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Winthrop Realty Trust (NYSE:FUR)

Q2 2008 Earnings Call

August 7, 2008 2:00 pm ET

Executives

Beverly Bergman – Vice President and Director of Investor Relations

Michael Ashner - Chairman and Chief Executive Officer

Thomas Staples - Chief Financial Officer

Peter Braverman - President

Analysts

David Fick – Stifel Nicolaus

Brandon Frank – Global Scan Capital

Bob Shingami – Southpaw Asset Management LP

Operator

Welcome to Winthrop Realty Trust second quarter earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Beverly Bergman, Vice President and Director of Investor Relations for Winthrop Realty Trust.

Beverly Bergman

With us today from senior management are Michael Ashner, Chairman and Chief Executive Officer; Peter Braverman, President; Tom Staples, Chief Financial Officer and other members of the management team.

A press release was distributed this morning, August 7, and will be furnished today with the transcript of this call on a Form 8-K to be filed with the SEC. If you did not receive a copy, these documents are available on Winthrop’s website at www.winthropreit.com in the Investor Relations section. Additionally, we are hosting a live webcast of today’s call, which you can access in the site's News and Events sections.

At this time, management would like me to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although, Winthrop believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, Winthrop can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in the press release and from time to time in Winthrop’s filings with the SEC.

Winthrop does not undertake the duty to update any forward-looking statements. Please note that in the press release, Winthrop has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with the Reg G requirements. This can be found on Page 5 of the press release.

I would now like to turn the call over to Michael Ashner for his opening remarks. Please go ahead, Michael.

Michael Ashner

Earlier today, we released our second quarter of 2008 results. By now, you should have all received the copy press release. We release highlights events to quarters while as recent events including the latest steps we have taken to position ourselves for opportunity we have believed will emerge within the current challenging investment environment. In a few moments our Chief Financial Officer, Tom Staples, will review our second quarter results in greater detail. After that our President, Peter Braverman, will discuss our operational highlights.

Before I turn the call over to them, I would like to provide a brief update on where we see the state of the real estate markets, how we have positioned the Company, and what we expect to see in the longer term. Turning to the markets, it had been approximately a four year now since a real estate credit markets began to unwind. Rather than use the oft quoted analogy at the beginnings of a baseball game suffice it to say that there appears to us to be no near or mid-term end to the contraction of credit for real estate assets.

Moreover, we would argue that the likely diminution in real estate values which generally results from inaccessibility to credit is yet to occur in any meaningful way. Nevertheless, the real decline in sales activity for commercial real estate assets, which generally presages a decline in a real estate values is already evident. To this point, I simply refer you to the CB Richard Ellis second quarter report for their take on the negative effect of declining sales activity on their revenues.

Our experience operating through previous real estate downturns has shown us that these corrective cycles often create significant opportunities for extraordinary risk adjusted returns. Consequently, we believe these types of investments will come in time. It is still relatively early in the cycle and except for the CMBS and CDO buy markets we have not yet seen distress asset sales in abundance. I suspect that the catalyst for the emergence of distress sales will be the need of property owners to refinance at maturity the billions of dollars of loans originated and securitized since 2005.

We believe that the extraordinary high levels of subordinated debt further encumbering many of the assets render them non-refinancable under present lending levels adding to the likelihood of distress selling. Add a meaningful upward spike in interest rates and one can see easily foresee enormous opportunity for well-capitalized distressed asset investors. With respect to debt investments we anticipate accelerating our pursuit of high yielding debt opportunities. Consequently, we remain committed to the Concord debt platform which together with Lexington Realty Trust we have grown to approximately $1.09 billion in assets as of the end of the quarter.

We are pleased that Inland American has recently joined in the debt Concord debt platform, agreed to contribute up to $100 million in preferred equities be used primarily for new higher yielding loan originations and acquisitions. The structure of this investment adheres to our strategy of maximizing our capital through joint venture structures. With the addition of Inland American as a member of Concord, the platform is fairly positioned from a capital standpoint to make new investments at current market yields and address any issues relating to its existing liabilities.

Supplementing new loans at the Concord level will likely be a continuation of equity investment opportunities with our existing joint venture partners, Mark Realty and the Sealy Group. Their expertise as well as their opportunistic manner of investing has consistently resulted in above average returns to Winthrop. So in light of this current environment, our strategy has been two-fold. First, to maximize our liquidity. As Tom and Peter will detail shortly, we believe we have achieved this result as we currently have approximately $225 million of cash in our present balance sheet.

Second, to invest in the near term cautiously and sparingly so as to assure ourselves that we are pricing our capital adequately in a risk adjusted basis while retaining the wherewithal to act upon larger opportunities that may present themselves. We also have taken steps to limit Winthrop’s exposure to short-term debt. Our wholly owned assets inclusive of their extension rights have no debt maturing in 2008. In 2009, approximately 4% or $9.5 million of the total outstanding debt matures and the balance of approximately $225.6 million or 96% matures in 2011 or later. With respect to Concord, approximately 46% of Concord’s total debt obligations were $363 million relating to our CDO mature in December 2016. And an additional 46% of Concord’s obligations have extension rights to March 2011 or beyond.

The remaining 8% of the outstanding debt or $65 million have matured even less than one year. With respect to the column financial obligations, Concord will, however, require to reduce the outstanding balance, which is currently $265 million to $200 million, and reduce the leverage ration to 55%, by March 2009 in order to obtain the extension through March 2011. During the first half of 2008, Concord obtained $100 million secured credit facility from Key Banc which can be used for, among other things, retirement of existing credit facility debt. At June 30, 2008 Concord has $78 million available on this facility.

As you know, we recently announced the restructuring of the Concord platform to include the addition of a subsidiary of Inland America Real Estate as a member of Concord. Inland America contributed $20 million to Concord and has agreed to contribute up to an additional $80 million. Inland American’s contributions will be used primarily for additional investments by Concord, and if Inland America agrees to satisfy any future margin calls on its credit facilities. Inland American is in connection with its investment in Concord, is entitled to receive a priority return of 10% on its contributed non-returned capital. We are pleased with this transaction. Aside from the capital infusion, as many of you know, Inland American is an affiliate of the Inland Real Estate Group of companies. Inland Group is one of the nation’s largest owners of commercial real estate.

There are several important benefits to Winthrop which Winthrop believes will result from this transaction. First, provides Concord with access to capital, with which to pursue higher yielding debt opportunities in the market place. Second, the infusion of equity further strengthens Concord’s balance sheet, providing it with financial flexibility, to either make new investments or reduce liabilities. Third, as I previously mentioned the structure is consistent with our philosophy of maximizing the utility of our capital through joint venture structures. Finally, there are benefits for Winthrop in establishing relationship with a company of Inland American’s size, reputation, and experience.

In summary, we plan to continue to invest our capital opportunistically, but in a deliberate and considered manner. We remain aware, however, of the critical importance of effectively managing risk.

With that I will now turn the call over to our CFO, Tom Staples to review our financial results.

Thomas Staples

I will briefly provide an overview of our financial results for the second quarter as well as highlights from each of our business segments.

For the three months ended June 30, 2008, Winthrop incurred a net loss of $24.1 million, or $0.33 per share. A decrease of $36.9 million from the net income of $12.8 million or $0.16 per share for the three months ended June 30, 2007. For the six months ended June 30, 2008, the net loss was $17.7 million or $0.25 per share. A decrease of $39.2 million from net income of $21.5 million or $0.28 per share for the six ended June 30, 2007. The decreases for both the periods were primarily due to one, Concord’s mark-to-market impairment loss totaling $50.4 million in a loan loss reserve of $2.2 million, which were detailed in Concord’s press release issued this past Friday.

These items negatively impacted our net income for the second quarter of 2008 by $26.3 million. Also, a $2 million impairment loss was recognized during the second quarter of 2008 with respect to the company’s loans in the Mark realty portfolio relating to the Lansing, Michigan property which is reflected in the earnings loss from our preferred equity investments and the condensed financial results on page four of the earnings release. Additionally, we recognized a $1.1 million loss for the quarter ended June 30, 2008 with respect to the Piedmont office realty trust shares which as Peter will discuss momentarily, was sold yesterday. And lastly, a $9.7 million gain on the sale of REIT Securities during the three months ended June 30, 2007 from the sale of the Company’s interest in America First Apartment Investors.

With respect to Concord’s impairment, it is important to note that all but one of the Concord bonds is performing from a cash flow standpoint. The taking of the impairment at this time is an application of proper GAAP accounting procedures. For the second quarter of 2008, total gross revenue was $11.3 million compared to $14.8 million for the second quarter of 2007.

The second quarter of 2008 gross revenue consisted of rents and reimbursements of approximately $11 million compared with $11.2 million for the second quarter of 2007. And interest in dividends of approximately $300,000 for 2008 compared to approximately $3.6 million for the prior year. The total FFO loss for the second quarter of 2008 was $21.1 million, or $0.29 per diluted common share compared to FFO of $17.7 million, or $0.20 per diluted common share for the second quarter of 2007. The FFO loss for the six months ended June 30, 2008 was $11.8 million, or $0.17 per diluted common share as compared to FFO of $30.4 million, or $0.35 per diluted common share for the six months ended June 30, 2007.

Again, FFO decreases are primarily the result of the same factors noted earlier which negatively impacted our earnings. The net operating income with respect to our operating properties business segment was $8.1 million for the three months ended June 30, 2008 compared to approximately $8.9 million for the three months ended June 30, 2007. For the six months in the June 30, 2008 the net operating income with respect to our operating properties business segments was approximately $15.8 million compared with approximately $16.7 million for the six months ended June 30, 2007.

This decrease in the net operating income is attributed to a gain of $1.1 million recognized in the second quarter of 2007, from a tenant lease buyout in June of 2007. The net operating loss from our loan asset and loan securities business segment was approximately $21.5 million for the three months ended June 30, 2008. A decrease in earnings of $26.8 million from a net operating income of approximately $5.3 million for the three months ended June 30, 2007. This change was primarily due to a decrease in the earnings from the equity investment in Concord by $23.7 million, due to the loss of $20.9 million for the three months ended June 30, 2008 as compared to earnings of $2.8 million for the three months ended June 30, 2007. The decrease was due to Winthrop’s share of the $50.4 million other than temporary impairment charge in the $2.2 million loan reserve recognized by Concord for the quarter ended June 30, 2008.

The impairment and loan loss charges were partially offset by an increase in net interest earnings. Net interest earnings at Concord were $9.2 million for the three months ended June 30, 2008 compared with $7.1 million for the period ended June 30, 2007. The increase in net interest earnings was primarily the result of the significant investment activity during the first nine months of 2007. Additionally, during the quarter ended June 30, 2008, Concord recognized a gain on the extinguishment of debt of $2.5 million relating to the acquisition of $4.2 million of debt securities, issued by Concord’s CDO1 for $1.7 million. For the six months ended June 30, 2008 the net operating loss from our loan assets and loan securities business segment was $14.2 million, compared with net operating income of $16.2 million for the six months ended June 30, 2007.

Again, this decrease was principally due to impairment charges in loan reserve recognized by Concord during the six months ended June 30, 2008 as well as repayment of certain Winthrop loan assets during the period. Income from our REIT equity increase business segment decrease by $11.8 million to a loss of $1.1 million for the three months ended June 30, 2008 compared with income of approximately $10.7 million during the prior year period.

The decrease was due primarily to the $9.7 million gain recognized during the first half of 2007 with respect to the sale of the America First Apartment Investors shares, also a $1.1 million loss recognized for the quarter ended June 30, 2008 with respect to the Piedmont office realty trust shares, and a decrease in dividend income of $1.1 million due to the sale of the American first shares in 2007 and the sale of our shares in Lexington Realty Trust in the first quarter of 2008. For the six months ended June 30, 2008 income from our REIT equity interest business segment decrease by approximately $11.2 million to $1 million from $12.2 million for the six months ended June 30, 2007. The decrease was due primarily to the decrease in the gain of sale of real estate securities of approximately $8 million, a decrease in dividend income of $2.4 million and an increase in the equity loss of $700,000 related to our Lex-Win Acquisition venture.

At June 30, 2008, we held REIT equity interest having an aggregate value of $10.4 million compared with $71.4 million at December 31, 2007. The primary change in the balance from December 31, 2007 is due to the sale of our shares in Lexington Realty Trust that took place during the first quarter of this year.

Turning to liquidity. As you are aware in May we completed our rights offering resulting in net proceeds of approximately $37 million. For the six month period ending June 30, 2008, our cash and cash equivalents increased by approximately $98.7 million. The increase resulted from $20.1 million of cash provided from operating activities, and $136.7 million of cash provided by our investing activities. This increase was partially offset by $58.1 million of cash used in financing activities.

At June 30,2008, we had cash and cash equivalents, inclusive of restricted cash of $141.3 million, and the $70 million available under the Company’s revolving line of credit with Key Banc, all of which was drawn down in July. This facility matures December 16, 2008 with the option to extend the term one additional year. As disclosed in previous filings, the Company also has a shelf registration statement on file with the SEC covering the issuance of up to $256.4 million of additional equity in debt securities.

Lastly, a quick review of our dividend. The Company’s board of directors declared a regular quarterly cash dividend of $6.5 per common share during the second quarter of 2008 which was paid on July 15, 2008. The Company currently pays an annualized dividend of $0.26 per share excluding any special dividends. That concludes our financial review for the period. Now I will turn the call over to Peter Braverman. Peter?

Peter Braverman

I would like to talk about some of the key activities that are taking place since April. As Michael discussed earlier, in light of the change the economic environment that has taken place since the beginning of the third quarter of 2007, we have continued to seek to maximize liquidity in an effort to protect against and prepare for the challenges and opportunities of this changed environment.

Towards that end, as previously announced, we sold our $3.5 million share position in Lexington Realty Trust in March 2008, resulting in proceeds of approximately $63 million. We received aggregate distributions from Concord with respect to earnings on investments of $14.6 million during 2008. Our rights offering, which is consummated in May, was always subscribed and resulted in net proceeds of approximately $37 million we drew down $70 million on our credit line with Key Banc and we realized approximately $9 million in proceeds, from the sale yesterday of our Piedmont office realty shares.

As a result of the foregoing, together with cash flow from investments, we currently have approximately $225 million of cash and cash equivalents. In addition, during the quarter, we made an additional $3.9 million mezzanine loan on our 180 North Michigan property with similar terms as the other market realty mezzanine loans except that interest on the loan is paid monthly at 8.5%. We continue to hold an equity interest in the property entitling Winthrop to share in capital proceeds and unlike our equity interest other Mark Realty properties, additional operating cash flow as well. Also in June we completed the sale of 600 West Jackson property in the Mark Realty portfolio in which the trust held a 7.655% convertible mezzanine loan and a preferred interest. We received $2.5 million exclusive of interest pain on our original investment of $1.7 million. We also deferred income of $795,000 with respect to this sale.

As part of this transaction, Winthrop contributed $900,000 to the selling entity, which in turn made a $1.5 million second mortgage loan to the buyer, which loan bears interest at 6.5% matures on June 30, 2009, and requires monthly payments of interest only. More recently in July we made a $1.050 million mezzanine loan on newly acquired property in the Mark Realty portfolio located at 180 North Wagner, Chicago, Illinois. The loan bears interest at 8.5%, requires monthly payments of interest only, and matures on April 18, 2012. We maintain an equity interest in the property, which also provides for additional operating cash flow as well.

As Michael discussed, the Concord debt platform was recently restructured raising new capital for investments with the addition of Inland American as a partner. On June 30, 2008, our portfolio encompassed approximately 9.25 million square feet of space, including properties within the Mark Realty and Sealy portfolios and 230 rental units at multi-family asset. The Mark Realty portfolio consisted of two participating second mortgage loan and 18 convertible mezzanine loans together with an equity investment in each mezzanine borrower for an aggregate investment of approximately $56.2 million.

As of June 30, 2008 our wholly owned portfolio had a blended occupancy rate of 96%. Our Sealy venture had a blended occupancy rate of 90%. And our Mark Realty venture had a blended occupancy rate of 81%. Lower occupancy rate of the Mark Realty portfolio is consistent with the platform’s investment strategy, investing in turn around office properties throughout the greater Chicago market. Turn to Concord. At the June 30th Winthrop and Lexington had both contributed $162.5 million to Concord which in turn had acquired approximately $1.09 billion in assets. With respect to the $203.2 million cost basis of bonds held by Concord, the decline in fair value has been experienced over the past 12 months because of the current bond market conditions. While we view the actual performance of the bonds as neutral, as Michael mentioned earlier, we do not expect bond market conditions to curb in the near or even mid-term.

Consequently as Tom previously stated, it was determined that in accordance with GAAP, decline in fair value was other than temporary in nature requiring Concord to write down the cost basis of these securities to estimate the fair values at June 30, 2008. As the result, Concord recognized aggregate impairment losses totaling $55.8 million for the six months ended June 30, 2008, $50.4 million of which was recognized during the second quarter of 2008 supplementing the $11 million impairment loss taken in 2007.

In addition, Concord elected to take a $2.2 million loan reserve respect to two of its loans with a current outstanding principal balance of $28.6 million. Impairments and loan reserve taken by Concord and the corresponding adjustment to Winthrop’s carrying value of Concord still leaves the investment at significantly higher carrying value that utilized in determining the lower per share net asset value of $4.27 provided in our March rights offering document. At this time, the Concord portfolio has only one non-performing bond, two loans which a loan reserve has been taken. We realize that investors are concerned about these impairments taken by Concord to date, but I want to reemphasize that this is a mark-to-market impairment and that the platform continues to perform within our expectations. As demonstrated by the addition of Inland American as a member in Concord, and our 10.3% annualized return on investment capital earned during the first six months of 2008.

So in summary, our strategic plan is solid and on track. As always, we remain committed to an opportunistic and value oriented real estate investment strategy. Our experience has taught us to position ourselves to be patient in this type of environment and to wait for the opportunity that we see ahead.

We would like to open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from David Fick - Stifel Nicolaus.

David Fick – Stifel Nicolaus

In looking at your press release on page five, your balance sheet, I am having a hard time making the numbers add up. The total assets are listed as $69 million, last quarter, they were $235 million, same thing with total liabilities and equity. It does not appear that the numbers above add to the total assets for either the six months or the 2007 year. Am I missing something?

Thomas Staples

I am looking at a copy of the press release that I have and it appears to be okay. How many line items do you have, I am sorry?

David Fick – Stifel Nicolaus

The total assets are listed as $69 million.

Thomas Staples

It should be $669.558 million.

David Fick – Stifel Nicolaus

Well, we do not have the first six on ours for some reason as it is printed out. Okay then maybe there is just an error in a way we printed it.

Thomas Staples

That would do it.

David Fick – Stifel Nicolaus

Yes, but it does not look like something strange. Any how, what was the total cash that you had, you mentioned $141 million?

Thomas Staples

Including restricted cash we have 135,320 at June 30, and if you add $5 million approximately of restricted cash you get to the $141 million.

David Fick – Stifel Nicolaus

Okay you drew the entire proceeds of the Key Banc line in July. Why would you do that given the amount of cash you had?

Michael Ashner

We drew it because our concern that we would not be able to redraw it. We would not get the line rolled over if we wanted to roll over the line. We have never taken any money down on it and in this credit environment, you do not use your line, you are likely to lose your line.

David Fick – Stifel Nicolaus

And you do not see that as expensive, it is just an insurance?

Michael Ashner

You are right, David. There is an opportunity cost to it. But I think the decision we made was we would rather have the ability to roll over our line and bear the cost of taking money down, perhaps potentially not using it than not having the opportunity to have the money if we really needed it.

David Fick – Stifel Nicolaus

What are your total equity investments at this point? Just trying to break out the, I see $64 million there. Can you break that out for us?

Thomas Staples

David that is actually $164.350 million and that balance consists of a June 30, 2008. Our Concord debt holdings investment is $143.376 million; Sealy Northwest Atlanta $4.176 million; Sealy Airpark Nashville $7.463 million; and Lex-Win acquisition $9.335 million.

David Fick – Stifel Nicolaus

And your JV equity, that is all in there. I am sorry. The accounts receivable?

Thomas Staples

Which is sitting in our other assets in our press release.

David Fick – Stifel Nicolaus

How much is that broken out?

Thomas Staples

I do not have that at my fingertips but I can get that for you.

David Fick – Stifel Nicolaus

And can you walk through why you sold Piedmont.

Thomas Staples

Actually, David, let me step back for a second. Accounts receivable about $10.312 million. I am sorry.

David Fick – Stifel Nicolaus

Why was the Piedmont sale done at this point?

Michael Ashner

A couple of reasons, David. First, from a financial standpoint, we sold a $0.58 dividend for $8.31 a share. Based on our analysis of Piedmont, their CAD ratio was close to 100% so we did not see that investment, that return growing from just holding the securities. But secondly, and more importantly, if you are not going forward with something you have to make a determination, if you want to continue to hold it. And since the yield on holding the securities versus the price of selling the stock and what we would achieve and the cash we get back was not consistent with the returns we looked to get, it was time to sell it. If I did not think we were going to go anywhere for three years with that security, it was our judgment we should sell it.

David Fick – Stifel Nicolaus

Your break out of revenues and expenses, in summary here, can you walk us through rent income, interest and dividend income, as well as the expenses broken out for real estate operating expenses, taxes, other tax, G&A and depreciation.

Thomas Staples

Three months or six months, whichever you prefer?

David Fick – Stifel Nicolaus

Three months.

Thomas Staples

For the three months ended rent and rental reimbursements, $10.987 million; interest and dividend income $350,000. And that is for the three-month period 2008 compared to 2007 $11.285 million of rental reimbursements and interest and dividend income of $3.559 million.

David Fick – Stifel Nicolaus

And then the expense side, operating expenses, taxes, other taxes, G&A?

Thomas Staples

Sure, property operating, $1.802 million; real estate taxes, $675,000; depreciation amortization, $2.992 million; interest expense, $5.390 million; impairment loss and available for sale securities, $107,000; general and administrative, $1.482 million; state and local taxes, $98,000; totaling $12.546 million. For the period 2007; property operating, $1.176 million; real estate taxes, $447,000; depreciation amortization, $3.257 million; interest expense, $7.384 million; provision for loss on loans receivable, $1.266 million; general and administrative,$2.24 million; state and local taxes, $231,000. And David, the only thing I would say is these numbers are subject to final review by our auditors who are finalizing their process right now.

David Fick – Stifel Nicolaus

Where is the Mark impairment?

Thomas Staples

If you were to look through our equity loss from Preferred Equity Investments, I believe that number shows as a negative $912,000. That $2 million charge is in that number.

David Fick – Stifel Nicolaus

Okay and where is the Piedmont loss recognized and JVs.

Thomas Staples

Oh, the Piedmont loss is in the equity and earnings loss of equity investments the next line down.

David Fick – Stifel Nicolaus

That is right. That is actually in the next quarter. I am sorry. It would not have been in last quarter.

Thomas Staples

We took a million dollar impairment charge in this quarter related to that sale.

David Fick – Stifel Nicolaus

To balance this quarter.

Michael Ashner

Then total amount was taken this quarter. I am sorry. The total amount of the charge for Piedmont was taken in the second quarter.

David Fick – Stifel Nicolaus

And then I guess lastly, from me, details on the Mark impairment?

Michael Ashner

From a practical standpoint?

David Fick – Stifel Nicolaus

Yes.

Michael Ashner

Now, we have a property in Lansing, Michigan. The state is not doing well. Our prior tenants are primarily state tenants. We are extremely concerned that we may lose a substantial number of the state tenants. The mortgage is due in October and while the $10.2 million mortgage, it has adequate coverage now of $1.6 million of NOI. I have a concern that if we lose state tenants we are not going to be able to refinance the property. I mean, we may have to make some strong decisions. So my nature is not one to defer these things to the last moment. I mean, we are aware of the fact the state may move people out in the fourth quarter. If we are aware of it, I assume that anyone who do due diligence in connection with the refinancing of the mortgage or potential purchase of the property is going to become aware of it. So we have an issue. So why do not we take it now.

David Fick – Stifel Nicolaus

What is the nature of the asset? I assume it is an office building.

Michael Ashner

Yes, it is an office building and we are in there for $40 a square foot but it is what it is. It is Michigan, and there is some uncertainty and we just are very proactive about these things.

Operator

Our next question comes from Brandon Frank - Global Scan Capital.

Brandon Frank – Global Scan Capital

Yes. What actual losses do you expect to incur at Concord versus the impairment charges that you have taken so far?

Michael Ashner

Well, it is hard to tell, let us go with the mortgage portfolio. Everyone will take a loss in time when you make loans. Well, we have no events with respect to any of our mortgages that suggest will take any losses with respect to any of the loans which we have not take any charges. As the two loans that we had taken charges without it we will probably cover the first mortgage with respect to one of them and take that property, we probably would leave money good there and with respect to another one we are probably over collateralized but it would may be a process to take back the property so that is why we did those charges there. With respect to the bonds, we have only one of our bonds as any asset default right now. The rest of bonds are fully performing. Nevertheless, like anyone else, if you turn out the lights at the end of the day. You just bought everything you own when it comes to securities. So, we may elect in the future to sell some of these bonds and if we do, we may take a loss or we may make money, but we have not made that decision yet.

Brandon Frank – Global Scan Capital

Have there been any issues with your creditors at Concord, margin calls things like that with decline in the value of…?

Michael Ashner

Oh, yes sure. But with respect to the bond portfolio, there has been, and that is in part provides you with the guidance as to how to extrapolate the value of the bonds; but we have had margin calls on the warehouse lines with respect to which bonds are located.

Brandon Frank – Global Scan Capital

And then just to change directions a little bit here, what changed at Piedmont from the time that you decided to make the investment, to now? I mean, are you basically saying that you made a mistake in making that investment?

Michael Ashner

Yes. I think that SanSu [ph] would tell you that never fight a battle…you look at a situation on a day by day basis. We believe that the company was going to go public in March. We believed that having a foothold in that company, at that point in time, would have allowed us to leverage ourselves into a position where we could have acquired more securities and become proactive. The Company has elected not to become a publicly traded company. So, why would you fight a battle that you may not win, and you might as well take your capital out and reinvest it elsewhere? They are not going to go public how are we going to extract value?

Brandon Frank – Global Scan Capital

Okay, one more question back to Concord. Over time do you expect to increase or decrease your investment through that vehicle?

Michael Ashner

May make a better answer. We intend in this under… let me rephrase that. My current expectation is we will increase our debt investments. That ought to tell you in this under current market conditions. For the near term we will do that through Concord, but under the terms of our agreement with Inland, new investments should be funded with their capital. So that will not happen for some period of time.

.

Operator

We do have a question from the line of Bob Shingami [ph] with Southpaw Asset Management.

Bob Shingami – Southpaw Asset Management LP

I wanted to ask what the advance rates were on those repo lines?

Thomas Staples

They vary depending on the asset. But they generally run between 85 basis points and 150 basis points depending on the asset.

Peter Braverman

What are the advance rates?

Thomas Staples

The advance rates also vary from anywhere from 70% to 85% of the value of the asset as determined by the Mark or by the lender.

Operator

We do have a follow-up question from David Fick – Stifel Nicolaus.

David Fick – Stifel Nicolaus

We were running off the press release that was issued to the wires and if you look at Bloomberg or Thomson Financial or Yahoo, you will see that your balance sheet is completely FUBAR, it does not add up. I do not know what happened. The one that is on your website is the one your must have in your hands and it does add up but there is a bad balance sheet out there in the internet land. You need to get it fixed.

Thomas Staples

Yes, David. Thank you. While you were mentioning it went on to Yahoo and ran it and it looks like it had dropped the one of the columns if you go to your 100 million columns.

Operator

At this time there are no further questions.

Michael Ashner

Again, we thank you all for joining us this afternoon. As always we appreciate your continued support and we welcome your input and questions concerning the company and its business. As you all know, you are welcome to call me at any time with any questions you have, any follow-up questions you have with respect to what is in the release or our 10-Q or any other matter relating to the company. If you would like to receive additional information about us, please contact Beverly at our offices, you can also find additional information about us on our website at www.winthropreit.com. In addition, please still free to contact me, as I said, or any member of management at any time you like.

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Source: Winthrop Realty Trust Q2 2008 Earnings Call Transcript
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