3.	Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been presented on a comparative basis. For periods prior to August 5, 2016, the entity is referred to as Winthrop Realty Trust, and from and after August 5, 2016 the entity is referred to as Winthrop Realty Liquidating Trust (see Note 1). The same basis of accounting have been used to prepare the financial statements for both Winthrop and the Liquidating Trust.

The accompanying consolidated financial statements represent the consolidated results of Winthrop and the Liquidating Trust, their wholly-owned taxable REIT subsidiary, WRT-TRS Management Corp. (“TRS”), the Operating Partnership and all majority-owned subsidiaries and affiliates over which Winthrop and the Liquidating Trust have financial and operating control. All significant intercompany balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements only includes information for the liquidation entities. Going concern information for the periods prior to the approval of the plan of liquidation is available in Winthrop’s prior filings with the SEC.

As a result of the approval of the plan of liquidation by the shareholders, Winthrop and the Liquidating Trust have 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 Winthrop or the Liquidating Trust will collect on disposal of assets as it carries out its plan of liquidation. The liquidation value of Winthrop’s and the Liquidating 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.

Winthrop and the Liquidating Trust accrue costs and income that they expect 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, 2016 and 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 is determined based on Winthrop’s and the Liquidating Trust’s planned exit strategy. Those ventures where Winthrop or the Liquidating Trust intends to sell the property are presented on a gross basis with a payable to the non-controlling interest holder. Those ventures where Winthrop or the Liquidating 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 a liability for non-controlling interests.

Net assets in liquidation represents the estimated liquidation value available to holders of Units 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.

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 liquidation accounting, the Liquidating 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

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 Liquidating Trust will collect on disposal of its assets, inclusive of any residual value attributable to lease intangibles, as it carries out its plan of liquidation. The liquidation value of the Liquidating 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 Liquidating Trust’s net assets in liquidation.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments purchased with original maturities of three months or less. The Liquidating 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.

Loans Receivable

Under liquidation accounting, the Liquidating Trust carries its loans receivable at their estimated net realizable value, or liquidation value, which represents the estimated amount of principal payments the Liquidating Trust expects to receive over the holding period of the loan. The liquidation value of the Liquidating Trust’s loans receivable are presented on an undiscounted basis. Interest payments that the Liquidating 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 Liquidating Trust evaluates the collectability of the interest and principal of each of its loans. Any changes in collectability will be reflected as a change to the Liquidating 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 Liquidating Trust continues to review its accounts receivable monthly. Past due balances are reviewed individually for collectability. Any changes in the collectability of the receivables are reflected in the net realizable value of the accounts receivable.

Accrued rental income is not contemplated under liquidation accounting. The Liquidating Trust accrues rental revenue based on contractual amounts expected to be collected during liquidation.

Equity Investments

The Liquidating 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 Liquidating Trust exercises control include (i) the right to remove the general partner or managing member in situations where the Liquidating 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.

Subsequent to the adoption of liquidation accounting, equity investments are recorded at their net realizable value. The Liquidating 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 Liquidating Trust’s net assets in liquidation.

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 Liquidating 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

The Liquidating Trust has exposure to fluctuations in market interest rates. The Liquidating Trust utilizes its 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 were valued at $0 as of August 1, 2014 in accordance with liquidation accounting. These financial instruments are still in place as of December 31, 2016.

Revenue Recognition

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. To the extent any of these tenants defaults under its lease and fails to pay such costs, the Liquidating Trust will record a liability for such obligations.

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

Under liquidation accounting, the Liquidating 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

Winthrop operated in a manner which qualified it as a REIT for tax purposes. In order to qualify as a REIT, Winthrop was 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. Winthrop complied with the foregoing minimum dividend requirements through the date of transfer of its remaining assets and liabilities to the Liquidating Trust.

Given the organizational structure, the Liquidating Trust will be treated as a partnership for federal and state income tax purposes. Accordingly, no provision or benefit for income taxes is made in the consolidated financial statements as taxable income or loss passes through to, and is the responsibility of, the unitholders.

Winthrop and the Liquidating Trust reviewed 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. Winthrop and the Liquidating Trust believe it is more likely than not that its tax positions will be sustained in any tax examination. Winthrop and the Liquidating Trust had no deferred tax assets or deferred tax liabilities associated with any such uncertain tax positions for the operations of any entity included in the Consolidated Financial Statements. The only provision for federal income taxes relates to the TRS and is included in the liability for estimated costs in excess of estimated receipts during liquidation. Winthrop’s and the Liquidating Trust’s tax returns are subject to audit by taxing authorities. The tax years 2013 – 2016 remain open to examination by major taxing jurisdictions to which Winthrop was subject. The Liquidating Trust’s initial tax return will be filed in 2017.