Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A
(Amendment No. 1)

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

For the Fiscal Year Ended December 31, 2007
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____to ____

Commission File Number 1-6249

WINTHROP REALTY TRUST
(Exact name of Registrant as specified in its certificate of incorporation)

Ohio
 
34-6513657
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification Number)
 
 
 
7 Bulfinch Place, Suite 500, Boston, Massachusetts
 
02114
(Address of principal executive offices)
 
(Zip Code)
 
(617) 570-4614
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: 

Title of Each Class
 
Name of Exchange on Which Registered
Common shares of beneficial interest, $1.00 par value
 
New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes ý No o 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer o
 
Accelerated filer ý
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes o No ý 

As of March 1, 2008 there were 67,502,264 common shares of beneficial interest outstanding.

At June 30, 2007 the aggregate market value of the common shares of beneficial interest held by non-affiliates was $346,143,365.

(Cover page continued on next page)


(cover page continued)
 
DOCUMENTS INCORPORATED BY REFERENCE

None.
 
2


This Form 10-K Amendment No.1 is being filed solely for the purpose of (i) attaching as Exhibits 99.1 and 99.2 the audited financial statements of Concord Debt Holdings LLC and the Marc Portfolio, respectively, as required by Rule 3-09 of Regulation S-X and (ii) adding the information required by Part III of Form 10-K which was previously incorporated by reference to Winthrop Realty Trust’s proxy statement for its Annual Meeting of Shareholders to be held on May 21, 2008. In light of the timing of Winthrop Realty Trust’s anticipated rights offering, this information has now been included in the Form 10-K. For the reader’s convenience, Winthrop Realty Trust is re-filing its entire Form 10-K with these items incorporated. This Form 10-K Amendment No. 1 has not been updated for events or information subsequent to the date of filing of the original Form 10-K. Accordingly, this Form 10-K Amendment No. 1 should be read in conjunction with the Trust’s filings made with the Securities and Exchange Commission subsequent to the filing of the original Form 10-K.

WINTHROP REALTY TRUST (FORMERLY KNOWN AS FIRST UNION
REAL ESTATE EQUITY AND MORTGAGE INVESTMENTS)
CROSS REFERENCE SHEET PURSUANT TO ITEM G,
GENERAL INSTRUCTIONS TO FORM 10-K

Item of Form 10-K
   
 Page
 
 
PART I
 
 
 
 
 
 
 
1.
 
Business
 
5
1A.
 
Risk Factors
 
15
1B.
 
Unresolved Staff Comments
 
28
2.
 
Properties
 
29
3.
 
Legal Proceedings
 
37
4.
 
Submission of Matters to a Vote of Security Holders
 
37
 
 
 
 
 
 
 
PART II
 
 
 
 
 
 
 
5.
 
Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
 
38
6.
 
Selected Financial Data
 
40
7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
41
7A.
 
Quantitative and Qualitative Disclosures about Market Risk
 
60
8.
 
Financial Statements and Supplementary Data
 
62
9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 
106
9A.
 
Controls and Procedures
 
106
9B.
 
Other Information
 
107
 
 
 
 
 
 
 
PART III
 
 
 
 
 
 
 
10.
 
Directors, Executive Officers and Corporate Governance
 
108
11.
 
Executive Compensation
 
111
12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 
114
13.
 
Certain Relationships and Related Transactions and Director Independence
 
116
14.
 
Principal Accountant Fees and Services
 
118
 
 
 
 
 
 
 
PART IV
 
 
 
 
 
 
 
15.
 
Exhibits and Financial Statement Schedules
 
119
 
 
(a) Financial Statements and Financial Statement Schedule
 
119
 
 
(b) Exhibits
 
119
 
 
 
 
 
 
 
Signatures
 
120
 
 
Schedule III - Real Estate and Accumulated Depreciation
 
121
 
 
Exhibit Index
 
123
 
3

 
CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
 
Any statements in this report, including any statements in the documents that are incorporated by reference herein that are not strictly historical are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements contained or incorporated by reference herein should not be relied upon as predictions of future events. Certain such forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans, intentions or anticipated or projected events, results or conditions. Such forward-looking statements are dependent on assumptions, data or methods that may be incorrect or imprecise and they may be incapable of being realized. Such forward-looking statements include statements with respect to:
 
·
 
the declaration or payment of distributions by us;
 
·
 
the ownership, management and operation of properties;
 
·
 
potential acquisitions or dispositions of our properties, investments or other businesses;
 
·
 
our policies regarding investments, acquisitions, dispositions, financings and other matters;
 
·
 
our qualification as a real estate investment trust under the Internal Revenue Code of 1986, as amended;
 
·
 
the real estate industry and real estate markets in general;
 
·
 
the availability of debt and equity financing;
 
·
 
interest rates;
 
·
 
general economic conditions;
 
·
 
supply of real estate investment opportunities and demand;
 
·
 
trends affecting us or our properties, investments or other businesses;
 
·
 
the effect of acquisitions or dispositions on our capitalization and financial flexibility;
 
·
 
the anticipated performance of our assets and of acquired properties and businesses, including, without limitation, statements regarding anticipated revenues, cash flows, funds from operations, earnings before interest, depreciation and amortization, property net operating income, operating or profit margins and sensitivity to economic downturns or anticipated growth or improvements in any of the foregoing; and
 
·
our ability, and that of our properties, investments and businesses, to grow.
 
Holders of common shares of beneficial interest are cautioned that, while forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance and they involve known and unknown risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of various factors. The information contained or incorporated by reference in this report and any amendment hereof including, without limitation, the information set forth in “Item 1A. Risk Factors” below or in any risk factors in documents that are incorporated by reference in this report, identifies important factors that could cause such differences. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may reflect any future events or circumstances.
 
4

 
PART I

ITEM 1. BUSINESS. 

Overview 

Winthrop Realty Trust (formerly First Union Real Estate Equity and Mortgage Investments), which, together with its subsidiaries, we refer to as the Trust, we, us, and Company, is a real estate investment trust, which we refer to as a REIT, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code. We are an unincorporated association in the form of a business trust organized in Ohio under a Declaration of Trust dated August 1, 1961, as amended and restated on December 15, 2005. Our principal executive offices are at 7 Bulfinch Place, Suite 500, Boston, MA 02114, our telephone number is 617-570-4614, and our website is www.winthropreit.com. Information on our website is not a part of this report.

We are engaged in the business of owning real property and real estate related assets which we categorize into three specific areas: (i) ownership of operating properties, which we refer to as operating properties; (ii) origination and acquisition of loans and debt securities secured directly or indirectly by commercial and multi-family real property, including collateral mortgage-backed securities and collateral debt obligation securities, which we refer to as loan assets and loan securities; and (iii) ownership of equity interests in other REITs, which we refer to as REIT equity interests.

We hold our assets through our wholly-owned operating partnership, WRT Realty L.P. (formerly First Union REIT L.P.), a Delaware limited partnership, which serves as our operating partnership in connection with our umbrella partnership real estate investment trust or "UPREIT" structure. The UPREIT structure provides a method for us to acquire properties by issuing to sellers, as a form of consideration, limited partnership interests in the operating partnership.

We acquire assets through direct ownership as well as through entering into specific strategic alliances and ventures. In particular, we have entered into two significant venture arrangements. Our venture with Marc Realty LLC, which we refer to as Marc Realty, a Chicago area real estate company, is our primary vehicle for investments in the Chicago metropolitan area. In addition, since its formation in March 2006, we acquire substantially all of our loan assets and loan securities through Concord Debt Holdings LLC, which we refer to as Concord, a venture with Lexington Realty Trust, which we refer to as Lexington. The formation of Concord enables us to increase and diversify our loan asset and loan security portfolio as it effectively doubles the capital available for investments in loan assets and loan securities.

Management

We are externally advised by FUR Advisors LLC, which we refer to as our advisor, an entity controlled by and partially owned by our current executive officers. Our advisor is required to administer our affairs including seeking, servicing and managing our investments. For providing these and the other services contemplated by the advisory agreement between us and our advisor, which we refer to as the Advisory Agreement, our advisor receives a base management fee and is entitled to an incentive fee. See “Employees” and “Item 1A. Risk Factors - Risk Relating to Our Management” below.

Pursuant to our bylaws, our executive officers are permitted to acquire or dispose of an investment with an aggregate value of $5,000,000 or less without the consent of our Board of Trustees. However, if such transaction is with (i) our advisor (and any successor advisor), Michael Ashner, and any of their respective affiliates; (ii) Lexington, The Lexington Master Limited Partnership, or Apollo Real Estate Investment Fund III, L.P. or any of their respective affiliates; (iii) a beneficial owner of more than 4.9% of our issued and outstanding common shares of beneficial interest, which we refer to as our common shares, either directly or upon the conversion of any of our preferred shares of beneficial interest, which we refer to as our preferred shares; or (iv) a beneficial owner of more than 4.9% of any other entity in which we hold a 10% or greater interest, then regardless of the amount of the transaction, such transaction must be approved by a majority of our independent trustees (acting as members of our Conflicts Committee).
 
5


Our Objectives and Strategies 

Our business objective is to maximize long-term shareholder value through a total return value approach to real estate investing. We seek to achieve this objective by identifying and investing in discrete real estate investments as well as entering into ventures including arrangements with regional or specialized real estate professionals with extensive experience in a particular market or asset type. In addition, where the opportunity arises we may seek to enter into strategic co-investment ventures managed by us with institutional and high net worth investors to enhance our total return through acquisition, asset management and other fees and a promoted economic interests.

In general, we seek to
 
 
· 
acquire operating properties without regard to property type (subject to certain limitations), location or position in the capital structure we believe
 
 
 
 Ø
 are undervalued,
 
 
 
 Ø
 present an opportunity to outperform the marketplace while at the same time providing current cash flow, or
 
 
 
 Ø
 will provide superior returns on the investment to the marketplace through an infusion of capital and/or improved management;
 
· 
acquire and originate loan assets and loan securities primarily through Concord utilizing the same underwriting criteria as used for operating properties and then taking advantage of the financing opportunities to generate attractive risk-adjusted returns;
 
·
acquire interests in other REITs we believe to be undervalued; and
 
·
retain our advisor which has a large experienced management team that provides us with resources at a cost that we believe to be less expensive than if such persons were employed directly by us.
 
Except as indicated below or as limited by the restrictions placed on us in order to meet our requirements to maintain our status as a REIT and our own self-imposed restrictions, our investment decisions will not be materially affected by the nature of an investment or where that investment falls in an entity’s capital structure. Generally, we do not acquire operating properties used for special use or healthcare or invest in development projects, single family projects, condominium or condo conversion projects, raw land or, to date, assets located outside of the United States. Also, in connection with our investment in Lexington we have agreed not to make any future direct investments in net lease or single-tenant properties so long as Michael L. Ashner serves as an executive officer or trustee for both us and Lexington; however, as long as we hold our interest in Lexington, we will have a significant investment in single-tenant assets.

We do not limit our investments to a specific type of real estate asset (either direct property investments, loans, office buildings etc.), our strategy is to concentrate our investments in those areas that we believe will generate the best risk-adjusted return on our investments. Accordingly, at such times as we believe that the purchase price for operating properties is purchaser favorable, it is likely that we will focus our investments in operating property acquisitions. Likewise, at such times as we believe that the purchase price for operating properties is high, it is likely that we will focus our investments on loan assets where the hypothetical purchase price for the underlying property collateralizing the loan asset, if acquired on a “last dollar loss” basis, is consistent with the purchase price that we would pay to acquire the property which serves to collateralize the loan asset. That is, if we were required to foreclose on our lien, the effective purchase price for the asset would be the then outstanding principal balance and any accrued interest of our loan plus the outstanding principal balance and any accrued interest of any loans senior to our loan.

We intend to fund our investments through one or more of the following: cash reserves, borrowings under our credit facility, property loans or the issuance by us of additional debt and/or equity. Toward that end, we recently filed with the Securities Exchange Commission a registration statement on Form S-3 to enable us to sell 8,845,036 of our common shares pursuant to a rights offering to the existing holders of our common shares and our Series B-1 Cumulative Convertible Redeemable Preferred Shares, which we refer to as our Series B-1 preferred shares. As investments mature in value to the point where we are unlikely to achieve better than a market return on their then enhanced value, it is likely we will seek to exit the investment and redeploy the capital to what we believe will be higher yielding opportunities.
 
6

 
Our History

Effective December 31, 2003, FUR Investors LLC, an entity controlled by and partially owned by our current executive officers, acquired 5,000,000 of our common shares pursuant to a tender offer at a price of $2.30 per share. In addition, FUR Investors purchased an additional 5,000,000 newly issued common shares for a price of $2.60 per share. As a result of these purchases, FUR Investors acquired a total of 10,000,000 of the outstanding common shares which represented 32.2% of the then total outstanding common shares.

In connection with the acquisition by FUR Investors of our common shares: (i) our advisor was retained as our external advisor; (ii) Michael L. Ashner was appointed our Chief Executive Officer; (iii) Mr. Ashner entered into an exclusivity agreement with us, which we refer to as the Exclusivity Agreement; (iv) FUR Investors entered into a covenants agreement pursuant to which it agreed not to take certain actions which, among other things, would adversely impact our status as a REIT or the listing of our common shares on the New York Stock Exchange; (v) our Board of Trustees was substantially reconstituted; and (vi) the terms of the members of our Board of Trustees were destaggered.

On November 7, 2005 in a transaction reviewed and approved by our Conflicts Committee which had engaged separate legal counsel, we assigned to Newkirk Realty Trust, Inc., which we refer to as Newkirk, all of our rights under the Exclusivity Agreement with respect to “net lease assets.” As defined, net lease assets include a property that is either net leased or the tenant leases at least 85.0% of the rentable square footage of the property, and, in addition to base rent, the tenant is required to pay some or all of the operating expenses for the property and, in either case, the lease has a remaining term, exclusive of all unexercised renewal terms, of more than 18 months. Our use of the term net lease assets also includes management agreements and master leases with terms of greater than three years where a manager or master lessee bears all operating expenses of a property and pays the owner a fixed return. The term net lease assets also includes all retenanting and redevelopment associated with net lease properties as well as all agreements, leases and activities incidental thereto. In addition, interests in net lease properties, include, without limitation, securities of companies, whether or not publicly traded, that are primarily invested in net lease assets. In exchange for this assignment, we received 1,250,000 shares of Newkirk’s common stock which, at that time, was valued at $20,000,000.

At the time of issuance, one half of the Newkirk shares (625,000 shares) we received were subject to forfeiture. Each month 17,361 shares vested and were no longer subject to forfeiture. In addition, we invested $50,000,000 in Newkirk by purchasing 3,125,000 shares at $16 per share. All of the shares held in Newkirk by us were subject to a lock-up agreement which prohibited us from selling these shares until the earlier of (i) the termination of an advisory agreement between NKT Advisors LLC, an affiliate of our advisor, and Newkirk or (ii) November 7, 2008.

On December 31, 2006, Newkirk was merged into Lexington Corporate Properties Trust (which upon the merger changed its name to Lexington Realty Trust). The merger required our consent and was reviewed and approved by our Conflicts Committee. In connection with the merger, the Newkirk shares held by us were no longer subject to forfeiture or lock-up, and (ii) the assignment of the exclusivity rights with respect to net lease assets was vested in Lexington.

Also in connection with the merger, Michael L. Ashner, our Chairman and Chief Executive Officer and the former Chairman and Chief Executive Officer of Newkirk, became a trustee and Executive Chairman of Lexington pursuant to the terms of an employment agreement between Mr. Ashner and Lexington, also approved by our Conflicts Committee. An agreement was entered into with Mr. Ashner which provides that in the event Lexington makes a real estate investment other than in a net-lease asset, Mr. Ashner is obligated to terminate his employment and other positions with Lexington, unless a majority of our independent trustees consent to his remaining with Lexington. Further, Mr. Ashner is not permitted to agree to certain amendments to his employment agreement without the consent of our Conflicts Committee. Due to Mr. Ashner’s position with Lexington, all future transactions with respect to the shares held by us in Lexington are subject to approval by our Conflicts Committee.
 
7


Our Assets 

We make investments in real estate related assets directly and in ventures with third parties. We classify these investments into three segments: (i) operating properties; (ii) loan assets and loan securities; and (iii) REIT equity interests.

At December 31, 2007, our assets consisted of:

·
Operating properties containing 9,490,000 square feet of space, including the properties in the Marc Realty and Sealy portfolios, and 230 rental units at a multi-family property.
·
Loan assets directly held having an aggregate principal balance of $85,699,000 and a 50% ownership interest in Concord which held loan assets and loan securities having an aggregate principal balance of $1,178,000,000.
·
REIT equity interests with a market value of $51,804,000.

Operating Properties

See “Item 2. Properties.”

Loan Assets and Loan Securities

General

Loan assets directly held by us at December 31, 2007 consisted of:

Property/Collateral
 
Property
Location
 
Outstanding
Principal Balance
 
Interest Rate
 
Maturity
 
                   
Marc Realty Portfolio (1)
   
Various
 
$
55,586,000
   
7.65
%
 
April 2012
 
                           
Marc Realty – 180 Michigan (1)
   
Chicago, IL
   
17,669,000
   
7.32
%
 
June 2008
 
                           
Marc Realty - Various (2)
   
Chicago, IL
   
12,444,000
   
8.50
%
 
(2)
 
                           
         
$
85,699,000
             

(1)
See “Marc Realty Loans” below for additional information relating to these loans.
(2)
Tenant improvement and capital expenditure loans with respect to certain of the properties in the Marc Realty portfolio which mature from July 2012 to November 2013. See “Marc Realty Loans” below.

Concord Debt Holdings

General

As described above, in March 2006 we formed a venture with Lexington called Concord Debt Holdings LLC for the purpose of acquiring and originating a diversified portfolio of real estate loans and securities. There are a number of risks associated with our investment in Concord that are set forth below in Item 1A. Risk Factors.

To date, we and Lexington have each committed to invest $162,500,000 in Concord, of which $157,413,000 was contributed at December 31, 2007. In addition to the capital contributions made by us and Lexington, Concord currently finances its loan assets and loan securities, and expects to continue to finance its loan assets and loan securities, through various structures including, repurchase facilities, credit lines, term loans and securitizations. Concord may seek additional capital through sales of preferred or common equity in Concord to institutional or other investors.
 
8

 
Concord is managed by WRP Sub-Management LLC, which we refer to as the Concord Advisor, which is an affiliate of, and has substantially the same executive officers as, our advisor. Investments and other material decisions with respect to Concord’s business require the consent of both us and Lexington or our and their representatives on Concord’s investment committee.

Concord’s business is to acquire and originate loan assets and loan securities collateralized by real estate assets including mortgage loans (commonly referred to as whole loans), subordinate interests in whole loans (either through the acquisition of a B-Note or a participation interest), mezzanine loans, preferred equity and commercial real estate securities including collateralized mortgage-backed securities, which we refer to as CMBS, and real estate collateral debt obligations, which we refer to as a CDO. Concord seeks to produce a stable income stream from its investments in loan assets and loan securities by carefully managing credit risk and interest rate risk. The loan assets and loan securities in which it invests are selected based on their long-term earnings potential and credit quality. Concord’s primary objective is to derive earnings from interest income rather than trading gains and, accordingly, intends to hold its loan assets and loan securities to maturity. During the investment process, Concord uses the real estate expertise of its management team, which includes members of our advisor to underwrite and analyze the loan assets and loan securities and properties collateralizing them.

Concord seeks to achieve its objective by acquiring and originating loan assets and loan securities where the real estate collateral for the loan asset or loan security, its debt yield and the hypothetical purchase price for such real estate if acquired on a “last dollar loss” basis meet our value-driven, risk adjusted investment strategy. Further, as a value investor Concord seeks loan assets and loan securities for which the real estate collateral is consistent with our and Lexington’s core real estate groups of income producing office, retail, multifamily, warehouse and hospitality assets. Concord does not generally invest in industrial, R&D, special use or healthcare assets, and it does not invest in any development projects, single family projects, condominium or condo conversion projects, raw land, synthetic loans or loans originated on assets located outside of the United States. Further, Concord does not directly invest in single family home mortgages nor does it acquire loan assets where the underlying obligor is either us or Lexington or our respective affiliates. Concord only invests in assets in which the pool of potential buyers is broad and seeks to avoid assets which lack existing cash flow and/or were developed on a “for sale” basis. Moreover, depending on the size of the loan class, Concord generally seeks to acquire between 51% and 100% of the ownership position in the loan asset in which it invests so as to control any decision making which might occur with respect to such loan asset in the future.

Following the acquisition of a loan asset or loan security, the Concord Advisor seeks to enhance the return to Concord on such assets by obtaining financing which is accretive to Concord. Concord’s original business model was to ultimately finance its loan assets and loan securities with long-term debt through the issuance of CDOs. To this end, Concord formed its first CDO, Concord Real Estate CDO 2006-1, Ltd., which we refer to as CDO-1, pursuant to which it financed approximately $464,601,000 of its loan assets and loan securities. However, the debt capital markets have experienced an increase in volatility and reduction in liquidity since the second quarter of 2007. This was initially triggered by credit concerns emanating from the single family residential market, particularly those loans commonly referred to as sub-prime loans. Concord’s sole exposure to the single family residential market is with respect to an $11,500,000 investment in a $983,869,000 bond, 21.3% of which is subordinate to Concord’s position. Collateral for this bond can consist of up to 10% of residential loans, with the balance of the collateral consisting of commercial loans. At December 31, 2007, the collateral for the bond consisted of only 3.4% of residential loans. Accordingly, even if all of the residential loans were to be valueless, an additional 17.9% of the value of the remaining loans collateralizing the bond would have to be eliminated before Concord would suffer any actual loss. Notwithstanding the foregoing, Concord elected to take an $11,028,000 other-than-temporary impairment even though the loan security is performing in accordance with its terms and it is Concord’s intention to hold this loan security to maturity.

As a result of the increase in volatility of the debt capital markets, CDO securitizations have become difficult if not impossible to execute. As a result, Concord has continued to finance its acquisition of loan assets and loan securities through repurchase facilities and additional capital from us and Lexington. Concord expects to issue additional CDOs or other types of securitizations at such time, if at all, as such issuances will generate attractive equity returns.
 
9

 
CDOs are a securitization structure whereby multiple classes of debt are issued to finance a portfolio of income producing assets, such as loan assets and loan securities. Cash flow from the portfolio of assets is used to repay the CDO liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of "AAA" through "BBB−" and therefore can be issued at yields that are lower than the average yield of the assets backing the CDO. That is, the gross interest payments on the senior classes of CDO securities are less than the average of the interest payment received by the CDO from its assets. On its existing CDO, Concord retained, and Concord expects that it will retain on any future CDOs, the equity and the junior CDO debt securities. As a result, assuming the CDOs’ assets are paid in accordance with their terms, Concord’s return will be enhanced as Concord will retain the benefit of the spread between the yield on the CDO loan assets and loan securities and the yield on the CDO debt. The equity and the junior CDO debt securities that Concord holds and intends to retain are the most junior securities in the CDOs' capital structure and are usually unrated or rated below investment grade. Concord also earns ongoing management fees for its management of the CDO collateral. A portion of these management fees is senior to the ‘‘AAA’’ rated debt securities of each CDO. In CDO-1, the level of leverage on the underlying assets was approximately 80%. The leverage level of Concord’s future CDOs may vary depending on the composition of the portfolio and market conditions at the time of the issuance of each CDO. Concord may increase or decrease leverage on its investment grade CDOs, at securitization, upward or downward to improve returns or to manage credit risk. In addition to CDOs, Concord may also use other capital markets vehicles to finance its real estate debt portfolio of loan assets and loan securities.

The Concord Advisor provides accounting, collateral management and loan brokerage services to Concord and its subsidiaries, including CDO-1. For providing these services, Concord reimburses the Concord Advisor for the costs incurred by Concord Advisor solely for the benefit of Concord, including salaries of employees dedicated to Concord’s business, which amounted to $2,571,000 in 2007. In order to create an economy of scale, an affiliate of both our advisor and the Concord Advisor provides accounting and other non-loan origination and loan acquisition services for the Concord Advisor. In connection with providing these services, the Concord Advisor reimburses such affiliate for the estimated costs associated with providing these services, which costs we refer to as the Concord Credit Amount. As describe above, we hold a 50% interest in Concord. As a result, we effectively pay 50% of Concord Credit Amount. Accordingly, because the Concord Credit Amount is paid to an affiliate of our advisor, we receive a credit against the advisory fee payable to our advisor equal to 50% of the Concord Credit Amount which credit amounted to $189,000 for 2007.

For additional information relating to Concord and its assets, see “Item 7. Management Discussion and Analysis of Financial Conditions and Results of Operations – Off-Balance Sheet Arrangements” and “Item 8. Financial Statements and Supplementary Data – Note 8 – Concord Debt Holdings LLC.”

Marc Realty Portfolio

At December 31, 2007, our Marc Realty portfolio consisted of one first mortgage bridge loan, two participating second mortgage loans and 19 convertible mezzanine loans, together with an equity investment in each mezzanine borrower, in the aggregate amount of approximately $73,255,000. Each of the borrowers is owned primarily by the principals of Marc Realty, a Chicago-based real estate company. Each loan is secured by the applicable borrower's ownership interest in a limited liability company, which we refer to as a Property Owner, that in turn owns an office building or complex primarily in the Chicago business district or suburban area. Each borrower holds a 100% interest in the applicable Property Owner other than with respect to one property, in which the borrower holds a 75% interest in the Property Owner. Each loan, other than the first mortgage bridge loan, bears interest at 7.65%, matures on April 18, 2012 and requires monthly payments of interest only. The first mortgage bridge loan, in the amount of $17,669,000, bears interest at 7.32%, requires monthly payments of interest only and matures on June 20, 2008.
 
In connection with the making of these loans, we acquired an equity interest in each of the borrowers. The equity interest entitles us to participate in capital proceeds derived from the sale or refinancing of the applicable property to the extent such proceeds generate amounts in excess of that required to fully satisfy all of the debt encumbering that property, including our respective loan and a return to the borrower of its deemed equity (the agreed value of the applicable property less all debt encumbering that property including the loan made by us) plus a 7.65% return thereon.
 
10

 
During 2007, two of the properties underlying the mezzanine loans were sold. Upon the sale of these two properties, exclusive of interest, we received an aggregate of $17,866,000 on our original investment of $11,333,000.
During 2006, four of the properties underlying the mezzanine loans were sold. Upon the sale of these four properties, exclusive of interest, we received an aggregate of $7,716,000 on our original investment of $6,635,000.

In addition, in connection with the original Marc Realty transaction both us and Marc Realty committed to each provide up to $7,350,000 in additional financing, which we refer to as TI/Capex Loans, to cover the costs of tenant improvements and capital expenditures at the properties underlying the Marc Realty portfolio. During 2007, TI/Capex Loans in excess of the $7,350,000 commitment were required. Accordingly, although neither us nor Marc Realty has committed to provide additional TI/Capex Loans, at December 31, 2007 both us and Marc Realty had each advanced approximately $12,444,000 in TI/Capex Loans. The TI/Capex Loans bear interest of 8.50% per annum and are secured by a subordinate loan on the applicable property.

The following table sets forth certain information relating to the office buildings held by each Property Owner at December 31, 2007:
 
Address
 
Property Location
 
Square Footage
 
Principal Balance
Loan
 
Principal Balance TI/Capex Loans
(1)
 
                   
1111 Plaza Drive
   
Schaumburg, IL
   
127,000
 
$
2,144,000
 
$
 
1000 Plaza Drive
   
Schaumburg, IL
   
125,000
   
994,000
   
 
999 Plaza Drive
   
Schaumburg, IL
   
137,000
   
1,787,000
   
 
8 South Michigan Avenue
   
Chicago, IL
   
174,000
   
5,207,000
   
1,050,000
 
11 East Adams Street
   
Chicago, IL
   
159,000
   
3,810,000
   
1,221,000
 
29 East Madison Street
   
Chicago, IL
   
235,000
   
6,515,000
   
502,000
 
30 North Michigan Avenue
   
Chicago, IL
   
221,000
   
5,527,000
   
3,099,000
 
600 West Jackson Street (2)
   
Chicago, IL
   
101,000
   
1,736,000
   
453,000
 
999 East Touhy Avenue (2)
   
Des Plaines, IL
   
146,000
   
736,000
   
133,000
 
223 West Jackson Street
   
Chicago, IL
   
167,000
   
5,507,000
   
889,000
 
1803-1995 Hicks Road
   
Rolling Meadows, IL
   
75,000
   
1,254,000
   
413,000
 
4415 West Harrison Street
   
Hillside, IL
   
192,000
   
4,905,000
   
231,000
 
6546 Mercantile Way
   
Lansing, MI
   
403,000
   
2,587,000
   
637,000
 
2000-2060 East Algonquin
   
Schaumburg, IL
   
101,000
   
434,000
   
682,000
 
1701 East Woodfield Road
   
Schaumburg, IL
   
173,000
   
3,278,000
   
236,000
 
2720 River Road
   
Des Plaines, IL
   
108,000
   
3,314,000
   
255,000
 
3701 Algonquin Road
   
Rolling Meadows, IL
   
194,000
   
1,858,000
   
987,000
 
1051 Perimeter Drive
   
Schaumburg, IL
   
194,000
   
549,000
   
-
 
2205-2255 Enterprise Drive
   
Westchester, IL
   
130,000
   
1,600,000
   
1,135,000
 
900 Ridgebrook
   
Northbrook, IL
   
119,000
   
1,484,000
   
432,000
 
180 North Michigan Avenue
   
Chicago, IL
   
226,000
   
17,669,000
   
-
 
2860 River Road
   
Des Plaines, IL
   
57,000
   
360,000
   
89,000
 
           
3,564,000
 
$
73,255,000
 
$
12,444,000
 
 
 
(1)
Loans made to finance tenant improvements and capital expenditures.
 
(2)
Property is currently under contract for sale.

First Mortgage Residential Whole-Pool Loan Certificates

During 2005 and 2006, we invested $173,083,000 (including $609,000 of purchased interest) in agency-sponsored whole pool certificates. Of these securities, $163,385,000 were issued by FNMA and $9,089,000 were issued by FHLMC. Pools of FNMA and FHLMC adjustable rate residential mortgage loans underlie these securities. These securities were subsequently sold in February 2008, and we recognized a gain of $233,000.
 
11

 
The table below sets forth information regarding our investments in whole-pool loan certificates as of December 31, 2007 (in thousands).
 
   
Amortized
Cost
 
Unrealized
Gain (Loss)
 
Market
Value
 
 
Maturity
 
Initial Interest Rate
 
                       
Fannie Mae
 
$
48,355
 
$
234
 
$
48,589
   
6/1/2035
   
4.24
%
Fannie Mae
   
9,742
   
(118
)
 
9,624
   
8/1/2035
   
6.49
%
Freddie Mac/Fannie Mae
   
19,780
   
148
   
19,928
   
8/1/2046
   
5.11
%
Total
 
$
77,877
 
$
264
 
$
78,141
             
 
REIT Equity Interests

At December 31, 2007, our investments in REIT equity interests consisted of the following:

REIT/Ticker Symbol
 
Number of Shares
 
       
Lexington (NYSE:LXP)
   
3,500,000
 
HRPT Properties (NYSE:HRP)
   
100,000
 
Sun Communities, Inc. (NYSE: SUI)
   
10,000
 

See Item 8. Financial Statements and Supplementary Data - Note 6 for information relating to the purchase price for our REIT equity interests and their market value at December 31, 2007.

In addition, we held a 28% interest in Lex-Win Acquisition LLC, a venture which we refer to as Lex-Win, formed for the purpose of acquiring shares of common stock in Piedmont Office Realty Trust, Inc., a private real estate investment trust which we refer to as Piedmont. At December 31, 2007, Lex-Win held 3,885,616.525 shares in Piedmont at a per share price of $9.30, representing approximately 0.79% of the total outstanding shares in Piedmont.

Revolving Line of Credit 

For information relating to our Revolving Line of Credit see Item 8. Financial Statements And Supplementary Data – Note 11.

Employees 

As of December 31, 2007, we had no employees. During 2007, our affairs were administered by our advisor pursuant to the terms of the Advisory Agreement. Pursuant to the terms of the Advisory Agreement, our advisor is responsible for providing asset management services to us and coordinating with our shareholder transfer agent and property managers. Under the Advisory Agreement, we pay to our advisor a quarterly base management fee equal to the lesser of an asset based fee or an equity based fee. In general, the asset based fee is calculated as follows: 1% of our gross asset value up to $100,000,000, 0.75% of our gross asset value between $100,000,000 and $250,000,000, 0.625% of our gross asset value between $250,000,000 and $500,000,000 and 0.50% of our gross asset value in excess of $500,000,000. To accommodate the high leverage on the properties that we refer to as the Finova properties, our advisor agreed to reduce its fee for these properties to 0.25% of the gross asset value for the portion of that portfolio that is subject to leverage. In addition, in light of the nature of and leverage of our whole pool mortgage-backed loans, their value is entirely excluded from gross assets.
 
The equity based fee is calculated as follows: (i) 1.5% of our issued and outstanding equity securities plus (ii) .25% of any equity contribution by an unaffiliated third party to a venture managed by us. For purposes of the equity based calculation, the 31,058,913 common shares outstanding at January 1, 2005 are to be valued as follows: $2.30 (The tender offer price paid by an affiliate of our advisor in its December 2003 tender offer) with respect to 26,058,913 common shares and $2.60 (the purchase price paid by such affiliate) with respect to the 5,000,000 common shares acquired on December 31, 2003. Our common shares issued upon the conversion of our Series A Preferred Shares are valued at $5.0825 per common share, the conversion price. All preferred and common shares issued subsequent to January 1, 2005 are and will be valued at the net issuance price, including any common shares issued in connection with the conversion of preferred shares.
 
12

 
In connection with the acquisition of the Newkirk shares, the Advisory Agreement was modified to provide for a credit to us against the payment of the quarterly base management fee payable to our advisor equal to 80% of the incentive management fee, if any, payable by Newkirk to NKT Advisors under their advisory agreement. FUR Holdings LLC, which owns 100% of our advisor and 80% of NKT Advisors, effectively guaranteed any payments. In connection with the Newkirk/Lexington merger, the advisory agreement between NKT Advisors and Newkirk was terminated, and NKT Advisors received a payment of $5,500,000 attributable to its incentive fee. As a result, we received a $4,400,000 credit, $1,159,000 of which was used to offset our advisory fee payable for the quarter ended December 31, 2006 and the balance was used to offset a portion of the advisory fee payable during 2007. In addition, we are entitled to receive a further credit against the advisory fee equal to 50% of the Concord Credit Amount.

In addition to the base management fee, pursuant to the terms of the Advisory Agreement, at such time, if at all, as we have paid aggregate dividends to our holders of common shares in excess of a threshold amount ($349,653,000 at December 31, 2007 assuming conversion of all Series B-1 preferred shares at such date), our advisor will be entitled to receive 20% of all subsequent dividends paid to our holders of common shares. If we had liquidated or sold all or a substantial portion of our assets at December 31, 2007, based upon a per share price equal to the closing price on December 31, 2007 ($5.29 per common share), the amount payable to our advisor as incentive fee compensation would be approximately $23,310,000. Although the foregoing calculation of the incentive fee is based on the closing price of our common shares on the last day of the year, if the advisory agreement were terminated, the actual incentive fee payable would be based on an appraised valuation or the liquidation proceeds received for our assets, which may be substantially in excess of the amount calculated based on the market price of our common shares.

Competition 

We have significant competition with respect to our acquisition of operating properties and our acquisition and origination of loan assets with many other companies, including other REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies and other investors. Our ability to grow our investment portfolio depends to a significant degree on our ability to implement our investment policy and operating strategies. Some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or make different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that meet our investment objective. We will continue to capitalize on the acquisition and investment opportunities that our advisor brings to us as a result of its acquisition experience as well as our partners in ventures which serve as platforms to investments in various geographic areas and particular classes of assets. Through its broad experience, our advisor’s senior management team has established a network of contacts and relationships, including relationships with operators, financiers, commercial real estate brokers, potential tenants and other key industry participants.
 
Environmental Regulations

Our operations and properties are subject to various federal, state and local laws and regulations concerning the protection of the environment including air and water quality, hazardous or toxic substances and health and safety. See “Item 1A. Risk Factors – Environmental Liabilities.”
 
13

 
Segment Data

Our business segment data may be found in Note 20 to the Consolidated Financial Statements in Item 8.

Additional Information About Us

We make the following materials available free of charge through our website at www.winthropreit.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act:

 
·
our annual reports on Form 10-K and all amendments thereto;
 
·
our quarterly reports on Form 10-Q and all amendments thereto;
 
·
our current reports on Form 8-K and all amendments thereto; and
 
·
various other filings that we make with the SEC.

We also make the following materials available free of charge through our website at www.winthropreit.com:

 
·
Audit Committee Charter;
 
·
Compensation Committee Charter;
 
·
Conflicts Committee Charter;
 
·
Nominating and Corporate Governance Committee Charter;
 
·
Code of Business Conduct and Ethics; and
 
·
Corporate Governance Guidelines.

We will provide a copy of the foregoing materials without charge to anyone who makes a written request to our Investor Relations Department, c/o FUR Advisors, LLC, 7 Bulfinch Place, Suite 500, P.O. Box 9507, Boston, Massachusetts 02114.

We also intend to promptly disclose on our website any amendments that we make to, or waivers for our trustees or executive officers that we grant from, the Code of Business Conduct and Ethics.

NYSE Certification

As required by applicable New York Stock Exchange listing rules, on May 9, 2007, following our 2007 Annual Meeting of Shareholders, our Chairman and Chief Executive Officer submitted to the New York Stock Exchange a certification that he was not aware of any violation by us of New York Stock Exchange corporate governance listing standards.

14


ITEM 1A. RISK FACTORS

We, our assets and the entities in which we invest are subject to a number of risks customary for REITs, property owners, loan originators and holders and equity investors as well as a number of risks involved in our investment policy that not all REITs may have. Although this section is divided into a number of subheadings, it should be read in its entirety and although certain risks are more likely to occur with respect to certain types of assets in which we invest, and have been included under such heading, such risks may be applicable to other types of assets in which we invest or in which we may invest in the future. Accordingly, this section should be read in its entirety to fully understand the risks applicable to an investment in us.

General Risks Relating to Us and Our Business

We have grown rapidly since January 1, 2004. We may not be able to maintain this rapid growth and our failure to do so could adversely affect our stock price.

We have experienced rapid growth in recent years, increasing our total assets from approximately $146,838,000 at December 31, 2003 to approximately $745,447,000 at December 31, 2007. We may not be able to maintain a similar rate of growth in the future or manage our growth effectively. In fact, our assets remained relatively constant during 2007 as we elected to limit our investments due primarily to the high cost of real estate assets and the capital market crisis limiting debt investment opportunities. Our failure to continue to grow our assets may have a material adverse affect on our financial condition and results of operations, our stock price and our ability to pay dividends to our shareholders.

We may not be able to invest our cash reserves in suitable investments.

At December 31, 2007, we had approximately $36,654,000 of cash and cash equivalents available for investment. Our ability to generate increased revenues is dependent upon our ability to invest these funds as well as additional funds which we may raise or borrow in real estate related assets that will ultimately generate favorable returns.

We are subject to significant competition and we may not compete successfully.
 
See “Item 1. Business-Competition” for information relating to this risk.

Investing through ventures presents additional risks.

Our investments in entities which we do not control, including ventures such as Concord and Marc Realty, present additional risks such as our having differing objectives than our partners or the entities in which we invest or our becoming involved in disputes or competing with those persons. In addition, we rely on the internal controls and financial reporting controls of these entities and their failure to comply with applicable standards may adversely affect us.

Investing in private companies involves specific risks.

We have held ownership interests in, and may acquire additional ownership interests in, private companies not subject to the reporting requirements of the Securities and Exchange Commission. Investments in private businesses involve a higher degree of business and financial risk, which can result in substantial losses and accordingly should be considered speculative. There is generally no publicly available information about these private companies, and we will rely significantly on the due diligence of our advisor to obtain information in connection with our investment decisions.

We may acquire or sell additional assets or properties. Our failure or inability to consummate these transactions or manage the results of these transactions could adversely affect our operations and financial results.

We may acquire or sell properties or acquire or sell other real estate companies when we believe that an acquisition or sale is consistent with our business objective. We may not, however, succeed in consummating desired acquisitions or sales. Also, we may not succeed in leasing newly acquired properties at rents sufficient to cover the costs of acquisition, debt service and operation. Difficulties in integrating acquisitions into our portfolio may prove costly or time-consuming and could consume a disproportionate share of management's and/or our advisor’s attention.
 
15

 
Many of our investments are illiquid, and we may not be able to adjust our portfolio in response to changes in economic and other conditions, which may result in losses to us.

Many of our investments are relatively illiquid and, therefore, our ability to sell properties and purchase other properties, securities and debt promptly in response to a change in economic or other conditions may be limited. The requirements of the Code with regard to REITs also places limits on our ability to sell properties held for fewer than four years. These considerations could make it difficult for us to dispose of properties, even if a disposition were in the best interest of our shareholders. In addition, we invest in REIT equity interests that are not publicly traded which limits our ability to dispose of such assets. As a result, our ability to adjust our portfolio in response to changes in economic and other conditions may be relatively limited, which may result in losses to us.

We leverage our portfolio, which may adversely affect our return on our investments and may reduce cash available for distribution.

We seek to leverage our portfolio through borrowings. Our return on investments and cash available for distribution to holders of our preferred and common shares may be reduced to the extent that changes in market conditions cause the cost of our financings to increase relative to the income that can be derived from the assets. Our debt service payments reduce the cash available for distributions to holders of preferred and common shares. We may not be able to meet our debt service obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to foreclosure or forced sale to satisfy our debt obligations. A decrease in the value of the assets may lead to a requirement that we repay certain borrowings. We may not have the funds available, or be able to arrange for refinancings, to satisfy such repayments.

We may change our investment and operational policies.

We may change our investment and operational policies, including our policies with respect to investments, acquisitions, growth, operations, indebtedness, capitalization and distributions, at any time without the consent of our shareholders, which could result in our making investments that are different from, and possibly riskier than, the types of investments described in this filing. A change in our investment strategy may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect our share price and our ability to make distributions.

Interest rate fluctuations may reduce the spread we earn on our interest-earning investments and may reduce our investment return.

Market risk is the exposure to loss resulting from changes in interest rates and equity prices. Although we seek to finance our assets on a match-funded basis and mitigate the risk associated with future interest rate volatility, we are subject to credit risk and interest rate risk with respect to our investments in loan assets and loan securities that are not match-funded. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond our control.

Our interest rate risk sensitive assets, liabilities and related derivative positions are generally held for non-trading purposes. As of December 31, 2007, a hypothetical 100 basis point increase in interest rates applied to our variable rate assets would increase our annual interest income by approximately $4,534,000, offset by an increase in our interest expense of approximately $3,314,000 on our variable rate liabilities after the impact of our interest rate swaps. Similarly, a hypothetical 100 basis point decrease in interest rates would decrease our annual interest income by the same net amount.
 
16


We and Concord engage in hedging transactions that may limit gains or result in losses.

We and Concord use derivatives to hedge our respective liabilities and this has certain risks, including:

 
·
losses on a hedge position have in the past and may in the future reduce the cash available for distribution to us as a partner in Concord and to our shareholders and such losses may exceed the amount invested in such instruments;
 
·
counterparties to a hedging arrangement could default on their obligations; and
 
·
we and Concord may have to pay certain costs, such as transaction fees or brokerage costs.

Our Board of Trustees has authorized our advisor to use interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other hedging instruments in order to hedge as much of the interest rate risk as it determines is in the best interest of our shareholders, given the cost of such hedges and the need to maintain our status as a REIT. We may use these hedging instruments in our risk management strategy to limit the effects of changes in interest rates on our operations. A hedge may not be effective in eliminating all of the risks inherent in any particular position. Our profitability may be adversely affected as a result of the use of derivatives.

We must manage our investments in a manner that allows us to rely on an exemption from registration under The Investment Company Act in order to avoid the consequences of regulation under that Act.

We intend to operate so that we are exempt from registration as an investment company under the Investment Company Act of 1940, as amended. Therefore, the assets that we may invest in, or acquire, are limited by the provisions of the Investment Company Act and the rules and regulations promulgated thereunder. If we are required to make investments in order to be exempt from registration, such investments may not represent an optimum use of our capital when compared to other available investments.

We may not be able to obtain capital to make investments.

At such time as we utilize our cash reserves, we will be dependent primarily on external financing to fund the growth of our business. This is because one of the requirements for a REIT is that it distribute 90% of its net taxable income, excluding net capital gains, to its shareholders. There is also a separate requirement to either distribute net capital gains or pay a corporate level tax. Our access to debt or equity financing depends on the willingness of third parties to lend or make equity investments as well as the general condition of the capital markets. We and other companies in the real estate industry have experienced limited availability of financing from time to time. Although we believe that we will be able to finance any investments we seek to make in the foreseeable future, requisite financing may not be available on acceptable terms.

We have significant distribution obligations to holders of our Series B-1 preferred shares.

The provisions of our Series B-1 preferred shares currently require us to make annual distributions presently aggregating approximately $6,127,000 before any distributions may be made on our common shares.

Our ratio of total debt to total entity value may increase.

As of December 31, 2007, we had approximately $236,925,000 of mortgage loans payable and $98,266,000 in liquidation value of Series B-1 preferred shares which are included as debt for financial statement purposes. Our ratio of this debt to total entity value was approximately 41.8%. When we say “entity value” we mean market equity value of our common and preferred shares plus this debt. In the future, we may incur additional debt to finance acquisitions, property developments or ventures and thus increase our ratio of total debt to total entity value. If our level of indebtedness increases, it may increase the risk of default on our obligations and adversely affect our financial condition and results of operations. In addition, in a rising interest rate environment the cost of our existing floating rate debt and any new debt or other market rate securities or instruments may increase.

17


Covenants in our debt instruments could adversely affect our financial condition and our ability to make future investments.

The mortgages on our properties contain customary covenants such as those that limit our ability, without the prior consent of the lender, to further mortgage the applicable property. Our credit facility contains, and other loans that we may obtain in the future may contain, customary restrictions, requirements and other limitations on our ability to incur indebtedness, including a limitation on our ability to incur debt based upon the level of our ratio of total debt to total assets, our ratio of secured debt to total assets, our ratio of EBITDA to interest expense and fixed charges, and a requirement for us to maintain a certain level of unencumbered assets to unsecured debt. Our ability to borrow under our credit facility is subject to compliance with certain other covenants. In addition, failure to comply with our covenants could cause a default under the applicable debt instrument, and we may then be required to repay such debt with capital from other sources which may not be available to us, or be available only on unattractive terms.

Additionally, our ability to satisfy current or prospective lenders’ insurance requirements may be adversely affected should lenders insist upon insurance coverage against acts of terrorism not available to us in the marketplace on commercially reasonable terms.
We rely on debt financing, including borrowings under our credit facility, issuances of unsecured debt and debt secured by individual properties, to finance our acquisition activities and for working capital. If we are unable to obtain debt financing from these or other sources, or to refinance existing indebtedness upon maturity, our financial condition and results of operations would be adversely affected. If we breach covenants in our debt agreements, the lenders can declare a default and, if the debt is secured, exercise their remedies including seeking to foreclose on the collateral securing the defaulted loan.

Future issuances and sales of equity or debt interests pursuant to an outstanding registration statement may affect the market price of our common shares.

We currently have an effective “shelf” registration statement on file covering the issuance, from time to time, of up to $256,388,000 of our common shares, preferred shares and/or debt securities. The registration statement also covers the resale by certain selling shareholders of up to 23,222,223 common shares. The actual issuance of additional common shares or sale of these or other large holdings of common shares may decrease the market price of our common shares. We have also agreed to file a registration statement covering the resale of 3,522,566 common shares which were issued in a privately negotiated transaction in 2005.

If we issue preferred equity or debt we may be exposed to additional restrictive covenants and limitations on our operating flexibility, which could adversely affect our ability to pay dividends.

If we decide to issue preferred equity or debt in the future, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Holders of preferred equity or debt may be granted specific rights, including but not limited to: the right to hold a perfected security interest in certain of our assets, the right to accelerate payments due under the indenture, rights to restrict dividend payments, and rights to require approval to sell assets. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common shares. We, and indirectly our shareholders, will bear the cost of issuing and servicing such securities.

Our due diligence may not reveal all of the liabilities associated with a proposed investment and may not reveal other weaknesses.

Before making an investment in an operating property, loan asset or loan security, our advisor assesses the value of the operating property or, in the case of a loan asset or loan security, the value of the assets underlying the loan or loan security. Further, in entering into a venture or making a loan or acquiring a loan security, our advisor assesses the strength and skills of such entity's management and other factors that it believes are material to the performance of the investment. This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. In making the assessment and otherwise conducting customary due diligence, our advisor relies on the resources available to it and, in some cases, an investigation by third parties including, when available, audited financial statements prepared by independent accountants. There can be no assurance that its due diligence processes will uncover all relevant facts or that the investment will be successful.

18

 
We may fail to qualify or remain qualified as a REIT and may be required to pay income taxes at corporate rates.

Although we believe that we have been and will remain organized and have operated and will continue to operate so as to qualify as a REIT for federal income tax purposes, we cannot assure this result. Qualification as a REIT for federal income tax purposes is governed by highly technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. Our qualification as a REIT also depends on various facts and circumstances that are not entirely within our control. In addition, legislation, new regulations, administrative interpretations or court decisions might change the tax laws with respect to the requirements for qualification as a REIT or the federal income tax consequences of qualification as a REIT.

If, with respect to any taxable year, we fail to maintain our qualification as a REIT and certain relief provisions do not apply, we would not be able to deduct distributions to our shareholders in computing our taxable income and would have to pay federal corporate income tax (including any applicable alternative minimum tax) on our taxable income. If we had to pay federal income tax, the amount of money available to distribute to our shareholders would be reduced for the year or years involved, and we would no longer be required to pay dividends to our shareholders. In addition, we would be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost and thus our cash available for distribution to our shareholders would be reduced in each of those years, unless we were entitled to relief under relevant statutory provisions.

Although we currently intend to operate in a manner designed to allow us to continue to qualify as a REIT, future economic, market, legal, tax or other considerations might cause us to revoke the REIT election. In that event, we and our shareholders would no longer be entitled to the federal income tax benefits applicable to a REIT.

Pursuant to an agreement with one of our common shareholders, we may be liable to pay damages to that shareholder in the event we fail to maintain our status as a REIT.

In order to maintain our status as a REIT, we may be forced to borrow funds during unfavorable market conditions.

As a REIT, we generally must distribute at least 90% of our annual REIT taxable income, subject to certain adjustments, to our shareholders. To the extent that we satisfy the REIT distribution requirement but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws.

From time to time, we may have taxable income greater than our cash flow available for distribution to our shareholders (for example, due to substantial non-deductible cash outlays, such as capital expenditures or principal payments on debt). If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices or find alternative sources of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT distribution requirement and to avoid income and excise taxes in a particular year. These alternatives could increase our operating costs and diminish our rate of growth.

Factors that may cause us to lose our New York Stock Exchange listing.

We might lose our listing on the NYSE depending on a number of factors, including failure to qualify as a REIT, or our not meeting the NYSE’s requirements, including those relating to the number of shareholders and the amount and composition of our assets.

19


Ownership limitations in our Bylaws may adversely affect the market price of our Common Shares.

Our bylaws contain an ownership limitation that is designed to prohibit any transfer that would result in our being "closely-held" within the meaning of Section 856(h) of the Code. This ownership limitation, which may be waived by our Board of Trustees, generally prohibits ownership, directly or indirectly, by any single shareholder of more than 9.8% of the common shares. Our Board of Trustees has waived this ownership limitation on a number of occasions. Unless the Board of Trustees waives the restrictions or approves a bylaw amendment, common shares owned by a person or group of persons in excess of 9.8% of our outstanding common shares are not entitled to any voting rights, are not considered outstanding for quorum or voting purposes, and are not entitled to dividends, interest or any other distributions with respect to the common shares. The ownership limit may have the effect of inhibiting or impeding a change of control or a tender offer for our common shares.
 
We may be adversely affected by unfavorable economic changes.

Adverse economic conditions in the United States in general and particularly in areas where the properties underlying our investments are located (including business layoffs or downsizing, industry slowdowns, changing demographics and other factors) and local real estate conditions (such as oversupply of, or reduced demand for, office and industrial properties) may have an adverse affect on the value of our properties. A material decline in demand, or the ability of tenants to pay rent, for office and industrial space may result in a material decline in our cash available for distribution.

Risks Relating to our Operating Properties

Risks incidental to the ownership and operation of real estate assets.

The value of an investment in us depends upon our financial performance and the value of our operating properties, both those presently held as well as future investments, which are subject to the risks normally associated with the ownership, operation and disposal of real estate properties and real estate related assets, including:

 
·
changes in the general and local economic climate;
 
·
competition from other properties;
 
·
changes in interest rates and the availability of financing;
 
·
the cyclical nature of the real estate industry and possible oversupply of, or reduced demand for, space in the markets in which our properties are located;
 
·
the attractiveness of our properties to tenants and purchasers;
 
·
how well we manage our properties;
 
·
changes in market rental rates and our ability to rent space on favorable terms;
 
20

 
 
·
the financial condition of our tenants and borrowers including bankruptcy or insolvency of tenants and borrowers;
 
·
the need to periodically renovate, repair and re-lease space and the costs thereof;
 
·
increases in maintenance, insurance and operating costs;
 
·
civil unrest, armed conflict or acts of terrorism against the United States; and
 
·
earthquakes and other natural disasters or acts of God that may result in uninsured losses.

In addition, applicable federal, state and local regulations, zoning and tax laws and potential liability under environmental and other laws may affect real estate values. Further, throughout the period that we own real property, regardless of whether or not a property is producing any income, we must make significant expenditures, including those for property taxes, maintenance, insurance and related charges and debt service. The risks associated with real estate investments may adversely affect our operating results and financial position, and therefore the funds available for distribution to you as dividends.

We face a number of significant issues with respect to the properties we own which may adversely affect our financial performance.

Leasing Issues. With respect to our properties, we are subject to the risk that, upon expiration, leases may not be renewed, the space may not be relet, or the terms of renewal or reletting, including the cost of any required renovations, may be less favorable than the current lease terms. This risk is substantial with respect to our net lease properties as single tenants lease 100% of each property. Twenty of our properties, containing an aggregate of approximately 2,947,000 square feet of space are net leased to seven different tenants. Leases accounting for approximately 2% of the aggregate 2006 annualized base rents from our properties, representing approximately 1% of the net rentable square feet at the properties, expired without penalty or premium through the end of 2007, and leases accounting for approximately 3% of aggregate 2007 annualized base rent from the properties, representing approximately 2% of the net rentable square feet at the properties, are scheduled to expire in 2008. Other leases grant tenants early termination rights upon payment of a termination penalty. Lease expirations will require us to locate new tenants and negotiate replacement leases with new tenants. The costs for tenant improvements, tenant concessions and leasing commissions, with respect to new leases, are traditionally greater than costs relating to renewal leases. If we are unable to promptly relet or renew leases for all or a substantial portion of the space subject to expiring leases, or if the rental rates upon such renewal or reletting are significantly lower than expected, our revenue and net income could be adversely affected.

Financial Condition of Tenant. A tenant may experience a downturn in its business, which could result in the tenant's inability to make rental payments when due. In addition, a tenant may seek the protection of bankruptcy, insolvency or similar laws, which could result in the rejection and termination of such tenant's lease and cause a reduction in our cash flow. If this were to occur at a net lease property, the entire property would become vacant.

We cannot evict a tenant solely because of its bankruptcy. A court, however, may authorize a tenant to reject and terminate its lease. In such a case, our claim against the tenant for past due rent and unpaid future rent would be subject to a statutory cap that might be substantially less than the remaining rent owed under the lease. In any event, it is unlikely that a bankrupt tenant will pay in full the amount it owes us under a lease. The loss of rental payments from tenants could adversely affect our cash flows and operating results

Tenant Concentration. Our Jacksonville property (previously leased to Winn-Dixie) has two tenants that occupy 78% of the space at the property. Our properties at 550-650 Corporetum and 701 Arboretum (Chicago, Illinois market), each have two tenants who occupy 49% and 67% of the space at the property, respectively.

Our Ontario property in which we hold an 80% interest has two tenants that occupy 26% of the space at the property. We believe that the relocation or future financial weakness of these tenants would not have a material adverse affect on our rental revenue.

With respect to the net lease properties, leases with Viacom Inc. and, The Kroger Co. represent approximately 34% and 20%, respectively, of the total rentable square footage of the net lease properties. Accordingly, the financial weakness of either of these tenants could negatively impact our operations and cash flows.
 
21

 
We may be unable to refinance our existing debt or obtain favorable refinancing terms.

We are subject to the normal risks associated with debt and preferred share financings, including the risk that our cash flow will be insufficient to meet required payments of principal and interest on debt and distributions to holders of preferred shares and the risk that indebtedness on our properties, or unsecured indebtedness, will not be able to be renewed, repaid or refinanced when due, or that the terms of any renewal or refinancing will not be as favorable as the terms of such indebtedness. This risk is exacerbated by the recent capital market crisis which has resulted in tightened lending requirements for real estate related assets. If we were unable to refinance indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of our properties on disadvantageous terms, which might result in losses to us, which could have a material adverse affect on us and our ability to pay distributions to our holders of preferred and common shares. Furthermore, if a property is mortgaged or a loan pledged to secure payment of indebtedness and we are unable to meet the debt payments, the lender could foreclose upon the property or the loan, appoint a receiver or obtain an assignment of rents and leases or pursue other remedies, all with a consequent loss of revenues and asset value to us. Foreclosures could also create taxable income without accompanying cash proceeds, thereby hindering our ability to meet the REIT distribution requirements.

Some of our potential losses may not be covered by insurance.

We may not be able to insure our properties against losses of a catastrophic nature, such as terrorist acts, earthquakes and floods, because such losses are uninsurable or are not economically insurable. We will use our discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full current market value or current replacement cost of the lost investment and also may result in certain losses being totally uninsured. Inflation, changes in building codes, zoning or other land use ordinances, environmental considerations, lender imposed restrictions and other factors also might make it not feasible to use insurance proceeds to replace the property after such property has been damaged or destroyed. Under such circumstances, the insurance proceeds, if any, received by us might not be adequate to restore our economic position with respect to such property. With respect to our net lease properties, under the lease agreements for such properties, the tenant is required to adequately insure the property, but their failure or inability to have adequate coverage for catastrophic losses may adversely affect our economic position with respect to such property.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unanticipated expenditures that adversely affect our ability to pay dividends.

All of our properties are required to comply with the Americans with Disabilities Act, or the ADA. The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require, for example, removal of access barriers and non-compliance could result in imposition of fines by the U.S. Government or an award of damages to private litigants, or both. Although we believe that our properties are in compliance with the ADA, it is possible that we may incur additional expenditures which, if substantial, could adversely affect our results of operations, our financial condition and our ability to pay dividends to you.

In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by local, state and federal governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have an adverse affect on our ability to pay dividends to you. Additionally, failure to comply with any of these requirements could result in the imposition of fines by such governmental authorities or awards of damages to private litigants, or both. While we intend to acquire only properties that we believe are currently in substantial compliance with all regulatory requirements, these requirements could change or new requirements could be imposed which would require significant unanticipated expenditures by us and could have an adverse affect on our cash flow and ability to pay dividends.

22


We may incur costs to comply with environmental laws.

The obligation to pay for the cost of complying with existing environmental laws, ordinances and regulations, as well as the cost of complying with future legislation, may adversely affect our operating costs. Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on or under the property. Environmental laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances and whether or not such substances originated from the property. In addition, the presence of hazardous or toxic substances, or the failure to remediate such property properly, may adversely affect our ability to borrow by using such property as collateral. We maintain insurance related to potential environmental issues on our currently non-net leased properties which may not be adequate to cover all possible contingencies.

Certain environmental laws and common law principles could be used to impose liability for releases of hazardous materials, including asbestos-containing materials ("ACMs") into the environment. In addition, third parties may seek recovery from owners or operators of real property for personal injury associated with exposure to released ACMs or other hazardous materials. Environmental laws may also impose restrictions on the use or transfer of property, and these restrictions may require expenditures and/or affect the value of such property. In connection with the ownership and operation of any of our properties, we and the lessees of these properties may be liable for any such environmental costs. The cost of defending against claims of liability or remediating contaminated property and the cost of complying with environmental laws could materially adversely affect our ability to pay amounts due on indebtedness and dividends to our shareholders. This risk is mitigated for our net lease properties as the lease agreements for those properties require the tenant to comply with all environmental laws and indemnify us for any loss relating to environmental liabilities, which may be affected by the financial ability of the tenant to discharge its responsibility. We have no reason to believe that any environmental contamination or violation of any applicable law, statute, regulation or ordinance governing hazardous or toxic substances has occurred or is occurring, except for the property located in Jacksonville, Florida, previously net leased to Winn-Dixie. Given the nature of the contamination at the Jacksonville property and the fact that a substantial portion of the costs associated with the remediation are covered by a state sponsored plan, we do not believe the costs to be borne by us will be material. Prior to undertaking major transactions, we hire independent environmental experts to review specific properties. Our advisor also endeavors to protect us from acquiring contaminated properties or properties with significant compliance problems by obtaining site assessments and property reports at the time of acquisition when it deems such investigations to be appropriate. There is no guarantee, however, that these measures will successfully insulate us from all such liabilities.

Risks Relating to our Loan Assets and Loan Securities

We invest in loan assets and loan securities both directly and indirectly through Concord. All references in this “Risks Relating to our Loan Assets” section to we, us or the like shall, except as expressly provided otherwise, include us and Concord.

The mortgage loans we invest in are subject to delinquency, foreclosure and loss.

We seek to make commercial mortgage loans directly and indirectly that are secured by income producing property. These loans are subject to risks of delinquency and foreclosure as well as risk associated with the capital markets. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower's ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix; success of tenant businesses; property management decisions; property location and condition; competition from comparable types of properties; changes in laws that adversely affect operating expense such as increases in real estate tax rates or limit rents that may be charged; the need to address environmental contamination at the property; the occurrence of any uninsured casualty at the property; changes in national, regional or local economic conditions and/or specific industry segments; declines in regional or local real estate values; declines in regional or local rental or occupancy rates; increases in interest rates and other operating expenses; changes in governmental rules, regulations and fiscal policies, including environmental legislation; acts of God; terrorism; social unrest; and civil disturbances.
 
23

 
In the event of a default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral, including the overall financial condition of the tenant, and the principal and accrued interest of the mortgage loan, which could have a material adverse affect on our cash flow from operations. In the event of the bankruptcy of a mortgage loan borrower, the loan will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process which could negatively affect our return on the foreclosed mortgage loan.

The subordinate loan assets we invest in may be subject to risks relating to the structure and terms of the transactions, and there may not be sufficient funds or assets remaining to satisfy our subordinate notes, which may result in losses to us.

We invest in loan assets that are subordinate in payment and collateral to more senior loans. If a borrower defaults or declares bankruptcy, after the more senior obligations are satisfied, there may not be sufficient funds or assets remaining to satisfy our subordinate notes. Because each transaction is privately negotiated, subordinate loan assets can vary in their structural characteristics and lender rights. Our rights to control the default or bankruptcy process following a default will vary from transaction to transaction. The subordinate loan assets that we invest in may not give us the right to demand foreclosure as a subordinate debtholder. Furthermore, the presence of intercreditor agreements may limit our ability to amend the loan documents, assign the loans, accept prepayments, exercise remedies and control decisions made in bankruptcy proceedings relating to borrowers. Bankruptcy and borrower litigation can significantly increase the time needed for us to acquire possession of underlying collateral in the event of a default, during which time the collateral may decline in value. In addition, there are significant costs and delays associated with the foreclosure process.

We invest in subordinate mortgage-backed securities which are subject to a greater risk of loss than senior securities. We may hold the most junior class of mortgage-backed securities which are subject to the first risk of loss if any losses are realized on the underlying mortgage loans.

We invest in a variety of subordinate loan securities, and sometimes hold a "first loss" subordinate holder position. The ability of a borrower to make payments on the loan underlying these securities is dependent primarily upon the successful operation of the property rather than upon the existence of independent income or assets of the borrower since the underlying loans are generally non-recourse in nature. In the event of default and the exhaustion of any equity support, reserve funds, letters of credit and any classes of securities junior to those in which we invest, we will not be able to recover all of our investment in the securities purchased.

Expenses of enforcing the underlying mortgage loans (including litigation expenses), expenses of protecting the properties securing the mortgage loans and the liens on the mortgaged properties, and, if such expenses are advanced by the servicer of the mortgage loans, interest on such advances will also be allocated to such "first loss" securities prior to allocation to more senior classes of securities issued in the securitization. Prior to the reduction of distributions to more senior securities, distributions to the "first loss" securities may also be reduced by payment of compensation to any servicer engaged to enforce a defaulted mortgage loan. Such expenses and servicing compensation may be substantial and consequently, in the event of a default or loss on one or more mortgage loans contained in a securitization, we may not recover our investment.

If credit spreads widen, the value of Concord’s assets may suffer.

The value of Concord’s loan securities is dependent upon the yield demanded on these loan securities by the market based on the underlying credit. A large supply of these loan securities combined with reduced demand will generally cause the market to require a higher yield on these loan securities, resulting in a higher, or "wider," spread over the benchmark rate of such loan securities. Under such conditions, the value of loan securities in our portfolio would tend to decline. Such changes in the market value of our portfolio may adversely affect our net equity through their impact on unrealized gains or losses on available-for-sale loan securities, and therefore our cash flow since we would be unable to realize gains through sale of such loan securities. Also, they could adversely affect our ability to borrow and access capital.
 
24

 
The value of our investments in mortgage loans, mezzanine loans and participation interests in mortgage and mezzanine loans is also subject to changes in credit spreads. The majority of the loans we invest in are floating rate loans whose value is based on a market credit spread to LIBOR. The value of the loans is dependent upon the yield demanded by the market based on their credit. The value of our portfolio would tend to decline should the market require a higher yield on such loans, resulting in the use of a higher spread over the benchmark rate. Any credit or spread losses incurred with respect to our loan portfolio would affect us in the same way as similar losses on our loan securities portfolio as described above.

Concord prices its assets based on its assumptions about future credit spreads for financing of those assets. Concord has obtained, and may obtain in the future, longer term financing for its assets using structured financing techniques such as CDOs. Such issuances entail interest rates set at a spread over a certain benchmark, such as the yield on United States Treasury obligations, swaps or LIBOR. If the spread that investors are paying on structured finance vehicles over the benchmark widens and the rates Concord charges on its securitized assets are not increased accordingly, this may reduce Concord’s income or cause losses.

Prepayments can increase, adversely affecting yields on our investments.

The value of our assets may be affected by an increase in the rate of prepayments on the loans underlying our loan assets and loan securities. The rate of prepayment on loans is influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond our control and consequently such prepayment rates cannot be predicted with certainty. In periods of declining real estate loan interest rates, prepayments of real estate loans generally increase. If general interest rates decline as well, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the loans that were prepaid. Under certain interest rate and prepayment scenarios we may fail to recoup fully our cost of acquisition of certain investments.

Concord may not be able to issue CDO securities, which may require Concord to seek more costly financing for its real estate loan assets or to liquidate assets.

Concord has and may continue to seek to finance its loan assets on a long-term basis through the issuance of CDOs. Prior to a new investment grade CDO issuance, there is a period during which real estate loan assets are identified and acquired for inclusion in a CDO, known as the repurchase facility accumulation period. During this period, Concord authorizes the acquisition of loan assets and loan securities under one or more repurchase facilities from repurchase counterparties. The repurchase counterparties then purchase the loan assets and loan securities and hold them for later repurchase by Concord. As a result, Concord is subject to the risk that it will not be able to acquire, during the period that its repurchase facilities are available, a sufficient amount of loan assets and loan securities to support the execution of an investment grade CDO issuance. In addition, conditions in the capital markets may make it difficult, if not impossible, for Concord to pursue a CDO when it does have a sufficient pool of collateral. If Concord is unable to issue a CDO to finance these assets or if doing so is not economical, Concord may be required to seek other forms of potentially less attractive financing or to liquidate the assets at a price that could result in a loss of all or a portion of the cash and other collateral backing its purchase commitment.

Concord’s repurchase facilities and its CDO financing agreements may limit its ability to make investments.

In order for Concord to borrow money to make investments under its repurchase facilities, its repurchase counterparties have the right to review the potential investment for which Concord is seeking financing. Concord may be unable to obtain the consent of its repurchase counterparties to make certain investments in which case Concord may be unable to obtain alternate financing for that investment. Concord’s repurchase counterparties consent rights with respect to its repurchase facility may limit Concord’s ability to execute its business strategy.

25


The repurchase agreements that Concord uses to finance its investments may require it to provide additional collateral.

If the market value of the loan assets and loan securities pledged or sold by Concord to repurchase counterparties decline in value, which decline is determined, in most cases, by the repurchase counterparties, Concord may be required by the repurchase counterparties to provide additional collateral or pay down a portion of the funds advanced. Concord may not have the funds available to pay down its debt, which could result in defaults. Posting additional collateral to support its repurchase facilities will reduce Concord’s liquidity and limit its ability to leverage its assets. Because Concord’s obligations under its repurchase facilities are recourse to Concord, if Concord does not have sufficient liquidity to meet such requirements, it would likely result in a rapid deterioration of Concord’s financial condition and solvency and adversely affect our investment in Concord.

Concord’s future investment grade CDOs, if any, will be collateralized with loan assets and loan securities that are similar to those collateralizing its existing investment grade CDO, and any adverse market trends are likely to adversely affect Concord’s CDO and the issuance of future CDOs.

Concord’s existing investment grade CDO is collateralized by fixed and floating rate loan assets and loan securities, and we expect that future issuances, if any, will be backed by similar loan assets and loan securities. Any adverse market trends that affect the value of these types of loan assets and loan securities will adversely affect the value of Concord’s interests in the CDOs and, accordingly, our investment in Concord. Such trends could include declines in real estate values in certain geographic markets or sectors, underperformance of loan assets or loan securities, or changes in federal income tax laws that could affect the performance of debt issued by REITs.

The recent capital market crisis has made financings through CDOs difficult.

The recent events in the subprime mortgage market have impacted Concord’s ability to consummate a second CDO. Although Concord holds only one bond of $11,500,000 which has minimal exposure to subprime residential mortgages, conditions in the financial capital markets have made issuances of CDOs at this time less attractive to investors. If Concord is unable to issue future CDOs to finance its assets, Concord will be required to hold its loan assets under its existing repurchase facilities longer than originally anticipated or seek other forms of potentially less attractive financing. The inability to issue future CDOs at accretive rates may have a negative impact on Concord’s cash flow and anticipated return.

Concord may not be able to access financing sources on favorable terms, or at all, which could adversely affect its ability to execute its business plan and its ability to make distributions.

Concord seeks to finance its loan assets and loan securities over the long-term through a variety of means, including repurchase agreements, credit facilities, CDOs and other structured financings. Concord may also seek to finance its investments through the issuance of common or preferred equity interests in Concord. Concord’s ability to execute this strategy depends on various conditions in the financial markets which are beyond its control. If these markets are not an efficient source of long-term financing for Concord’s loan assets and loan securities, Concord will have to find alternative forms of long-term financing for its loan assets and loan securities. This could subject Concord to more expensive financing arrangements which would require a larger portion of its cash flow, thereby reducing cash available for distribution to its members and funds available for operations as well as for future business opportunities.

Credit ratings assigned to Concord’s investments are subject to ongoing evaluations and we cannot be sure that the ratings currently assigned to Concord’s investments will not be downgraded.

Some of Concord’s investments are rated by the major rating agencies. The credit ratings on these investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower rating or reduce, or indicate that they may reduce, their ratings of Concord’s investments, the market value of those investments could significantly decline, which could have an adverse affect on Concord’s financial condition.
 
26

 
Concord may make investments in assets with lower credit quality, which will increase our risk of losses.

Concord may make investments in unrated loan securities or participate in unrated or distressed mortgage loans. An economic downturn, for example, could cause a decline in the market price of lower credit quality investments and securities because the ability of obligors of mortgages, including mortgages underlying mortgage-backed securities, to make principal and interest payments might become impaired.

The use of CDO financings with coverage tests may have a negative impact on Concord’s operating results and cash flows.

Concord’s current CDO contains, and it is likely that future CDOs, if any, will contain coverage tests, including over-collateralization tests, which are used primarily to determine whether and to what extent principal and interest proceeds on the underlying collateral debt securities and other assets may be used to pay principal and interest on the subordinate classes of bonds in the CDO. In the event the coverage tests are not met, distributions otherwise payable to Concord may be re-directed to pay principal on the bond classes senior to Concord’s. Therefore, Concord’s failure to satisfy the coverage tests could adversely affect Concord’s operating results and cash flows.

Certain coverage tests which may be applicable to Concord’s interest in its CDOs (based on delinquency levels or other criteria) may also restrict Concord’s ability to receive net income from assets pledged to secure the CDOs. If Concord’s assets fail to perform as anticipated, Concord’s over-collateralization or other credit enhancement expense associated with its CDOs will increase. There can be no assurance of completing negotiations with the rating agencies or other key transaction parties on any future CDOs as to what will be the actual terms of the delinquency tests, over-collateralization, cash flow release mechanisms or other significant factors regarding the calculation of net income to Concord. Failure to obtain favorable terms with regard to these matters may materially reduce the net income to Concord.

Risks Relating to our REIT Equity Interests

Our investments in REIT equity interests are subject to specific risks relating to the particular REIT issuer of the securities and to the general risks of investing in equity interests of REITs.

Our investments in REIT equity interests, such as our investment in Lexington involve special risks. REITs generally are required to substantially invest in real estate or real estate-related assets and are subject to the inherent risks described above including: (i) risks generally incident to interests in real property; (ii) risks associated with the failure to maintain REIT qualification; and (iii) risks that may be presented by the type and use of a particular commercial property.

Risks Relating to Our Management

Ability of our advisor to operate properties directly affects our financial condition.

The ultimate value of our assets and the results of our operations will depend on the ability of our advisor to operate our properties and manage our other investments in a manner sufficient to maintain or increase revenues and control our operating and other expenses in order to generate sufficient revenues to pay amounts due on our indebtedness and to pay dividends to our shareholders.

We are dependent on our advisor and the loss of our advisor’s key personnel could harm our operations and adversely affect the value of our shares.

We have no paid employees. Our officers are employees of our advisor. We have no separate facilities and are completely reliant on our advisor, which has significant discretion as to the implementation of our strategies and operating policies. We are subject to the risk that our advisor will terminate its advisory agreement and that no suitable replacement will be found to manage us. Furthermore, we are dependent on the efforts, diligence, skill, network of business contacts and close supervision of all aspects of our business by our advisor and, in particular, Michael Ashner, chairman of our Board of Trustees and our chief executive officer, and Peter Braverman, our president, as well as our other executive officers. While we believe that we could find replacements for these key personnel, the loss of their services could harm our operations and adversely affect the value of our shares.
 
27

 
There are conflicts of interest in our relationship with our advisor.

Our chairman and chief executive officer and each of our executive officers also serve as officers of our advisor. Our base management and incentive fee compensation agreements with our advisor were negotiated as part of an overall transaction in which an affiliate of our advisor acquired control of us. Accordingly, the terms of the advisory agreement, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party.

The incentive fee payable to our advisor may be substantial.

Pursuant to the terms of the advisory agreement, at such time, if at all, as we have paid aggregate dividends to our holders of common shares in excess of a threshold amount ($349,653,000 at December 31, 2007), our advisor will be entitled to receive 20% of subsequent dividends paid to holders of our common shares. If we were to liquidate or sell all or a substantial portion of our assets at December 31, 2007, based upon a per share price equal to the closing price on the last day of the year ($5.29 per share at December 31, 2007), the amount payable to our advisor as incentive fee compensation would be approximately $23,310,000. Although the foregoing calculation of the incentive fee is based on the closing price of our common shares on the last day of the year, if the advisory agreement were terminated, the actual incentive fee payable would be based on an appraised valuation or the liquidation proceeds received for our assets, which may be substantially in excess of the amount calculated based on the market price of our common shares. At such time as shareholders' equity in our financial statements exceeds the threshold amount, we will record a liability equal to approximately 20% of the difference between shareholders’ equity and the threshold amount in accordance with GAAP.

Termination of the Advisory Agreement may be costly.

Termination of the advisory agreement either by us or our advisor may be costly. Upon termination of the advisory agreement, our advisor is entitled to a termination fee equal to the incentive fee based on an appraised valuation of our assets assuming we were then liquidated. The amount payable on termination of the advisory agreement could be substantial which may have a negative affect on the price of our shares.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
We have no written comments regarding our periodic or current reports from the staff of the Securities and Exchange Commission that were issued 180 days or more preceding the end of our 2007 fiscal year that remain unresolved.
 
28


ITEM 2. PROPERTIES 

The following table sets forth certain information relating to our properties at December 31, 2007:

 
Property Type/Location
 
 
Tenant
 
 
Square
Feet/Units (1)
 
Ownership
of Land (2)
 
               
Mixed Use:
             
Churchill, PA*
   
Viacom, Inc.
   
1,008,000
   
Ground Lease
 
Atlanta, GA (Sealy) (3)
   
Multiple tenants
   
472,000
   
Fee
 
Nashville, TN (Sealy) (4)
   
Multiple tenants
   
1,155,000
   
Fee
 
                     
Office:
                   
Amherst, NY*
   
Ingram Micro Systems
   
170,000
   
Fee (10)
 
Amherst, NY*
   
Ingram Micro Systems
   
30,000
   
Fee (10)
 
Andover, MA*
   
Verizon of New England, Inc.
   
93,000
   
Ground Lease
 
Chicago, IL (Ontario) (5)
   
Multiple tenants
   
126,000
   
Fee (6)
 
Chicago, IL (Marc Realty Portfolio) (7)
   
Multiple tenants
   
3,564,000
   
Fee
 
Chicago, IL (River City) (8)
   
Multiple tenants
   
241,000
   
Fee
 
Houston, TX (9)*
   
Duke Energy
   
614,000
   
Fee
 
Indianapolis, IN
   
Multiple tenants
   
110,000
   
Fee
 
Orlando, FL*
   
Siemens Real Estate, Inc.
   
256,000
   
Ground Lease
 
Plantation, FL*
   
BellSouth Communications, Inc.
   
133,000
   
Land Estate
 
South Burlington, VT*
   
Verizon of New England, Inc.
   
56,000
   
Ground Lease
 
Lisle, IL
   
Multiple tenants
   
169,000
   
Fee
 
Lisle, IL
   
Multiple tenants
   
67,000
   
Fee
 
Lisle, IL (11)
   
Ryerson
   
54,000
   
Fee
 
                     
Retail:
                   
Athens, GA*
   
The Kroger Co.
   
52,000
   
Land Estate
 
Atlanta, GA*
   
The Kroger Co.
   
61,000
   
Ground Lease
 
Louisville, KY*
   
The Kroger Co.
   
47,000
   
Land Estate
 
Lafayette, LA*
   
The Kroger Co.
   
46,000
   
Ground Lease
 
St. Louis, MO* (12)
   
The Kroger Co.
   
46,000
   
Land Estate
 
Biloxi, MS*
   
The Kroger Co.
   
51,000
   
Land Estate
 
Greensboro, NC*
   
The Kroger Co.
   
47,000
   
Ground Lease
 
Knoxville, TN*
   
The Kroger Co.
   
43,000
   
Land Estate
 
Memphis, TN*
   
The Kroger Co.
   
47,000
   
Land Estate
 
Denton, TX*
   
The Kroger Co.
   
48,000
   
Land Estate
 
Seabrook, TX*
   
The Kroger Co.
   
53,000
   
Land Estate
 
Sherman, TX*
   
The Kroger Co.
   
46,000
   
Land Estate
 
 
                   
Multi-Family:
                   
Kansas City, KS
   
Multiple tenants
   
230
   
Fee
 
                     
Warehouse:
                   
Jacksonville, FL
   
Multiple tenants
   
585,000
   
Fee
 
                     
Total Square Feet
         
9,490,000
       
                     
Total Units
         
230
       
 
* Property is net-leased to tenant.
(1)
The square footage shown represents net rentable area. Units represent number of rental units at the multi-family properties.
 
29

 
(2)
Ground Lease means that we lease the land on which the improvements are situated for a fixed period of time. Land Estate means that we hold title to the land for a set period of time after which ownership of the land reverts to a remainderman at which time we have the right to lease the land. Fee means that we own fee title to the land. See “The Net Lease Properties” below for information relating to our ground lease and land estate interests.
(3)
Consists of 12 flex properties. Properties held in a venture with Sealy & Co. pursuant to which we hold a 60% non-managing interest.
(4)
Consists of 13 light distribution and service center properties. Properties held in a venture with Sealy & Co. pursuant to which we hold a 50% non-managing interest.
(5)
Property is held in a venture with Marc Realty in which we hold an 80% interest.
(6)
We own fee title to a commercial space condominium consisting of the first six floors in a mixed-use building together with 208 parking spaces. The residential condominiums, which occupy the 45 floors above our six floors, are owned by unrelated third parties.
(7)
Consists of 22 properties in which we hold an ownership interest in each of the borrowers in a participating second mortgage loan (see Item 1. Business - Our Assets - Loans - Marc Realty Loans which entitles us to share in the proceeds from sales and refinancings).
(8)
Property is held in a venture with Marc Realty in which we hold a 60% interest.
(9)
Property is held indirectly through a limited partnership in which we are the general partner and hold an 8% limited partnership interest.
(10)
The ground underlying these properties is leased to us by the local industrial development authority pursuant to a ground lease which requires no rental payments. Effective October 31, 2013, legal title to these properties will vest in us.
(11)
Property is held in a venture with Marc Realty in which we hold a 60% interest.
(12)
Included in discontinued operations pending condemnation proceedings by the City of St. Louis.

See "Item 7. Management's Discussion and Analysis and Results of Operations" for information relating to capital improvements at our properties.

The following tables set forth certain information relating to our consolidated properties.
 
Circle Tower - Indianapolis, Indiana

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 of each of the years listed for the Circle Tower property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
89
%
 
91
%
 
84
%
Average Effective Base Rental Rate (1)
 
$
14.77
 
$
14.34
 
$
14.63
 
 
(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.
 
30

 
The following table sets forth certain information concerning lease expirations (assuming no renewals) for the Circle Tower property as of December 31, 2007:
 
   
Number of Tenants 
Whose Leases 
Expire
 
Aggregate Sq. Ft. 
Covered by Expirin
Leases
 
2007 Rental for 
Leases Expiring
 
Percentage of Total 
Annualized Rental
 
                   
2008
   
17
   
24,500
 
$
313,000
   
22
%
2009
   
12
   
17,500
   
258,000
   
18
%
2010
   
15
   
27,200
   
431,000
   
30
%
2011
   
7
   
6,300
   
70,000
   
5
%
2012
   
-
   
-
   
-
   
-
 
2013
   
-
   
-
   
-
   
-
 
2014
   
-
   
-
   
-
   
-
 
2015
   
2
   
14,200
   
196,000
   
14
%
2016
   
-
 
 
-
   
-
   
-
 
2017 and beyond
   
3
   
8,700
   
149,000
   
11
%
 
The annual real estate tax was approximately $85,000 based on the 2007 real estate tax rate for the Circle Tower property which was $4.09 per $1,000.

Ontario Property - Chicago, Illinois

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 for each of the years listed for the Ontario property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
89
%
 
94
%
 
90
%
Average Effective Base Rental Rate (1)
 
$
23.43
 
$
23.19
 
$
24.89
 

(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.

The following table sets forth certain information concerning lease expirations (assuming no renewals) for the Ontario property as of December 31, 2007:

   
Number of Tenants 
Whose Leases Expire
 
Aggregate Sq. Ft. Covered 
by Expiring Leases
 
2007 Rental for 
Leases Expiring
 
Percentage of Total 
Annualized Rental
 
                   
2008
   
3
   
13,600
 
$
287,000
   
11
%
2009
   
3
   
12,100
   
343,000
   
13
%
2010
   
2
   
8,500
   
186,000
   
7
%
2011
   
4
   
24,800
   
587,000
   
22
%
2012
   
-
   
-
   
-
   
-
 
2013
   
3
   
9,900
   
331,000
   
13
%
2014
   
1
   
9,600
   
251,000
   
9
%
2015
   
3
   
17,100
   
490,000
   
18
%
2016
   
1
 
 
8,500
   
181,000
   
7
%
2017 and beyond
   
2
   
8,200
   
-
   
-
 

The annual real estate tax was estimated to be approximately $895,000 based on the 2007 real estate tax rate for the Ontario property which was estimated at $5.30 per $1,000.

31


Jacksonville Property – Jacksonville, Florida

Prior to November 3, 2005, this property was net leased to Winn-Dixie. Effective November 4, 2005, Winn-Dixie rejected its lease in bankruptcy and we became responsible for the costs at the property. The property has been subsequently leased to five tenants occupying 553,000 square feet or 94% occupancy at December 31, 2007.

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 for each of the years listed for the Jacksonville property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
94
%
 
61
%
 
83
%
Average Effective Base Rental Rate (1)
 
$
2.14
 
$
1.53
 
$
2.22
(2)

(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.
(2)
Represents effective rental rate at November 3, 2005, the date on which Winn-Dixie elected to reject its lease.
 
The following table sets forth certain information concerning lease expirations (assuming no renewals) for the Jacksonville property as of December 31, 2007:

   
Number of Tenants 
Whose Leases Expire
 
Aggregate Sq. Ft. Covered 
by Expiring Leases 
 
2007 Rental for 
Leases Expiring
 
Percentage of Total 
Annualized Rental
 
                   
2008 (1)
   
-
   
-
   
-
   
-
 
2009
   
3
   
514,300
   
1,077,000
   
91
%
2010
   
-
   
-
   
-
   
-
 
2011
   
-
   
-
   
-
   
-
 
2012
   
-
   
-
   
-
   
-
 
2013
   
-
   
-
   
-
   
-
 
2014
   
-
   
-
   
-
   
-
 
2015
   
-
   
-
   
-
   
-
 
2016
   
1
   
27,100
   
108,000
   
9
%
2017 and beyond
   
1
   
12,000
   
-
   
-
 

 
(1)
A tenant that leases 175,000 square feet with 2007 rent of $365,000 has the right to terminate its lease effective May 31, 2008. If such right is not exercised, the lease terminates in 2009.

The annual real estate tax was approximately $174,000 based on the 2007 real estate tax rate for the Jacksonville property which was $16.69 per $1,000.

Corporetum Properties – Lisle, Illinois

550/650 Corporetum Property

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 for each of the years listed for the 550/650 Corporetum property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
93
%
 
96
%
 
N/A
 
Average Effective Base Rental Rate (1)
 
$
14.15
 
$
13.66
   
N/A
 

(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.
 
32


The following table sets forth certain information concerning lease expirations (assuming no renewals) for the 550/650 Corporetum property as of December 31, 2007:

   
Number of
Tenants Whose
Leases Expire
 
Aggregate Sq. Ft.
Covered by Expiring
Leases
 
2007 Rental for
Leases Expiring
 
Percentage of Total
Annualized Rental
 
                   
2008
   
6
   
27,000
   
309,000
   
14
%
2009
   
5
   
22,300
   
227,000
   
10
%
2010
   
3
   
33,200
   
610,000
   
28
%
2011
   
1
   
60,400
   
800,000
   
36
%
2012
   
-
   
-
   
-
   
-
 
2013
   
1
   
15,000
   
272,000
   
12
%
2014
   
-
   
-
   
-
   
-
 
2015
   
-
   
-
   
-
   
-
 
2016
   
-
   
-
   
-
   
-
 
2017 and beyond
   
-
   
-
   
-
   
-
 
 
The annual real estate tax was approximately $439,000 based on the 2007 real estate tax rate for the 550/650 Corporetum property which was $6.06 per $1,000.

701 Arboretum Property

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 for each of the years listed for the 701 Arboretum property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
98
%
 
90
%
 
N/A
 
Average Effective Base Rental Rate (1)
 
$
13.35
 
$
14.19
   
N/A
 

(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.
 
The following table sets forth certain information concerning lease expirations (assuming no renewals) for the 701 Arboretum property as of December 31, 2007:

   
Number of Tenants 
Whose Leases 
Expire
 
Aggregate Sq. Ft. 
Covered by Expiring 
Leases
 
2007 Rental for 
Leases Expiring
 
Percentage of Total 
Annualized Rental
 
                   
2008
   
1
   
9,900
   
175,000
   
20
%
2009
   
-
   
-
   
-
   
-
 
2010
   
3
   
41,700
   
589,000
   
67
%
2011
   
-
   
-
   
-
   
-
 
2012
   
1
   
10,800
   
70,000
   
8
%
2013
   
1
   
3,800
   
48,000
   
5
%
2014
   
-
   
-
   
-
   
-
 
2015
   
-
   
-
   
-
   
-
 
2016
   
-
   
-
   
-
   
-
 
2017 and beyond
   
-
   
-
   
-
   
-
 

The annual real estate tax was approximately $187,000 based on the 2007 real estate tax rate for the 701 Arboretum property which was $6.06 per $1,000.

33


1050 Corporetum Property

In January 2007, the building was leased to Ryerson, Inc. pursuant to a lease agreement which commenced in May 2007, expires in April 2018, and has base rent beginning at $13.89 per square foot, increasing during the term to $19.24 per square foot.

The annual real estate tax was approximately $139,000 based on the 2007 real estate tax rate for the 1050 Corporetum property in 2007 which was $6.06 per $1,000.

River City Property – Chicago, Illinois

The following table lists the average occupancy rates and effective rental rate per square foot at December 31 for each of the years listed for the River City property.

   
2007
 
2006
 
2005
 
               
Occupancy
   
64
%
 
N/A
   
N/A
 
Average Effective Base Rental Rate (1)
 
$
3.35
   
N/A
   
N/A
 

 
(1)
Average Effective Base Rental Rate is equal to the annual base rent divided by the occupied square feet at December 31.
 
The following table sets forth certain information concerning lease expirations (assuming no renewals) for the River City property as of December 31, 2007:

   
Number of Tenants 
Whose Leases 
Expire
 
Aggregate Sq. Ft. 
Covered by Expiring 
Leases
 
2007 Rental for 
Leases Expiring
 
Percentage of Total 
Annualized Rental
 
                   
2008
   
5
   
30,400
   
133,000
   
31
%
2009
   
3
   
55,000
   
105,000
   
25
%
2010
   
2
   
3,600
   
18,000
   
4
%
2011
   
1
   
55,000
   
113,000
   
26
%
2012
   
2
   
10,100
   
62,000
   
14
%
2013
   
-
   
-
   
-
   
-
 
2014
   
-
   
-
   
-
   
-
 
2015
   
-
   
-
   
-
   
-
 
2016
   
-
 
 
-
   
-
   
-
 
2017 and beyond
   
-
   
-
   
-
   
-
 

The annual real estate tax was estimated to be approximately $895,000 based on the 2007 real estate tax rate for the River City property which was estimated at $5.30 per $1,000.

The Net Lease Properties

Pursuant to the terms of the lease agreements with respect to the following 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.

34


The following table sets forth the terms and rental rates for each property:

Property Location
 
Initial Term
Expiration Date
 
Initial Term
Annual Rent
 
Renewal Terms
 
               
Amherst, NY (170,000 sq. ft.)
   
10/31/2013
 
$
1,713,000
   
Two, 5 year
 
Amherst, NY (30,000 sq. ft.)
   
10/31/2013
   
302,000
   
Two, 5 year
 
Andover, MA
   
12/31/2009
   
2,544,000
   
Four, 5 year and one, 10 year
 
Athens, GA
   
10/31/2010
   
220,000
   
Six, 5 year
 
Atlanta, GA
   
10/31/2010
   
259,000
   
One, 6 year and two, 5 year
 
Biloxi, MS
   
10/31/2010
   
219,000
   
Six, 5 year
 
Churchill, PA
   
12/31/2010
   
2,786,000
   
Six, 5 year
 
Denton, TX
   
10/31/2010
   
220,000
   
Six, 5 year
 
Greensboro, NC
   
10/31/2010
   
203,000
   
One, 7 year and five, 5 year
 
Houston, TX
   
4/30/2018
   
7,144,000
(1)
 
Two, 5 year
 
Knoxville, TN
   
10/31/2010
   
214,000
   
Six, 5 year
 
Lafayette, LA
   
10/31/2010
   
179,000
   
One, 7 year and six, 5 year
 
Louisville, KY
   
10/31/2010
   
197,000
   
Six, 5 year
 
Memphis, TN
   
10/31/2010
       
220,000
       
Six, 5 year
 
Orlando, FL
   
12/31/2017
(2)
 
3,196,000
(2)
 
Five, 5 year
 
Plantation, FL
   
3/29/2010
   
3,158,000
   
Five, 5 year
 
Seabrook, TX
   
10/31/2010
   
212,000
   
Six, 5 year
 
Sherman, TX
   
10/31/2010
   
203,000
   
Six, 5 year
 
South Burlington, VT
   
12/31/2009
   
1,109,000
   
Five, 5 year
 
St. Louis, MO
   
10/31/2010
   
233,000
   
Six, 5 year
 

(1)
Annual rent as of December 31, 2007. Rent is subject to annual increases equal to 1.75% on May 1 of each year.
(2)
Lease was modified in February 2007 to extend the term to December 31, 2017. Rent increases by 2% annually.
 
The following table sets forth the terms of the land estates:

Property Location
 
Land Estate Expiration
 
Lease Term Options Upon
Expiration of Land Estate
 
Lease Term Rents Per Annum
 
               
Athens, GA (1)
   
10/31/2010
 
 
Fourteen, 5 year
 
$
18,600
 
Biloxi, MA (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
54,000
 
Denton, TX (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
86,880
 
Knoxville, TN (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
97,200
 
Louisville, KY (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
35,400
 
Memphis, TN (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
60,360
 
Plantation, FL
 
 
02/28/2010
 
 
Thirteen, 5 year
 
 
261,919 through 6th term and then fair market value
 
Seabrook, TX (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
58,560
 
Sherman, TX (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
80,160
 
St. Louis, MO (1)
 
 
10/31/2010
 
 
Fourteen, 5 year
 
 
61,400
 

(1)
The Trust has the option to purchase the land at fair market value prior to September 30, 2010.

35


The following table sets forth the terms of the ground leases:

 
Property Location
 
Current Term
Expiration
 
Renewal Terms
 
Lease Term Rents Per Annum (1)
             
Andover, MA
 
9/2/2010
 
Four, 5 year and one, 10 year
 
$99,920 through current term and then fair market value
             
Atlanta, GA
 
9/30/2011
 
Four, 5 year
 
$30,000 plus ½ of 1% of sales greater than $27,805,800
             
Lafayette, LA
 
4/30/2008
 
Eight, 5 year
 
$176,244 increased by 5% for each successive renewal term
             
Greensboro, NC
 
12/31/2012
 
Four, 5 year and fifteen, 1 year
 
$59,315 increased by approximately $12,000 for each successive renewal period plus 1% of sales over $35,000,000
             
Orlando, FL
 
12/31/2017
 
Five, 5 year
 
$1 through the current term and then fair market value
             
Churchill, PA
 
12/31/2010
 
Six, 5 year
 
$2 through the current term and then fair market value
             
South Burlington, VT
 
1/2/2010
 
Four, 5 year and one, 10 year
 
$51,584 through the current term and then fair market value

(1)
The lease requires the tenant to perform all covenants under the ground lease including the payment of ground rent.
 
Mortgage Loans

The following table sets forth the terms of the first mortgages for each of the properties.

Property Location
 
Principal Balance 
at December 31, 
2007
 
 Maturity
 
Interest Rate
 
2008 Debt 
Service
 
Prepayment 
Terms
 
                                                                                                                         
Amherst, NY
 
$
17,276,000
   
10/6/2013
   
5.65%
 
$
1,346,000
   
Make Whole Premium (1)
 
Indianapolis, IN
   
4,447,000
   
4/11/2015
   
5.82%
 
 
325,000
   
Defeasance (2)
 
Houston, TX
   
69,801,000
   
4/1/2016
   
6.66%
 
 
7,231,000
   
Make Whole Premium (1)
 
Andover, MA
   
6,503,000
   
2/16/2011
   
6.6%
 
 
547,000
   
Defeasance (2)
 
South Burlington, VT
   
2,787,000
   
2/16/2011
   
6.6%
 
 
234,000
   
Defeasance (2)
 
Lisle, IL
   
17,466,000
   
6/1/2016
   
6.26%
 
 
1,208,000
   
Defeasance (2)
 
Lisle, IL
   
7,134,000
   
6/1/2016
   
6.26%
 
 
493,000
   
Defeasance (2)
 
Lisle, IL
   
5,600,000
   
3/9/2017
   
5.55%
 
 
311,000
   
Defeasance (2)
 
Chicago, IL
   
21,600,000
   
3/1/2016
   
5.75%
 
 
1,445,000
   
Defeasance (2)
 
Chicago, IL
   
9,500,000
   
3/28/2008
   
Prime plus .5%
 
 
9,708,000
   
No restriction (3)
 
Orlando, FL
   
40,034,000
   
7/1/2017
   
6.4%
 
 
3,017,000
   
Defeasance (2)
 
Kansas City, KS
   
5,893,000
   
6/1/2012
   
7.04%
 
 
422,000
   
(4)
 
Various (5)
   
28,884,000
   
6/30/09
(6) 
 
LIBOR plus 1.75%
 
 
2,931,000
   
No restriction (3)
 
   
$
236,925,000
                         

36


(1)
Prepayment is based on a discounted cash flow method which provides the lender, on a present value basis, all of the interest it would have received had the loan been paid in accordance with its terms through maturity.
(2)
Requires the substitution of United States government securities with maturities sufficient to make the required payments on the loan as collateral for the loan.
(3)
Provided that no Event of Default then exists.
(4)
May be prepaid in whole after June 1, 2008 without premium or penalty.
(5)
Collateralized by our retail properties and our properties located in Churchill, PA; Plantation, FL and Jacksonville, FL.
(6)
We have the right to extend the term for two, one-year extensions.

ITEM 3. LEGAL PROCEEDINGS

From time to time we are involved in legal proceedings arising in the ordinary course of our business. In management’s opinion, after consultation with legal counsel, the outcome of such matters is not expected to have a material adverse effect on the ownership, financial condition, management or operation of our properties or business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our common shares during the quarter ended December 31, 2007.
 
37


PART II

ITEM 5. MARKET FOR TRUST'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information. 

Our common shares are listed for trading on the New York Stock Exchange (“NYSE”) under the symbol “FUR.” The following table sets forth the high and low sales prices as reported by the NYSE for our common shares for each of the periods indicated below:

   
High
 
Low
 
Year Ended December 31, 2006:
             
First quarter
 
$
5.75
 
$
5.16
 
Second quarter
   
6.27
   
5.14
 
Third quarter
   
6.79
   
5.86
 
Fourth quarter
   
6.99
   
5.95
 
 
             
Year Ended December 31, 2007:
             
First quarter
   
6.99
   
6.24
 
Second quarter
   
7.19
   
6.32
 
Third quarter
   
7.30
   
4.85
 
Fourth quarter
   
6.84
   
4.88
 

Holders

As of December 31, 2007, there were 1,691 record holders of our common shares. We estimate the total number of beneficial owners to be approximately 6,300.

Dividend Policy

In 2006, we began paying regular quarterly dividends on our common shares. In addition, during 2006 and 2007 we declared special dividends on our common shares. To retain REIT status, we are required by the Code to distribute at least 90% of our REIT taxable income. While we intend to continue paying regular quarterly dividends and special dividends as needed to comply with the annual distribution requirements under the REIT provisions of the Code and to avoid paying federal level corporate tax, future dividend declarations will be at the discretion of the Board of Trustees and will depend on various factors, including our actual cash flow, financial condition and capital requirements. As of December 31, 2007, we had net operating loss carryforwards of $31,213,000, after utilizing $9,838,000 to partially offset 2007 taxable income, which will expire from 2021 through 2023. As a result of the net operating loss and a capital loss carryforwards, we have been able to reduce our taxable income in prior years, and expect that we will be able to utilize our net operating loss carryforwards in future years to reduce our required dividend payments which will enable us to reinvest more of our cash flow.

Dividends declared on our common shares in each quarter for the last two years are as follows:

Quarters Ended
 
2007
 
2006
 
           
March 31
 
$
0.060
 
$
-
 
June 30
   
0.060
   
-
 
September 30
   
0.065
   
0.18
(2)
December 31
   
0.245
(1)
 
0.12
(3)

 
(1)