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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2015

Pre Plan of Liquidation

The accompanying consolidated financial statements represent the consolidated results of Winthrop, its wholly-owned taxable REIT subsidiary, WRT-TRS Management Corp., the Operating Partnership and 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. All significant intercompany balances and transactions have been eliminated in consolidation. Prior to the adoption of the plan of liquidation, the Trust accounted 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 was included in consolidated net income.

The consolidated financial statements for the periods ended July 31, 2014 and December 31, 2013 were prepared on the going concern basis of accounting, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Post Plan of Liquidation

As a result of the approval of the plan of liquidation by the shareholders, the Trust has adopted the liquidation basis of accounting as of August 1, 2014 and for the periods subsequent to August 1, 2014 in accordance with accounting principles generally accepted in the United States (“GAAP”). Accordingly, on August 1, 2014 assets were adjusted to their estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Trust will collect on disposal of assets as it carries out its plan of liquidation. The liquidation value of the Trust’s operating properties and loan assets are presented on an undiscounted basis. Estimated costs to dispose of assets have been presented separately from the related assets. Liabilities are carried at their contractual amounts due or estimated settlement amounts.

The Trust accrues costs and income that it expects to incur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statements of Net Assets. Actual costs and income may differ from amounts reflected in the financial statements because of inherent uncertainty in estimating future events. These differences may be material. See Note 4 for further discussion. Actual costs incurred but unpaid as of December 31, 2015 are included in accounts payable, accrued liabilities and other liabilities on the Consolidated Statements of Net Assets.

In liquidation, the presentation for joint ventures historically consolidated under going concern accounting will be determined based on the Trust’s planned exit strategy. Those ventures where the Trust intends to sell the property are presented on a gross basis with a payable to the non-controlling interest holder. Those ventures where the Trust intends to sell its interest in the venture, rather than the property, are presented on a net basis and are included in equity investments on the Consolidated Statements of Net Assets. Amounts due to non-controlling interests in connection with the disposition of consolidated joint ventures have been accrued and are recorded as liability for non-controlling interests.

Net assets in liquidation represents the estimated liquidation value available to holders of Common Shares upon liquidation. Due to the uncertainty in the timing of the anticipated sale dates and the estimated cash flows, actual operating results and sale proceeds may differ materially from the amounts estimated.

Out of Period Adjustments

During 2014, the Trust identified an error in its previously reported interim financial statements relating to the estimated costs in excess of estimated receipts during liquidation of the Trust’s investment in the luxury residential property located in Houston, Texas. The Trust recorded an out of period adjustment in the amount of $2,201,000 to correct the understatement of estimated costs in excess of estimated receipts in the Trust’s consolidated statement of net assets. The Trust concluded that this adjustment is not material to the current period or the prior period’s financial position. As such, this cumulative change was recorded in the consolidated statement of net assets during the quarter ended on December 31, 2014. This error had no impact on any other periods presented.

During 2013, the Trust identified an error in its previously reported interim financial statements relating to the purchase price allocation of the Trust’s investment in the 1515 Market Street property. The Trust recorded an out of period adjustment in the amount of $1,300,000 to correct the overstatement of other liabilities and overstatement of building in the Trust’s consolidated balance sheet. The Trust also recorded an out of period adjustment to reduce depreciation expense in the amount of $21,000 during the Trust’s fourth quarter of 2013 to correct the depreciation expense in the consolidated statement of operations. The Trust concluded that these adjustments are not material to the current period or the prior period’s financial position or results from operations. As such, this cumulative change was recorded in the consolidated balance sheet and consolidated statement of operations during the quarter ended on December 31, 2013. This error had no impact on any other periods presented.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in determining the values of assets and liabilities, disclosing contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenue and expenses during the reporting period. Under going concern accounting, the estimates that were particularly susceptible to management’s judgment include, but are not limited to, the impairment of real estate, loans and investments in ventures and real estate securities carried at fair value. In addition, estimates were used in accounting for the allowance for doubtful accounts. Under liquidation accounting, the Trust is required to estimate all costs and income that it expects to incur and earn through the end of liquidation including the estimated amount of cash it will collect on disposal of its assets and estimated costs incurred to dispose of assets. All of the estimates and evaluations are susceptible to change and actual results could differ materially from the estimates and evaluations.

Investments in Real Estate

Prior to the adoption of the plan of liquidation, real estate assets were stated at historical cost. Expenditures for repairs and maintenance were expensed as incurred. Significant renovations that extended the useful life of the properties were capitalized. Depreciation for financial reporting purposes was computed using the straight-line method. Buildings were depreciated over their estimated useful lives of 40 years, based on the property’s age, overall physical condition, type of construction materials and intended use. Improvements to the buildings were depreciated over the shorter of the estimated useful life of the improvement or the remaining useful life of the building at the time the improvement was completed. Tenant improvements were depreciated over the shorter of the estimated useful life of the improvement or the term of the lease of the tenant.

Upon the acquisition of real estate, the Trust assessed the fair value of acquired assets (including land, buildings and improvements, and identified intangibles such as above and below market leases and acquired in-place leases and tenant relationships) and acquired liabilities and the Trust allocated purchase price based on these assessments. The Trust assessed fair value based on estimated cash flow projections and utilized appropriate discount and capitalization rates and available market information. Estimates of future cash flows were based on a number of factors including the historical operating results, known trends, and market/economic conditions that may have affected the property. If the acquisition was determined to be a business combination, then the related acquisition costs were expensed. If the acquisition was determined to be an asset acquisition, then the related acquisition costs were capitalized.

The fair value of the tangible assets of an acquired property was determined by valuing the property as if it were vacant, and the “as-if-vacant” value was then allocated to land, building and improvements and fixtures and equipment based on management’s determination of the fair values of these assets. Factors considered by management in performing these analyses included an estimate of carrying costs during the expected lease-up periods, current market conditions and costs to execute similar leases. In estimating carrying costs, management included real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimated costs to execute similar leases including leasing commissions.

Real estate investments and purchased intangible assets subject to amortization were reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount of an asset group may not be recoverable. Recoverability of real estate investments to be held and used was measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated from the use and eventual disposition of the asset group. If the carrying amount of an asset group exceeded its estimated undiscounted future cash flows, an impairment charge was recognized equal to the amount by which the carrying amount of the asset group exceeded the fair value of the asset group.

As of August 1, 2014 the investments in real estate were adjusted to their estimated net realizable value, or liquidation value, to reflect the change to the liquidation basis of accounting. The liquidation value represents the estimated amount of cash that the Trust will collect on disposal of its assets as it carries out its plan of liquidation. The liquidation value of the Trust’s investments in real estate are presented on an undiscounted basis and investments in real estate are no longer depreciated. Estimated costs to dispose of these investments are presented separately from the related assets. Subsequent to August 1, 2014, all changes in the estimated liquidation value of the investments in real estate are reflected as a change to the Trust’s net assets in liquidation.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments purchased with maturities of three months or less. The Trust maintains cash and cash equivalents in financial institutions in excess of insured limits, but believes this risk is mitigated by only investing in or through major financial institutions.

Restricted Cash

Restricted cash in escrow accounts include cash reserves for tenant improvements, leasing commissions, real estate taxes and other expenses pursuant to the loan agreements. In addition, certain security deposit accounts are classified as restricted cash. The classification of restricted cash within the Consolidated Statements of Cash Flows under going concern accounting is determined by the nature of the escrow account. Activity in escrow accounts related to real estate taxes, insurance, rent reserves and security deposits was classified as operating activity. Activity in escrow accounts related to capital improvements and tenant improvements was classified as investing activity. Any debt service reserves are classified as financing activity.

Loans Receivable

Prior to the adoption of the plan of liquidation, the Trust’s policy was to record loans receivable at cost, net of unamortized discounts unless such loan receivable was deemed to be impaired. Discounts on loans receivable were amortized over the life of the loan receivable using the effective interest method based upon an evaluation of prospective future cash flows. The amortization was reflected as an adjustment to interest income. Other costs incurred in connection with acquiring loans, such as marketing and administrative costs, were charged to expense as incurred. Loan fees and direct costs associated with loans originated by the Trust were deferred and amortized over the life of the loan as interest income.

The Trust evaluated the collectability of the interest and principal of each of its loans to determine potential impairment. A loan receivable was considered to be impaired when, based on current information and events, it was probable that the Trust was unable to collect all amounts due according to the existing contractual terms of the loan receivable. Impairment was then measured based on the present value of expected future cash flows or the fair value of the collateral. When a loan receivable was considered to be impaired, the Trust recorded a loan loss allowance and a corresponding charge to earnings equal to the amount by which the Trust’s net investment in the loan exceeded its fair value. Significant judgments were required in determining impairment. The Trust did not record interest income on impaired loans receivable. Any cash receipts on impaired loans receivable were recorded as a recovery reducing the allowance for loan losses. The Trust charged uncollectible loans against its allowance for loan loss after it had exhausted all economically warranted legal rights and remedies to collect the receivables or upon successful foreclosure and taking of loan collateral.

Certain real estate operating properties were acquired through foreclosure or through deed-in-lieu of foreclosure in full or partial satisfaction of non-performing loans that the Trust intended to hold, operate or develop for a period of at least twelve months. Upon acquisition of a property, tangible and intangible assets and liabilities acquired were recorded at their estimated fair values and depreciation was computed in the same manner as described in “Investments in Real Estate” above.

Under liquidation accounting, the Trust carries its loans receivable at their estimated net realizable value, or liquidation value, which represents the estimated amount of principal payments the Trust expects to receive over the holding period of the loan. The liquidation value of the Trust’s loans receivable are presented on an undiscounted basis. Interest payments that the Trust expects to receive on its loans receivable over the estimated holding period of the loan are accrued and are classified as part of liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statements of Net Assets. As interest is earned, it is reclassified and included in loans receivable on the Consolidated Statements of Net Assets.

The Trust continues to evaluate the collectability of the interest and principal of each of its loans receivable using the same methodology used under going concern accounting. Any changes in collectability will be reflected as a change to the Trust’s net assets in liquidation.

Accounts Receivable

In accordance with liquidation accounting, as of August 1, 2014, accounts receivable were adjusted to their net realizable value. The Trust continues to review its accounts receivable and allowance for doubtful accounts monthly. Past due balances are reviewed individually for collectability. Any changes in the allowance are reflected in the net realizable value of the accounts receivable.

Under going concern accounting, accrued rental income included the difference between straight line rent and contractual amounts due. The Trust reviewed its straight line rent receivables monthly in conjunction with its review of allowance of doubtful accounts. Accrued rental income is not contemplated under liquidation accounting. The Trust accrues rental revenue based on contractual amounts expected to be collected during liquidation.

Securities and Loan Securities at Fair Value

Prior to the adoption of the plan of liquidation, the Trust had the option to elect fair value for these financial assets. The Trust elected the fair value option for real estate securities to mitigate a divergence between accounting and economic exposure for these assets. The changes in the fair value of these instruments were recorded in unrealized gain (loss) on securities and loan securities carried at fair value in the Consolidated Statements of Operations. Under liquidation accounting, loan securities are recorded at their estimated net realizable value.

Preferred Equity Investment

The Trust has certain investments in ventures which entitle it to priority returns ahead of the other equity holders in the ventures. At the inception of each such investment, management determined whether such investment should be accounted for as a loan, preferred equity, equity or as real estate. The Trust classified these investments as preferred equity investments and they were accounted for using the equity method because the Trust has the ability to significantly influence, but not control, the entity’s operating and financial policies. Earnings for each investment were recognized in accordance with each respective investment agreement and, where applicable, based upon an allocation of the investment’s net assets at adjusted book value as if the investment was hypothetically liquidated at the end of each reporting period.

Prior to the adoption of the plan of liquidation, at each reporting period the Trust assessed whether there were any indicators of declines in the fair value of preferred equity investments. An investment’s value was impaired only if the Trust’s estimate of the fair value of the investment was less than the carrying value of the investment and such difference was deemed to be other-than-temporary. To the extent impairment had occurred, the loss was measured as the excess of the carrying amount of the investment over the estimated fair value of the investment. Under liquidation accounting, preferred equity investments are classified as equity investments and are carried at their estimated net realizable value.

Equity Investments

The Trust accounts for its investments in entities in which it has the ability to significantly influence, but does not have a controlling interest, by using the equity method of accounting. Factors that are considered in determining whether or not the Trust exercises control include (i) the right to remove the general partner or managing member in situations where the Trust is not the general partner or managing member, and (ii) substantive participating rights of equity holders in significant business decisions including dispositions and acquisitions of assets, financing, operations and capital budgets, and other contractual rights. Prior to the adoption of the plan of liquidation, under the equity method, the investment, originally recorded at cost, was adjusted to recognize the Trust’s share of net earnings or losses as they occurred and for additional contributions made or distributions received. To recognize the character of distributions from equity investments, the Trust looked at the nature of the cash distribution to determine the proper character of cash flow distributions as either returns on investment, which would be included in operating activities, or returns of investment, which would be included in investing activities.

At each reporting period the Trust assessed whether there were any indicators or declines in the fair value of the equity investments. An investment’s value was impaired only if the Trust’s estimate of the fair value of the investment was less than the carrying value of the investment and such difference was deemed to be other-than-temporary. To the extent impairment had occurred, the loss was measured as the excess of the carrying amount of the investment over the estimated fair value of the investment.

Subsequent to the adoption of liquidation accounting, equity investments are recorded at their net realizable value. The Trust evaluates the net realizable value of its equity investments at each reporting period. Any changes in net realizable value will be reflected as a change to the Trust’s net assets in liquidation.

Lease Intangibles

Under liquidation accounting, any residual value attributable to lease intangibles is included in the net realizable value of the corresponding investment in real estate. As such, lease intangibles are no longer separately stated on the Consolidated Statements of Net Assets.

Deferred Financing Costs

Prior to the adoption of the plan of liquidation, direct financing costs were deferred and amortized over the terms of the related agreements as a component of interest expense. As deferred financing costs will not be converted to cash or other consideration, these have been valued at $0 as of August 1, 2014 in accordance with liquidation accounting.

Financial Instruments

Financial instruments held by the Trust include cash and cash equivalents, restricted cash, loan securities, loans receivable, interest rate hedge agreements, accounts receivable, accounts payable and long term debt. Under liquidation accounting, all financial instruments are recorded at their net realizable value.

Derivative Financial Instruments

Prior to the adoption of the plan of liquidation, the Trust’s interest rate swap and interest rate cap agreements were classified on the balance sheet as other assets and other liabilities and were carried at fair value. An interest rate swap was carried as an asset if the counterparty would be required to pay the Trust, or as a liability if the Trust would be required to pay the counterparty to settle the swap. For the Trust’s interest rate contracts that were designated as “cash flow hedges,” the change in the fair value of such derivative was recorded in other comprehensive income or loss for hedges that qualify as effective and the change in the fair value was transferred from other comprehensive income or loss to earnings as the hedged item affected earnings. The ineffective amount of the interest rate swap agreement, if any, was recognized in earnings. The Trust utilizes its interest rate swap and interest rate cap agreements to manage interest rate risk and does not intend to enter into derivative transactions for speculative or trading purposes.

As these instruments will not be converted into cash or other consideration, derivative financial instruments have been valued at $0 as of August 1, 2014 in accordance with liquidation accounting. These financial instruments are still in place and effective as of December 31, 2015. The Trust has accrued the estimated monthly amounts for its swap agreements. The amount is included in the liability for estimated costs in excess of estimated receipts during liquidation.

Revenue Recognition

Prior to the adoption of the plan of liquidation, the Trust accounted for its leases with tenants as operating leases with rental revenue recognized on a straight-line basis over the minimum non-cancellable term of the lease. The straight-line rent adjustment decreased revenue by $1,121,000 during the seven months ended July 31, 2014 and decreased revenue by $669,000 in the year ended December 31, 2013.

Pursuant to the terms of the lease agreements with respect to net lease properties, the tenant at each property is required to pay all costs associated with the property including property taxes, ground rent, maintenance costs and insurance. These costs are not reflected in the consolidated financial statements.

Tenant leases that are not net leases generally provide for (i) billings of fixed minimum rental and (ii) billings of certain operating costs. The Trust accrued the recovery of operating costs based on actual costs incurred.

The Trust recognized lease termination payments as a component of rental revenue in the period received, provided that the Trust has no further obligations under the lease; otherwise, the lease termination payment was amortized on a straight-line basis over the remaining obligation period.

Under liquidation accounting, the Trust has accrued all income that it expects to earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified in liability for estimated costs in excess of estimated receipts during liquidation on the Consolidated Statements of Net Assets.

Income Taxes

The Trust operates in a manner intended to enable it to continue to qualify as a REIT. In order to qualify as a REIT, the Trust is generally required each year to distribute to its shareholders at least 90% of its taxable income (excluding any net capital gains). There is also a separate requirement to distribute net capital gains or pay a corporate level tax. The Trust intends to comply with the foregoing minimum dividend requirements.

In order for the Trust to continue to qualify as a REIT, the value of the Trust’s taxable REIT Subsidiary (“TRS”) stock cannot exceed 25% of the value of the Trust’s total assets. The net income of TRS is taxable at regular corporate tax rates. Current income taxes are recognized during the period in which transactions enter into the determination of financial statement income, with deferred income taxes being provided for temporary differences between the carrying values of assets and liabilities for financial reporting purposes and such values as determined by income tax laws. Changes in deferred income taxes attributable to these temporary differences are included in the determination of income. The Trust and TRS do not file consolidated tax returns.

The Trust reviews its tax positions under accounting guidance which require that a tax position may only be recognized in the financial statements if it is more likely than not that the tax position will prevail if challenged by taxing authorities. The Trust believes it is more likely than not that its tax positions will be sustained in any tax examination. The Trust has no income tax expense, deferred tax assets or deferred tax liabilities associated with any such uncertain tax positions for the operations of any entity included in the Consolidated Statements of Operations and Comprehensive Income. The only provision for federal income taxes relates to the TRS. The Trust’s tax returns are subject to audit by taxing authorities. The tax years 2012 – 2015 remain open to examination by major taxing jurisdictions to which the Trust is subject.

Stock-Based Compensation

Pursuant to the Trust’s 2007 Long Term Stock Incentive Plan the Trust may, from time to time, issue stock-based compensation awards to certain eligible persons including those performing services for FUR Advisors LLC (“FUR Advisors”), the Trust’s external advisor. During 2013, the Trust issued 600,000 restricted common shares of beneficial interest (“Restricted Shares”). See Note 20 – Restricted Share Grants for further discussion. Under going concern accounting, the Trust accounted for this stock-based compensation in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Until the awards were no longer subject to forfeiture, the Trust measured stock-based compensation expense at each reporting date for any changes in fair value and recognized the expense prorated for the portion of the requisite service period completed.

Under liquidation accounting, compensation expense is no longer recorded as the vesting of the Restricted Shares does not result in cash outflow for the Trust.

Earnings Per Share

Prior to the adoption of the plan of liquidation, the Trust determined basic earnings per share on the weighted average number of Common Shares outstanding during the period and reflected the impact of participating securities. The Trust computed 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 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):


	Seven Months Ended			Year Ended
	July 31, 2014			December 31, 2013
Basic
Income (loss) from continuing operations	$	(2,572	)	$	15,716
Loss attributable to non-controlling interest		3,764			4,251
Preferred dividend of Series D Preferred Shares		(6,502	)		(11,146	)
Amount allocated to Restricted Shares		(192	)		(307	)

Income (loss) from continuing operations applicable to Common Shares		(5,502	)		8,514
Income from discontinued operations		11,235			8,772
Loss attributable to non-controlling interest from discontinued operations		54			39

Net income attributable to Common Shares for earnings per share purposes	$	5,787		$	17,325

Basic weighted-average Common Shares		35,821			33,743

Income (loss) from continuing operations	$	(0.15	)	$	0.25
Income from discontinued operations		0.31			0.26

Net income per Common Share—basic	$	0.16		$	0.51

Diluted
Income (loss) from continuing operations	$	(2,572	)	$	15,716
Loss attributable to non-controlling interest		3,764			4,251
Preferred dividend of Series D Preferred Shares		(6,502	)		(11,146	)
Amount allocated to Restricted Shares		(192	)		(307	)

Income (loss) from continuing operations applicable to Common Shares		(5,502	)		8,514
Income from discontinued operations		11,235			8,772
Loss attributable to non-controlling interest from discontinued operations		54			39

Net income attributable to Common Shares for earnings per share purposes	$	5,787		$	17,325

Basic weighted-average Common Shares		35,821			33,743
Stock options (1)		—			—
Restricted Shares (2)		—			31

Diluted weighted-average Common Shares		35,821			33,774

Income (loss) from continuing operations	$	(0.15	)	$	0.25
Income from discontinued operations		0.31			0.26

Net income per Common Share—diluted	$	0.16		$	0.51

(1)	The Trust’s stock options were exercised in 2013. The resulting shares were included in the basic weighted average Common Shares for the seven months ended July 31, 2014 and the year ended December 31, 2013.

(2)

The Trust’s Restricted Shares were issued in 2013. The Trust’s Restricted Shares were anti-dilutive for the seven months ended July 31, 2014 and are not included in the weighted-average shares outstanding for the calculation of diluted earnings per Common Share. The Trust’s Restricted Shares were dilutive for the year ended December 31, 2013. The amendments to the Restricted Shares discussed in Note 20 had no impact on the calculation of earnings per share for the periods presented.

Series D Preferred Shares of Beneficial Interest [Member]

Series D Preferred Shares

On September 15, 2014 the Trust made the full liquidating distribution on its Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series D Preferred Shares”) of $25.4815 per Series D Preferred Share, which amount consisted of the $25.00 liquidation preference plus accrued and unpaid dividends to, but excluding, the date of payment.