 2012, (ii) Cerritos on October 4, 2012 and (iii) Lake Brandt on November 2, 2012 had occurred on January 1, 2011. This unaudited pro forma information is based upon the historical consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto. This unaudited pro forma information does not purport to represent what the actual results of operations of the Trust would have been had the above occurred, nor do they purport to predict the results of operations of future periods.


(In thousands, except for per share data)	For the year ended December 31,
	2013		2012		2011

Total revenue	$	101,465	$	112,694	$	76,049
Income from continuing operations		8,890		10,610		8,299
Net income attributable to Winthrop Realty Trust		24,419		17,519		8,140
Per common share data - basic		0.72		0.53		0.23
Per common share data - diluted		0.72		0.53		0.23

Amherst, New York – During 2013 the Trust acquired four residential parcels adjacent to its Amherst, New York office property for an aggregate purchase price of $896,000. The Trust is in the process of leveling the acquired parcels and expanding the parking area for the office property. Development of this property is expected to be completed during the second quarter of 2014. The total estimated cost to complete the development is $1,625,000, of which $482,000 has been incurred as of December 31, 2013.

Houston, Texas – Non Controlling Interest – During 2013 the Trust acquired two additional ¹⁄₄ limited partner units in 5400 Westheimer Holder LP (“Westheimer”) for an aggregate price of $150,000. As a result of these transactions, the Trust now owns 32% of Westheimer.

Churchill, Pennsylvania – financing - On June 28, 2013 the Trust obtained a $5,100,000 first mortgage on its Churchill, Pennsylvania property. The loan bears interest at a rate of 3.5% per annum, requires monthly payments of principal and interest and matures on August 1, 2024. After closing costs, the Trust received net proceeds of approximately $4,922,000.

Operating Property Activity through Equity Investments

WRT-Elad Lender/Equity (Sullivan Center) – loan modification, equity investment and refinancing - On February 18, 2013, WRT-Elad One South State Lender LP (“Lender LP”), the entity in which the Trust held a 50% interest and which holds the mezzanine loan indirectly secured by the property located at One South State Street, Chicago, Illinois known as the Sullivan Center (“Sullivan Center”), entered into a forbearance agreement with the borrower (the “Sullivan Borrower”). WRT-Elad One South State Equity LP (“Equity LP”), a venture in which the Trust holds a 50% interest, held a 65% indirect future interest in Sullivan Borrower. Pursuant to the forbearance agreement, Lender LP agreed to forbear from exercising any remedies as a result of Sullivan Borrower’s failure to pay debt service for the period from December 2012 through October 2013. In exchange for the forbearance, Equity LP’s indirect future interest in Sullivan Borrower increased by 11% (5% in February 2013 and an additional 6% in November 2013) to 76%, with a corresponding decrease in Sullivan Borrower’s general partner’s interest.

On August 21, 2013 the Trust acquired the 50% joint venture interest (the “Elad Interest”) in Lender LP that was held by Elad for $30,000,000 (“Acquisition Price”). The mezzanine loan had an outstanding balance of principal and accrued interest of approximately $56,150,000 at the time the Elad Interest was acquired. Concurrently with the acquisition of the Elad Interest, the Trust entered into an option agreement (the “Elad Option”) which grants Elad the option, but not the obligation, to repurchase the Elad Interest in Lender LP for the Acquisition Price adjusted for the pro-rata portion of any accrued and unpaid interest and principal payments made by the borrower. Per the terms of the agreements, the Elad Interest and Elad Option cannot be transferred to parties other than the Trust and Elad. The term of the Elad Option corresponds with Lender LP’s mezzanine loan. Given the nature of the Elad Option and the specific rights of Elad, the transaction is accounted for as a secured financing arrangement under ASC 860-Transfers and Servicing. The Trust will recognize interest income on the secured financing receivable in accordance with GAAP, at an annual interest rate of 15%, and will continue to recognize equity income on its previously held 50% interest in the venture.

On October 18, 2013, Sullivan Center, which is wholly-owned by Sullivan Borrower, obtained a new $113,500,000 first mortgage loan. The loan bears interest at a rate of 3.95% per annum, requires monthly payments of interest only and matures on November 6, 2018. The proceeds from the loan were used to repay the existing $110,550,000 first mortgage loan which bore interest at a rate of 11.0% per annum.

Atrium Mall LLC – Equity Investment - On June 20, 2013 the Trust invested in a newly formed 50-50 joint venture with Marc Realty that acquired a non-performing $10,650,000 mortgage loan for $6,625,000. In addition, the joint venture paid $1,137,000 to fund escrows at the closing. The Trust invested a total of $3,935,000 in this joint venture during 2013. The loan was in maturity default at the time of acquisition and was acquired with the intention of foreclosing or working out a consensual assignment with the borrower. The loan was collateralized by a leasehold interest in the Atrium Mall in Chicago, Illinois. The leasehold interest is for 71,000 square feet of commercial/retail space that comprises the bottom three floors of an office building known as the James R. Thompson building of which the lease expires in September 2014 with six automatic five-year extensions which are exercisable at the lessee’s option. The building is owned by the State of Illinois.

On July 26, 2013 the joint venture entered into an agreement with the borrower pursuant to which the borrower conveyed the leasehold interest to the venture in lieu of foreclosure. Accordingly, the venture now holds the leasehold interest in the property. The conveyance of the leasehold interest does not change the ownership structure of Atrium Mall LLC or alter any of the members’ rights. The Trust will continue to account for its investment in Atrium Mall LLC under the equity method.

701 Seventh Avenue, New York, New York – Equity Investment – During 2013, with respect to the joint venture that indirectly owns the property located at 701 Seventh Avenue, New York, New York the Trust elected to participate in the future hotel development and during 2013, the Trust made additional cash contributions to the venture totaling $24,465,000. The Trust has contributed an additional $33,419,000 in 2014 bringing its total capital contributed to date to $86,855,000 against its total commitment of $125,000,000.

WRT-Fenway Wateridge – Mortgage Loan – On October 15, 2013, the Trust’s venture that holds this property obtained a $7,000,000 first mortgage loan on its San Diego, California property. The loan bears interest at the greater of 6%, or LIBOR plus 4.5% per annum, requires monthly payments of interest only and matures on November 1, 2016. The venture purchased an interest rate cap which caps LIBOR at 2.5%. In connection with the financing, the Trust received a distribution of $6,255,000 in partial redemption of its preferred equity investment. The Trust retains the balance of its preferred equity interest as well as a 50% equity interest in the venture.

Operating Property Disposition Activity

Andover, Massachusetts - property sale - On March 28, 2013 the Trust sold its Andover, Massachusetts office property to an independent third party for gross sale proceeds of $12,000,000. After costs and pro-rations, the Trust received net proceeds of approximately $11,425,000 and recorded a gain of $2,775,000 on the sale of the property.

Deer Valley, Arizona – property sale - On June 11, 2013 the Trust sold its Deer Valley, Arizona office property to an independent third party for gross sale proceeds of $20,500,000. After costs and pro-rations, the Trust received net proceeds of approximately $19,585,000 and recorded a gain of $6,745,000 on the sale of the property.

Denton, Texas – property sale - On July 2, 2013 the Trust sold its Denton, Texas retail property to an independent third party for gross sale proceeds of $1,850,000. After costs and pro-rations, the Trust received net proceeds of approximately $1,703,000. No gain or loss was recognized on the sale of the property.

Seabrook, Texas – property sale - On August 1, 2013 the Trust sold its Seabrook, Texas retail property to an independent third party for gross sale proceeds of $3,300,000. After costs and pro-rations, the Trust received net proceeds of approximately $3,202,000 and recorded a gain of $1,428,000 on the sale of the property.

Lisle, Illinois – property sale – On December 17, 2013 the Trust sold its Lisle, Illinois office property known as 701 Arboretum to an independent third party for gross sale proceeds of $2,500,000. After costs and pro-rations the Trust received net proceeds of approximately $2,351,000 and recorded a gain of $58,000 on the sale of the property.

Operating Property Dispositions through Equity Investments

Sealy Airpark – Nashville, Tennessee – foreclosure – On October 7, 2013 the lender foreclosed on the loan that was collateralized by this property. The Trust held its interest in this property through a venture that was managed by its partner and had previously written down its investment to zero. Accordingly, for financial reporting purposes the Trust did not recognize a gain or loss in connection with the foreclosure.

Sealy Newmarket – Atlanta, Georgia – foreclosure – On December 2, 2013 the lender foreclosed on the loan that was collateralized by this property. The Trust held its interest in this property through a venture that was managed by its partner and had previously written down its investment to zero. Accordingly, for financial reporting purposes the Trust did not recognize a gain or loss in connection with the foreclosure.

Operating Property Leasing Activity

Amherst, New York – On July 29, 2013 the Trust entered into a lease amendment with the existing tenant, Ingram Micro Inc., which leases the entire 200,000 square foot premises. The initial lease was signed in 1988 and was scheduled to expire October 31, 2013 (subject to two five-year extensions). The new lease extends the term through October 31, 2023 with one ten-year or two five-year renewal options. Lease payments under the amendment remained unchanged through the expiration of the original lease. Annual rents under the original lease were $2,016,000. Annual rents under the amended lease are $1,802,000 for the period November 1, 2013 through October 31, 2018 and $2,002,000 for the period November 1, 2018 through October 31, 2023. The base rent is subject to increase upon the delivery of additional parking area to the tenant.

Loans

Loan Asset Originations

Playa Vista, California – loan origination - On January 24, 2013 the Trust originated a $20,500,000 mezzanine loan collateralized by a 260,000 square foot office campus in the Los Angeles, California area. The loan is subordinate to an $80,300,000 mortgage loan, matures January 23, 2015, bears interest at LIBOR plus 14.25% per annum, with a 0.5% LIBOR floor and requires payments of interest only at a rate of 8.25% with the remaining interest being accrued and added to principal. In connection with the origination, the borrower paid the Trust an origination fee of $205,000. On March 1, 2013 the Trust sold a 50% pari passu participation interest in the loan to an independent third party for $10,250,000 and gave the transferee a credit of $100,000 from the initial loan origination.

Loan Asset Repayment Activity

Disney B Note – sale of participation - On January 25, 2013 the Trust sold for $9,000,000 a 100% participation interest in the $10,000,000 B Note collateralized by an office building located in Burbank, California. The selling price was equal to the Trust’s carrying value of the B Note.

127 West 25^th Street – loan payoff - On March 1, 2013 the $8,583,000 loan collateralized by the property located at 127 West 25th Street, New York, New York was paid off in full at par.

180 N Michigan – loan payoff - On March 28, 2013 the $5,200,000 loan collateralized by the property located at 180 North Michigan Avenue, Chicago, Illinois was paid off in full at par.

Fenway Shea – loan payoff - On June 14, 2013 the $2,250,000 loan collateralized by the property located at Shea Blvd in Phoenix, Arizona was paid off in full at par.

Renaissance Walk – loan payoff – On October 31, 2013 the $3,000,000 loan collateralized by the property known as Renaissance Walk located in Atlanta, Georgia was paid off in full at par.

Queensridge Tower – loan payments – During 2013, several of the condominium units collateralizing the Queensridge Tower loan receivable were sold resulting in payments to the Trust of approximately $35,863,000. The Trust made corresponding pay downs of $23,770,000 in full satisfaction of its recourse debt with KeyBank which was collateralized by the Queensridge Tower loan receivable.

Loan Asset Activity through Equity Investments

RE CDO Management – asset sales - On February 20, 2013, RE CDO Management (“RE CDO”), an entity in which the Trust holds a 50% interest, sold its subordinated interests in, and collateral management agreement with respect to, Sorin CDO III for $2,750,000. On March 8, 2013 RE CDO sold its C Tranche subordinated interests in Sorin CDO IV for $6,240,000. As a result of the sales, the Trust received distributions of approximately $4,416,000 in the aggregate. The Trust’s share of the gain has been recorded as equity in earnings of this equity investment. RE CDO had originally acquired the sold assets and its interest in Sorin CDO IV, which it still retains, for $2,500,000.

CDH CDO LLC – sale of interest - On February 25, 2013 the Trust sold for $25,000 a 17% interest in the equity of CDH CDO, exclusive of the interest in the entity that holds the collateral management agreement of CDH CDO, to Inland American. As a result of the sale, the Trust now holds a 49.67% interest in CDH CDO. The Trust maintains 100% of CDH CDO’s interest in WRP Management. The sale of the interest did not affect the voting rights within CDH CDO and did not result in a change in control. The Trust will continue to account for its investment in CDH CDO under the equity method.

10 Metrotech Loan LLC – equity investment repayment – On July 30, 2013 the $40,000,000 loan collateralized by the property at 10 Metrotech Center, Brooklyn, New York and held by a venture in which the Trust held a one-third interest was paid off at par. The venture had acquired the loan in August 2012 for $32,500,000. As a result of the payoff, the Trust received a distribution from the venture of $13,333,000 and recorded equity in earnings of $2,676,000 in connection with its 33.33% ownership interest in the venture.

Concord Debt Holdings and CDH CDO – loan payoffs - Two of the underlying loans held by the Trust’s Concord ventures paid off during the third quarter of 2013. In July 2013 the loan collateralized by the property commonly referred to as Thanksgiving Tower located in Dallas, Texas was satisfied. In August 2013 the loan collateralized by the property referred to as One Riverwalk located in San Antonio, Texas was satisfied. As a result of the loan payoffs the Trust received an aggregate distribution of $6,470,000.

REIT Securities Activity

During 2013 the Trust liquidated all of its holdings of REIT Securities. In particular, the Trust sold 3,000,716 shares of common stock in Cedar Realty Trust, Inc. which it had acquired for an aggregate cost of $12,891,000 for aggregate sales proceeds of $16,292,000. The Trust also sold 1,250,000 of MPG Office Trust, Inc., which it had acquired for an aggregate cost of $2,980,000, for aggregate proceeds of $3,626,000.