Filed
Pursuant to Rule 424(b)(3)
Registration
No. 333-163157
Dated
December 21, 2009
WINTHROP
REALTY TRUST
_______________
We are
Winthrop Realty Trust, a real estate investment trust formed under the laws of
the State of Ohio. Our operations are managed by our external
advisor, FUR Advisors LLC.
This
prospectus relates to the resale, from time to time, of up to 971,584 of our
common shares of beneficial interest, $1.00 par value, which we refer to as
Common Shares, by the Selling Shareholders named in this
prospectus. See “Selling Shareholders” beginning on page
3. The Common Shares may be acquired by the Selling Shareholders upon
conversion of shares of Series C Cumulative Convertible Redeemable Preferred
Shares of Beneficial Interest, par value $1.00 per share, which we refer to as
Series C Shares, acquired by them on November 1, 2009 in a transaction exempt
from registration under the Securities Act of 1933. We will not
receive any of the proceeds from the sale of these shares.
The
Selling Shareholders may sell the Common Shares offered hereby directly to
purchasers or through underwriters, dealers, brokers or agents designated from
time to time. For additional information on the methods of sale, you
should refer to the section entitled “Plan of Distribution” in this
prospectus.
Our
Common Shares are traded on the New York Stock Exchange, which we refer to as
the NYSE, under the symbol “FUR.”
See
“RISK FACTORS” on page 2 for certain factors relevant to an investment in the
Common Shares.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
_______________
THE DATE
OF THIS PROSPECTUS IS December 21, 2009.
TABLE OF
CONTENTS
Page
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
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1
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THE
COMPANY
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2
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RISK
FACTORS
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2
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USE
OF PROCEEDS
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3
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SELLING
SHAREHOLDERS
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3
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DESCRIPTION
OF OUR COMMON SHARES
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4
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FEDERAL
INCOME TAX CONSIDERATIONS
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6
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PLAN
OF DISTRIBUTION
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16
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EXPERTS
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17
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LEGAL
MATTERS
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18
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WHERE
YOU CAN FIND MORE INFORMATION
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18
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
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18
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You
should carefully read this prospectus as well as the information incorporated
into this prospectus. The registration statement that contains this
prospectus and the exhibits to that registration statement contain additional
important information about us and the securities offered under this
prospectus. Specifically, we have filed certain legal documents that
control the terms of the securities offered by this prospectus as exhibits to
the registration statement. That registration statement and the other
reports can be read at the website of the Securities and Exchange Commission,
which we refer to as the SEC, or at the SEC offices mentioned under the heading
“
WHERE YOU CAN FIND MORE
INFORMATION
.” All references to “the trust,” “we,” “our” and
“us” in this prospectus mean Winthrop Realty Trust and all entities owned or
controlled by us except where it is made clear that the term means only the
parent company. The term “you” refers to a prospective
investor.
CAUTIONARY
STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS
Any
statements included in this prospectus, including any statements in the document
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,” “will,” “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:
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the declaration or payment of
distributions by us;
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the ownership, management and
operation of properties;
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potential acquisitions or
dispositions of our properties, assets or other
businesses;
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our policies regarding
investments, acquisitions, dispositions, financings and other
matters;
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our qualification as a real
estate investment trust under the Internal Revenue Code of 1986, as
amended, which we refer to as the
Code;
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the real estate industry and real
estate markets in general;
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the availability of debt and
equity financing;
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general economic
conditions;
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supply of real estate investment
opportunities and demand;
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trends affecting us or our
assets;
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the effect of acquisitions or
dispositions on capitalization and financial
flexibility;
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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
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our ability, and that of our
assets and acquired properties and businesses to
grow.
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You 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 prospectus and any amendment hereof, including, without limitation, the
information referred to in “
RISK FACTORS
” below or in any
risk factors in documents that are incorporated by reference in this prospectus,
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.
THE
COMPANY
We are a
real estate investment trust, commonly referred to as a REIT, formed under the
laws of the State of Ohio. Our operations are managed by FUR Advisors
LLC, who we refer to as FUR Advisor or our advisor. Our Common Shares
are traded on the NYSE under the symbol “FUR.” We conduct our business through
WRT Realty L.P., a Delaware limited partnership which we refer to as the
operating partnership. We are the sole general partner of, and own
all of the limited partnership interests in, the operating
partnership. Our operating partnership structure, commonly referred
to as an umbrella partnership real estate investment trust or “UPREIT”
structure, provides us with additional flexibility when acquiring properties for
cash and/or by issuing to sellers, as a form of consideration, limited
partnership interests in our operating partnership. Although we have
not yet issued any limited partnership interests in connection with the
acquisition of an asset, we believe that this structure facilitates our ability
to acquire portfolio and individual properties by enabling us to structure
transactions which may defer tax gains for a seller while preserving our
available cash for other purposes.
We are
engaged in the business of owning and managing real property and real estate
related assets which we categorize into three operating segments: (i) the
ownership of investment properties which we refer to as operating properties;
(ii) the origination and acquisition of loans and debt securities secured
directly or indirectly by commercial and multi-family real property, which we
refer to as loan assets and loan securities, including collateral
mortgage-backed securities, and (iii) the ownership of equity and debt
securities in other REITs, which we refer to as REIT securities.
As of
September 30, 2009, we held interests in properties containing approximately 9.5
million square feet of rentable space, owned either directly by us or through
joint ventures. We also held loan assets and loan securities totaling
$13,663,000, REIT securities valued at $61,786,000 and cash and cash equivalents
of approximately $35,147,000.
Our
executive offices are located at 7 Bulfinch Place, Suite 500, Boston,
Massachusetts 02114-9507 and Two Jericho Plaza, Jericho, New York
11753. Our telephone numbers are (617) 570-4614 and (516) 822-0022
and our website is located at
http:/www.winthropreit.com
. None of the information on our website that is not otherwise
expressly set forth in or incorporated by reference in this prospectus is a part
of this prospectus.
RISK
FACTORS
An
investment in Common Shares involves certain risks. See “Risk
Factors” beginning on page 49 of our Quarterly Report on Form 10-Q for the three
months ended September 30, 2009, which is incorporated by reference
herein.
USE
OF PROCEEDS
All of
the Common Shares are being offered by the Selling Shareholders. We
will not receive any proceeds from the sale of the Common Shares.
SELLING
SHAREHOLDERS
Beneficial
Ownership and Other Information
The
Common Shares that may be sold by the Selling Shareholders pursuant to this
prospectus are issuable upon conversion of Series C Shares owned by the Selling
Shareholders. The Series C Shares were acquired by the Selling
Shareholders on November 1, 2009 in a transaction exempt from registration under
the Securities Act of 1933. In that transaction we offered holders of
our Series B-1 Cumulative Convertible Redeemable Preferred Shares of Beneficial
Interest, which we refer to as Series B-1 Preferred Shares, the right to convert
their Series B-1 Preferred Shares into an equivalent number of shares of our
newly issued Series C Shares. The three Selling Shareholders
identified in this prospectus accepted our offer and we issued a total of
544,000 Series C Shares to them. Our Series B-1 Preferred Shares were
originally issued by us in 2005.
We have
filed a registration statement, of which this prospectus forms a part, to permit
the Selling Shareholders to resell to the public the Common Shares they may
acquire upon the conversion of Series C Shares. We also entered into
an Investor Rights Agreement with the Selling Shareholders which provides them
with substantially the same rights that they had under the existing Investor
Rights Agreement with respect to the Series B-1 Preferred Shares that they
converted. For additional information regarding the Series C Shares
and the Investor Rights Agreement, see the Form 8-K we filed with the SEC on
November 2, 2009.
The
following table sets forth the names of the Selling Shareholders, the total
number of Common Shares beneficially owned by them as of December 18, 2009, the
total number of Common Shares offered by the Selling Shareholders and the
percentage of outstanding Common Shares that will be beneficially owned by the
Selling Shareholders upon completion of the offering. There were
20,377,970 Common Shares outstanding as of December 18, 2009. Unless
otherwise indicated, beneficial ownership is determined in accordance with rules
of the SEC and is based on information provided by each of the respective
Selling Shareholders identified below.
Name
of Selling Shareholder
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Common
Shares Beneficially Owned Before Offering (1)
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Common
Shares
Offered (2)
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Common
Shares Beneficially Owned After Offering (3)
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Percentage
of Outstanding Common Shares Beneficially Owned After Offering
(3)
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Fairholme
Ventures II LLC(4)
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714,400
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714,400
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0
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0
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Kimco
Realty Corporation(5)
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530,283
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185,744
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344,539
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1.7%
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Voshel
Investments LLC(6)
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93,662
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71,440
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22,222
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*
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(1)
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Includes
Common Shares currently owned by such holder and Common Shares issuable
upon conversion of the Series C Shares held by such
holder.
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(2)
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Represents
Common Shares issuable upon conversion of Series C
Shares.
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(3)
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Assumes
that all of the Common Shares covered by this prospectus are sold by the
Selling Shareholders pursuant to this prospectus and that the number of
Common Shares outstanding is equal to the number of Common Shares
outstanding at December 18, 2009 plus the number of Common Shares covered
by this prospectus . The Selling Shareholders may choose to
dispose of none or only a portion of the shares held by them pursuant to
this prospectus.
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(4)
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We
have been advised that Bruce Berkowitz, Managing Member of Fairholme
Capital Management, L.L.C., the managing member of Fairholme Ventures II
LLC, has voting and dispositive control over the Common Shares
beneficially owned by Fairholme Ventures II LLC. In addition,
Mr. Berkowitz has (i) voting and dispositive control over
3,748,437 Common Shares owned by affiliates of Fairholme Ventures II LLC,
and 166,766 Common Shares held by Mr. Berkowitz directly
and (ii) dispositive power over 1,143,306 Common Shares held in
accounts management by Fairholme Capital Management,
L.L.C.
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(5)
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We
have been advised that executive officers of Kimco Realty
Corporation have voting and dispositive control over the Common Shares
beneficially owned by Kimco Realty
Corporation.
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(6)
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We
have been advised that Gerald Lee Nudo, manager of Voshel Investments,
LLC, has voting and dispositive control over the Common Shares
beneficially owned by Voshel Investments,
LLC.
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Relationships
with Selling Shareholders
Fairholme Ventures II,
LLC
. Bruce Berkowitz, a former Trustee of the Company, is
affiliated with Fairholme Ventures II, LLC. Mr. Berkowitz
is the Managing Member of Fairholme Capital Management, LLC, which is the
Managing Member of Fairholme Ventures II, LLC, and members of his family own
approximately 9.3% of the interests in Fairholme Ventures II, LLC. A
company owned by Mr. Berkowitz is also entitled to receive a
management fee from Fairholme Ventures II, LLC. In addition, the
Company has granted to Fairholme Capital Management LLC both in its individual
company capacity and on behalf of investment advisory clients and affiliates
(collectively, “Fairholme”) a waiver from the Company’s ownership limitation
which permits Fairholme to acquire up to 24% of our outstanding Common
Shares. Further, in connection with our April 2008 rights offering to
our shareholders, Fairholme received a fee of $557,235 in connection with its
serving as a standby purchaser.
Voshel Investments
LLC
. Gerald Lee Nudo, manager of Voshel Investments LLC, is a
principal of Marc Realty LLC, an entity in which we hold through a joint venture
a number of investments.
Except as
disclosed above, neither we nor any of our affiliates has had any material
relationship with any of the selling shareholders within the past three
years.
DESCRIPTION
OF OUR COMMON SHARES
The
following summary of the material terms and provisions of our Common Shares does
not purport to be complete and is subject to the detailed provisions of our
declaration of trust and our bylaws, each of which is incorporated by reference
into this prospectus. You should carefully read each of these
documents in order to fully understand the terms and provisions of our Common
Shares. For information on incorporation by reference, and how to
obtain copies of these documents, see the sections entitled “
WHERE YOU CAN FIND MORE
INFORMATION
” and “
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE
”.
General
We are
authorized to issue an unlimited number of Common Shares. As of
December 18, 2009 there were 20,377,970 Common Shares
outstanding. All our Common Shares are entitled to participate
equally in any distributions thereon declared by us. Subject to the
provisions of our bylaws regarding excess securities and the provisions of our
preferred shares of beneficial interest, each outstanding Common Share entitles
the holder to one vote on all matters voted on by
shareholders. Shareholders have no preemptive rights. The
outstanding Common Shares are fully paid and non-assessable and have equal
liquidation rights. The Common Shares are fully transferable except
that their issuance and transfer may be regulated or restricted by us in order
to assure our qualification for taxation as a REIT. See
“- Restriction on Size of
Holdings.”
The Common Shares are not redeemable at our option
or at the option of any shareholder. Our board of trustees is
generally authorized without shareholder approval to borrow money and issue
obligations and equity securities which may or may not be convertible into
Common Shares and warrants, rights or options to purchase Common Shares; and to
issue other securities of any class or classes which may or may not have
preferences or restrictions not applicable to our Common Shares. The
issuance of additional Common Shares or such conversion rights, warrants or
options may have the effect of diluting the interest of
shareholders. Annual meetings of the shareholders are held during May
at such time and place as the trustees may from time to time
determine. Special meetings may be called at any time and place when
ordered by a majority of the trustees, the chairman of our board of trustees,
our chief executive officer or our president or upon written request of the
holders of not less than 25% of the outstanding Common Shares.
Shareholder
Liability
Our
declaration of trust provides that no shareholder shall be personally liable in
connection with our property or affairs, and that all persons shall look solely
to our property for satisfaction of claims of any nature arising in connection
with our affairs.
Under
present Ohio law, no personal liability will attach to our shareholders, but
with respect to tort claims, contract claims where liability of shareholders is
not expressly negated, claims for taxes and certain statutory liabilities, our
shareholders may in some jurisdictions other than the State of Ohio be held
personally liable to the extent that such claims are not satisfied by us, in
which event the shareholders would, in the absence of negligence or misconduct
on their part, be entitled to reimbursement from our general
assets. We carry comprehensive general liability insurance in a form
typically available in the marketplace which our trustees consider
adequate. To the extent our assets and insurance would be
insufficient to reimburse a shareholder who has been required to pay a claim
against us, the shareholder would suffer a loss. The statements in
this paragraph and the previous paragraph also apply to holders of our preferred
shares of beneficial interest, although any possible liability of such holders
would be further reduced by the greater limitations on their voting
power.
Voting
Rights
Subject
to the provisions of our bylaws regarding restrictions on transfer and ownership
of Common Shares, you will have one vote per share on all matters submitted to a
vote of shareholders. Shareholders are currently granted the right by
a majority vote or a supermajority vote, as the case may be, (i) to elect
trustees, (ii) to approve or disapprove certain transfers of our assets or
mergers involving us, (iii) to approve or disapprove amendments to our
declaration of trust, (iv) when removal is proposed by all other trustees, to
approve removal of any trustee, (v) to waive the ownership limit (see “-
Restriction on Size of
Holdings
,” below) if greater than a majority but less than 70% of the
trustees approve such waiver and (vi) to approve our incurrence of indebtedness
in excess of 83.33% of the value of our assets. Trustees are required
to receive the vote of shareholders holding at least a majority of the
outstanding shares entitled to vote. We have no fixed duration and
will continue indefinitely, unless terminated as provided in our declaration of
trust.
Transfer
Agent and Registrar
The
transfer agent and registrar for our Common Shares is
Computershare.
Restriction
on Size of Holdings
Our
bylaws restrict beneficial or constructive ownership of our outstanding shares
of beneficial interest by a single person, or persons acting as a group, to 9.8%
of our Common Shares, which limitation assumes that all securities convertible
into our Common Shares owned by such person or group of persons have been
converted. The purpose of these provisions is to protect and preserve
our REIT status. For us to qualify as a REIT under the Code, not more
than 50% in value of our outstanding shares of beneficial interest may be owned
by five or fewer individuals (as defined in the Code) at any time during the
last half of our taxable year. The provision permits five persons
each to acquire up to a maximum of 9.8% of our Common Shares, or an aggregate of
49% of the outstanding Common Shares, and thus, assists our trustees in
protecting and preserving REIT status for tax purposes.
Unless
the board 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 be entitled to dividends,
interest or any other distributions with respect to the
securities. Waivers or bylaw amendments have been granted or approved
for (i) FUR Investors LLC which can hold up to 33% or our Common Shares, and
(ii) Fairholme Capital Management, LLC and its investment advisory clients and
affiliates which can hold up to 24% of our outstanding Common Shares on a fully
diluted basis. In each case we conditioned the waivers and amendments
on compliance with additional requirements designed to preserve our REIT
status.
Our
declaration of trust provides that the share ownership limit contained in the
bylaws may be amended from time to time with the approval of either (i) 70% of
the trustees then in office or (ii) a majority of the trustees then in office
and the approval of at least 70% of the holders of our outstanding Common
Shares.
Trustee
Liability and Indemnification
Our
declaration of trust provides that our trustees will not be individually liable
for any obligation or liability incurred by or on our behalf or by trustees for
our benefit and on our behalf. Subject to the specific conditions
contained therein, our declaration of trust also obligates us to indemnify our
trustees for, and pay or reimburse them for expenses incurred related to, claims
and liabilities which they may become subject to by reason of having served as a
trustee.
FEDERAL
INCOME TAX CONSIDERATIONS
The
following discussion summarizes the material United States federal income tax
consequences of the purchase, ownership and disposition of our Common Shares by
persons who hold the securities as capital assets (within the meaning of section
1221 of the Code). It does not purport to address the federal income
tax consequences applicable to all categories of shareholders, including
shareholders subject to special treatment under federal income tax laws, such as
insurance companies, regulated investment companies, tax-exempt organizations
(except as discussed under “—
Taxation of Holders of Common
Shares—Tax-Exempt Shareholders
”) or dealers in
securities. Except as discussed under “—
Taxation of Holders of Common
Shares—Non-U.S. Shareholders,
” this summary does not address persons who
are not U.S. Shareholders (as defined herein).
This
summary is based on current provisions of the Code, the Treasury regulations
promulgated thereunder and judicial and administrative
authorities. All these authorities are subject to change, and any
change may be effective retroactively. This summary is not tax
advice, and is not intended as a substitute for careful tax
planning. WE RECOMMEND THAT OUR INVESTORS CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF
INVESTING IN OUR SECURITIES IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES.
General
In the
opinion of Katten Muchin Rosenman LLP (“Katten Muchin”), commencing with our
taxable year ended December 31, 2004, we have been organized and operated in
conformity with the requirements for qualification and taxation as a REIT under
the Code, and our current and proposed method of operation, as described in this
prospectus and as represented by us, will enable us to continue to meet the
requirements for qualification and taxation as a REIT. Katten
Muchin’s opinion is not binding on the Internal Revenue Service (“IRS”) or the
courts. It is based on various assumptions relating to our
organization and operation, including that we have operated and will continue to
operate in the manner described in our organizational documents and this
prospectus, and representations made by us concerning certain factual matters
related to our organization and manner of operation. Our
qualification and taxation as a REIT depends upon our ability to meet on a
continuous basis, through actual annual operating results, (i) income and asset
composition tests, (ii) specified distribution levels, (iii) diversity of
beneficial ownership, and (iv) various other qualification tests (discussed
below) imposed by the Code. Katten Muchin has not reviewed and will
not monitor our ongoing compliance with these tests, and expresses no opinion
concerning whether we actually have satisfied or will satisfy these tests on a
continuous basis. No assurance can be given that we actually have
satisfied or will satisfy such tests on a continuous basis. Our
failure to qualify as a REIT in prior years could adversely affect Katten
Muchin’s opinion and our eligibility for REIT status for our taxable year ended
December 31, 2004 and subsequent years. (See “—
Failure to Qualify
,”
below.)
The
following is a general summary of the material Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These
provisions are technical and complex.
In
general, if we qualify as a REIT, we will not be subject to federal corporate
income taxes on the net income that we distribute currently to our
shareholders. This treatment substantially eliminates the “double
taxation” (taxation at both the corporation and shareholder levels) that
generally results from an investment in stock of a “C” corporation (that is, a
corporation generally subject to the full corporate-level tax). We
will, however, still be subject to federal income and excise tax in certain
circumstances, including the following:
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we will be taxed at regular
corporate rates on any undistributed “REIT taxable income,” including
undistributed net capital
gains;
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we may be subject to the
“alternative minimum tax” on our undistributed items of tax
preference;
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if we have (i) net income from
the sale or other disposition of foreclosure property that we hold
primarily for sale to customers in the ordinary course of business or (ii)
other non-qualifying income from foreclosure property, then we will be
subject to tax on that income at the highest corporate rate. In
general, “foreclosure property” is any property we acquire by foreclosure
(or otherwise) on default of a lease of such property or a loan secured by
such property which we properly elect to treat as foreclosure
property;
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if we have net income from
prohibited transactions, such income will be subject to a 100%
tax. In general, “prohibited transactions” are sales or other
dispositions of property (other than foreclosure property) that we hold
primarily for sale to customers in the ordinary course of
business;
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if we derive “excess inclusion
income” from an interest in certain mortgage loan securitization
structures (i.e., a “taxable mortgage pool” or a residual interest in a
real estate mortgage investment conduit, or “REMIC”), then we will be
subject to tax at the highest regular corporate tax rate to the extent
that such income is allocable to specified types of shareholders known as
“disqualified organizations” (generally, tax-exempt entities, such as
government pension plans, that are not subject to unrelated business
income tax). See “
—
Taxable
Mortgage Pools and Excess Inclusion Income
”
below.
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if we fail to satisfy either the
75% gross income test or the 95% gross income test (discussed below), but
preserve our qualification as a REIT by satisfying certain other
requirements, then we will be subject to a 100% tax on the product of (a)
the greater of the amount by which we fail the 75% gross income test or
the 95% gross income test, multiplied by (b) a fraction intended to
reflect our profitability;
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if we fail to distribute for each
calendar year at least the sum of (i) 85% of our REIT ordinary income,
(ii) 95% of our REIT capital gain net income, and (iii) any undistributed
taxable income from prior years, then we will be subject to a 4% excise
tax on the excess of the required distributions over the actual
distributions;
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if we acquire any asset from a
“C” corporation in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset (or any other
property) in the hands of the C corporation, and if we recognize gain on
the disposition of such asset during the ten-year period beginning on the
date we acquire the asset, then the asset’s “built-in” gain (the excess of
the asset’s fair market value at the time we acquired it over the asset’s
adjusted basis at that time) will be subject to tax at the highest regular
corporate rate;
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we may elect to retain and pay
income tax on some or all of our long-term capital gain, as described
below;
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if it is determined that amounts
of certain income and expense were not allocated between us and a taxable
REIT subsidiary (as defined below) on the basis of arm’s length dealing,
or to the extent we charge a taxable REIT subsidiary interest in excess of
a commercially reasonable rate, then we will be subject to a tax equal to
100% of those amounts; and
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we may be required to pay
monetary penalties if we fail to satisfy certain requirements for REIT
qualification as the price for maintaining our REIT
status.
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Requirements
for Qualification
The Code
defines a REIT as a corporation, trust, or association:
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that is managed by one or more
trustees or directors;
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the beneficial ownership of which
is evidenced by transferable shares or by transferable certificates of
beneficial interest;
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that would be taxable as a
domestic corporation, but for Sections 856 through 859 of the
Code;
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that is neither a financial
institution nor an insurance company subject to certain provisions of the
Code;
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the beneficial ownership of which
is held by 100 or more
persons;
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no more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities)
during the last half of each taxable
year;
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that meets certain other tests,
described below, regarding the composition of its income and assets;
and
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whose taxable year is the
calendar year.
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The first
four requirements must be satisfied during the entire taxable year, and the
fifth must be satisfied during at least 335 days of a taxable year of 12 months
(or during a proportionate part of a taxable year of less than 12
months). We will be treated as satisfying the sixth requirement for
any taxable year for which we comply with the regulatory requirements to request
information from our shareholders regarding their actual ownership of our shares
and we do not know, or exercising reasonable due diligence would not have known,
that we failed to satisfy such condition.
We intend
to comply with Treasury regulations requiring us to ascertain the actual
ownership of our outstanding shares. (Failure to do so will subject
us to a fine.) In addition, certain restrictions on the transfer of our shares,
imposed by our Declaration of Trust, are meant to help us continue to satisfy
the fifth and sixth requirements for qualification described above.
Finally,
a corporation may not elect to become a REIT unless its taxable year is the
calendar year. Our taxable year is the calendar year.
Income Tests.
To
remain qualified as a REIT, we must satisfy two gross income tests in each
taxable year. First, at least 75% of our gross income (excluding
gross income from “prohibited transactions”) must come from real estate sources
such as rents from real property (as defined below), dividends and gain from the
sale or disposition of shares in other REITs, interest on obligations secured by
real property, and earnings from certain temporary
investments. Second, at least 95% of our gross income (excluding
gross income from “prohibited transactions”) must come from real estate sources
and from dividends, interest and gain from the sale or disposition of stock or
securities (or from any combination of the foregoing).
Rents
received by a REIT (which include charges for services customarily furnished or
rendered in connection with real property and rent attributable to personal
property leased in connection with real property) will generally qualify as
“rents from real property,” subject to certain restrictions,
including:
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the amount of rent must not be
based, in whole or in part, on the income or profits of any person (with
an exception for rents based on fixed percentages of the tenant’s gross
receipts or sales);
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except for certain qualified
lodging and healthcare facilities leased to a taxable REIT subsidiary
(described below), the REIT (or a direct or indirect owner of 10% or more
of the REIT) may not own (directly or constructively) 10% or more of the
tenant (a “Related Party
Tenant”);
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the amount of rent attributable
to personal property leased in connection with a lease of real property
may not exceed 15% of the total rent received under the lease;
and
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the REIT generally may not
operate or manage the property or furnish or render services to the
tenants except through (i) a taxable REIT subsidiary (described below) or
(2) an “independent contractor” that satisfies certain stock ownership
restrictions, that is adequately compensated and from whom the REIT
derives no income. We are not required to use a taxable REIT
subsidiary or independent contractor to the extent that any service we
provide is “usually or customarily rendered” in connection with the rental
of space for occupancy only and is not considered “rendered to the
tenants.”
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If, for
any taxable year, we fail to satisfy the 75% gross income test, the 95% gross
income test, or both, we may nevertheless preserve our REIT status if we satisfy
certain relief provisions under the Code. In general, relief will be
available if (i) our failure to meet one or both of the gross income tests is
due to reasonable cause rather than willful neglect and (ii) we attach a
schedule to our federal corporate income tax return indicating the nature and
amount of our non-qualifying income. However, it is impossible to
state whether in all circumstances we would be entitled to the benefit of the
relief provisions. As discussed above under “—
General
,” even if we qualify
for relief, a tax would be imposed with respect to the amount by which we fail
the 75% gross income test or the 95% gross income test.
Asset Tests.
To
maintain our qualification as a REIT we must also satisfy, at the close of each
quarter of each taxable year, the following tests relating to the nature of our
assets:
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at least 75% of the value of our
total assets must be represented by real estate assets, including (a)
interests in real property and interests in obligations secured (or
deemed, for these purposes, to be secured) by real property, (b) our
proportionate share (determined in accordance with our capital interest)
of real estate assets held by the operating partnership and any other
partnership in which we are a partner, (c) stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering
or long-term (that is, at least five-years) public debt offering, (d)
stock in other REITs and (e) cash, cash items and federal government
securities;
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no more than 25% (20% for taxable
years beginning before August 1, 2008) of the value of our total assets
may be securities of one or more taxable REIT subsidiaries (described
below); and
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except for (a) securities in the
75% asset class, (b) securities in a taxable REIT subsidiary or qualified
REIT subsidiary (defined below), and (c) certain partnership interests and
debt obligations: (i) the value of any one issuer’s securities we own may
not exceed 5% of the value of our total assets; (ii) we may not own more
than 10% of any one issuer’s outstanding voting securities; and (iii) we
may not own more than 10% of the total value of any one issuer’s
outstanding securities. However, if (i) the value of the assets
causing us to violate the 5% or 10% tests does not exceed the lesser of
(A) 1% of the value of our assets at the end of the quarter in which the
violation occurs, or (B) $10,000,000, and (ii) we cure the violation by
disposing of such assets within 6 months after the end of the quarter in
which we identify the failure, then we will not lose our REIT
status.
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We
currently hold assets (or provide services to tenants) through one or more
taxable REIT subsidiaries. To treat a subsidiary as a taxable REIT
subsidiary, we and the subsidiary must make a joint election by filing a Form
8875 with the IRS. A taxable REIT subsidiary pays tax at regular
corporate rates on its earnings, but such earnings may include types of income
that might jeopardize our REIT status if earned by us directly. To
prevent the shifting of income and expenses between us and a taxable REIT
subsidiary, the Code imposes on us a tax equal to 100% of certain items of
income and expense that are not allocated between us and the taxable REIT
subsidiary at arm’s length. The 100% tax is also imposed to the
extent we charge a taxable REIT subsidiary interest in excess of a commercially
reasonable rate.
We may
also hold assets through one or more corporate subsidiaries that satisfy the
requirements to be treated as “qualified REIT subsidiaries.” A
qualified REIT subsidiary is disregarded for federal income tax purposes, which
means, among other things, that for purposes of applying the gross income and
assets tests, all assets, liabilities and items of income, deduction and credit
of the subsidiary will be treated as ours. A subsidiary is a
qualified REIT subsidiary if we own all the stock of the subsidiary (and no
election is made to treat the subsidiary as a taxable REIT
subsidiary). We may also hold assets through other entities that may
be disregarded for federal income tax purposes, such as one or more limited
liability companies in which we are the only member.
If a REIT
is a partner in a partnership, Treasury regulations provide that the REIT will
be deemed to own its proportionate share (based on its share of partnership
capital) of the assets of the partnership and will be deemed to earn its
proportionate share of the income of the partnership. The character
of the assets and gross income of the partnership will retain the same character
in the hands of the REIT for purposes of the REIT requirements, including
satisfying the gross income tests and the asset tests. Thus, our
proportionate share (based on our share of partnership capital) of the assets,
liabilities and items of income of any partnership in which we are a partner,
including the operating partnership, will be treated as our assets, liabilities
and items of income for purposes of applying the requirements described in this
section. Actions taken by partnerships in which we own an interest,
either directly or through one or more tiers of partnerships or qualified REIT
subsidiaries, can affect our ability to satisfy the REIT income and assets tests
and the determination of whether we have net income from prohibited transactions
(described above).
If we
satisfy the asset tests at the close of any quarter, we will not lose our REIT
status if we fail to satisfy the asset tests at the end of a later quarter
solely because of changes in asset values. If our failure to satisfy
the asset tests results, either in whole or in part, from an acquisition of
securities or other property during a quarter, the failure can be cured by
disposing of sufficient non-qualifying assets within 30 days after the close of
that quarter. We intend to maintain adequate records of the value of
our assets to ensure compliance with the asset tests and to take such other
action within 30 days after the close of any quarter as may be required to cure
any noncompliance. In some instances, however, we may be compelled to
dispose of assets that we would prefer to retain.
If we
were to fail to satisfy the asset tests at the end of any quarter and the relief
provisions discussed earlier do not apply, then we will still maintain our REIT
status provided (i) our failure to satisfy the relevant asset test was due to
reasonable cause and was not due to willful neglect, (ii) we file a schedule
with the IRS describing the assets causing the violation, (iii) we cure the
violation by disposing of the assets within 6 months after the end of the
quarter in which we identify the failure, and (iv) we pay a penalty tax of the
greater of (A) $50,000 or (B) the product derived by multiplying the highest
federal corporate income tax rate by the net income generated by the
non-qualifying assets during the period of the failure.
Annual Distribution
Requirements.
To qualify as a REIT, we must also distribute to
our shareholders, dividends (other than capital gain dividends) in an amount at
least equal to (i) the sum of (A) 90% of our “REIT taxable income” (computed
without regard to the dividends paid deduction and our “net capital gain”) plus
(B) 90% of our after-tax net income (if any) from foreclosure property, minus
(ii) the sum of certain items of non-cash income (including, among other things,
cancellation of indebtedness income and original issue discount). In
general, the distributions must be paid during the taxable year to which they
relate. We may also satisfy the distribution requirements with
respect to a particular year provided we (1) declare a sufficient dividend
before timely filing our tax return for that year and (2) pay the dividend
within the 12-month period following the close of the year, and on or before the
date of the first regular dividend payment after such declaration.
To the
extent we fail to distribute 100% of our net capital gain, or we distribute at
least 90% but less than 100% of our “REIT taxable income” (as adjusted), we will
be subject to tax at regular corporate rates on the undistributed
amounts. Furthermore, if we fail to distribute during each calendar
year at least the sum of (i) 85% of our REIT ordinary income for such year, (ii)
95% of our REIT capital gain income for such year and (iii) any undistributed
taxable income from prior periods, we will be subject to a 4% excise tax on the
excess of such amounts over the amounts actually distributed.
As of
December 31, 2008, we had net operating loss carryforwards that may be available
to reduce the amounts that we are required to distribute in order to maintain
our REIT status and avoid entity-level taxes. Our ability to utilize
these carryforwards is subject to an annual limitation (pursuant to the
provisions of Section 382 of the Code). Any adjustments made to the
amount of our taxable income in prior years or a determination that we did not
qualify as a REIT in one or more years in which we generated the losses being
carried forward could reduce or otherwise affect the amount of our loss
carryforwards or our ability to deduct them from our REIT taxable
income.
Dividends
declared by us in October, November or December of any calendar year and payable
to shareholders of record on a specified date in such month, are treated as paid
by us and as received by our shareholders on the last day of the calendar year
(including for excise tax purposes), provided we actually pay the dividends no
later than in January of the following calendar year.
It is
possible that from time to time, we may not have sufficient cash or other liquid
assets to meet the 90% distribution requirement. The shortfall may,
for example, be due to differences between the time we actually receive income
or pay an expense, and the time we must include the income or may deduct the
expense for purposes of calculating our REIT taxable income. As a
further example, the shortfall may be due to an excess of non-deductible cash
outlays such as principal payments on debt and capital expenditures, over
non-cash deductions such as depreciation. In such instances, we may
arrange for short-term or long-term borrowings so that we can pay the required
dividends and meet the 90% distribution requirement.
We intend
to make timely distributions sufficient to meet the annual distribution
requirements. Under certain circumstances, we may pay dividends to
our shareholders consisting partly of Common Shares. Also, if we fail
to meet the distribution requirement for a taxable year, we may correct the
situation by paying “deficiency dividends” to our shareholders in a later
year. By paying the deficiency dividend, we may increase our
dividends paid deduction for the earlier year, thereby reducing our REIT taxable
income for the earlier year. However, if we pay a deficiency
dividend, we will have to pay to the IRS interest based on the amount and timing
of any deduction taken for such dividend.
Failure to
Qualify.
Beginning with our 2005 taxable year, if we would
otherwise fail to qualify as a REIT because of a violation of one of the
requirements described above (other than an asset or income test violation for
which one of the relief provisions described earlier is available), then our
qualification as a REIT will not be terminated if the violation is due to
reasonable cause and not willful neglect and we pay a penalty tax of $50,000 for
each violation.
If we
fail to qualify for taxation as REIT in any taxable year and the relief
provisions do not apply, we will be subject to tax (including any applicable
alternative minimum tax) on our taxable income at regular corporate
rates. Distributions to shareholders in any year in which we do not
qualify will not be deductible by us, nor will they be required to be
made. Unless we are entitled to relief under specific statutory
provisions, we also will be disqualified from taxation as a REIT for the four
taxable years following the year during which our qualification was
lost. It is not possible to state whether in all circumstances we
would be entitled to such statutory relief. Accordingly, our failure
to qualify as a REIT for a prior taxable year could adversely affect our
qualification as a REIT for the current or subsequent taxable years, even if we
otherwise satisfy the REIT requirements for the current or subsequent taxable
years.
For any
year in which we fail to qualify as a REIT, any distributions that we make
generally will be taxable to our shareholders as ordinary income to the extent
of our current or accumulated earnings and profits. Subject to
certain limitations in the Code, corporate shareholders receiving such
distributions may be eligible to claim the dividends received deduction, and
such distributions made to non-corporate shareholders may qualify for
preferential rates of taxation.
Taxable
Mortgage Pools and Excess Inclusion
Income
. An entity, or a portion of an entity, may be
classified as a taxable mortgage pool (“TMP”) under the Code if (1)
substantially all of its assets consist of debt obligations or interests in debt
obligations, (2) more than 50% of those debt obligations are real estate
mortgages or interests in real estate mortgages as of specified testing dates,
(3) the entity has issued debt obligations (liabilities) that have two or more
maturities, and (4) the payments required to be made by the entity on its debt
obligations (liabilities) “bear a relationship” to the payments to be received
by the entity on the debt obligations that it holds as assets. We
have made and in the future expect to make investments or enter into financing
and securitization arrangements that may give rise to our owning a direct or
indirect interest in a TMP, with the consequences described below.
A TMP
ordinarily is treated as a taxable corporation for U.S. federal income tax
purposes. However, the portion of a REIT’s assets that are considered
to be held in an entity or other arrangement classified as a TMP are not subject
to corporate income tax, and the TMP classification does not directly affect the
tax status of the REIT. Instead, a portion of the REIT’s income from
the TMP arrangement, which might be non-cash accrued income, may be “excess
inclusion income.” Excess inclusion income must be allocated among
the REIT’s shareholders in proportion to the dividends paid to
them. A shareholder’s share of excess inclusion income (i) may not be
offset by any net operating losses otherwise available to the shareholder, (ii)
is subject to tax as unrelated business taxable income in the hands of most
types of shareholders that are otherwise generally exempt from U.S. federal
income tax, and (iii) is subject to a U.S. federal withholding tax of 30%
without reduction for any otherwise applicable income tax treaty, to the extent
allocable to most types of foreign shareholders. See “
Taxation of Shareholders -- Non-U.S.
Shareholders
” below. To the extent that our excess inclusion
income is allocated to a tax-exempt shareholder that is not subject to unrelated
business income tax (such as government entities) or to certain foreign
shareholders, we will be subject to tax on this income at the highest applicable
corporate tax rate (currently 35%).
Taxation
of Shareholders
U.S.
Shareholders
As used
in this section, the term “U.S. Shareholder” means a holder of Common Shares
who, for United States federal income tax purposes, is:
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a citizen or resident of the
United States;
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a domestic
corporation;
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an estate whose income is subject
to United States federal income taxation regardless of its source;
or
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a trust if a United States court
can exercise primary supervision over the trust’s administration and one
or more United States persons have authority to control all substantial
decisions of the trust.
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Dividends.
As long
as we qualify as a REIT, distributions that are made to our taxable U.S.
Shareholders out of current or accumulated earnings and profits (and are not
designated as capital gain dividends) will be taken into account by them as
ordinary income. Such distributions will be ineligible for the
corporate dividends received deduction, and except in circumstances that we do
not expect to arise, also will not qualify for the lower rate applicable to
qualifying dividends paid to non-corporate
shareholders. Distributions that are designated as capital gain
dividends will be taxed as long-term capital gains (to the extent they do not
exceed our actual net capital gain for the taxable year) without regard to the
period for which a U.S. Shareholder has held our Common Shares. Thus,
with certain limitations, capital gain dividends received by a U.S. Shareholder
who is an individual may be eligible for preferential rates of
taxation. However, U.S. Shareholders that are corporations may be
required to treat up to 20% of certain capital gain dividends as ordinary
income. We may elect to pay dividends partly in our shares of
beneficial interest, in which event a U.S. Shareholder generally will be taxable
on the value of our shares received as a dividend.
We may
elect not to distribute part or all of our net long-term capital gain, and pay
corporate tax on the undistributed amount. In that case, a U.S.
Shareholder will (i) include in its income, as long-term capital gain, its
proportionate share of the undistributed gain, and (ii) claim, as a refundable
tax credit, its proportionate share of the taxes paid. In addition, a
U.S. Shareholder will be entitled to increase its tax basis in our Common Shares
by an amount equal to its share of the undistributed gain reduced by its share
of the corporate taxes paid by us on the undistributed gain. As
discussed earlier (see “
Requirements for Qualification --
Annual Distribution Requirements
”), we may pay certain dividends in
January that will be taxable to shareholders as if paid in the immediately
preceding calendar year.
Distributions
in excess of our current and accumulated earnings and profits will be treated as
a non-taxable return of capital to a U.S. Shareholder to the extent that they do
not exceed the adjusted basis of the shareholder’s Common Shares as to which the
distributions were made, and will reduce the adjusted basis of the shareholder’s
Common Shares. To the extent these distributions exceed the
shareholder’s adjusted basis in its Common Shares, the distributions will be
included in the shareholder’s income as long-term capital gain (or short-term
capital gain if the Common Shares have been held for one year or
less).
Shareholders
may not claim our net operating losses or net capital losses (if any) on their
individual income tax returns. Distributions with respect to, and
gain from the disposition of, our shares will be treated as “portfolio income”
and, therefore, U.S. Shareholders that are subject to the passive activity loss
limitations will be unable to claim passive activity losses against such
income.
Sale of
Shares.
When a U.S. Shareholder sells or otherwise disposes of
our Common Shares, the shareholder will recognize capital gain or capital loss
for federal income tax purposes in an amount equal to the difference between (a)
the amount of cash and the fair market value of any property received on the
sale or other disposition, and (b) the shareholder’s adjusted tax basis in the
shares for tax purposes. The gain or loss will be long-term gain or
loss if the U.S. Shareholder has held the Common Shares for more than one
year. Long-term capital gain of a non-corporate U.S. Shareholder is
generally taxed at preferential rates. In general, any loss
recognized by a U.S. Shareholder on a disposition of Common Shares that the
shareholder has held for six months or less, after applying certain holding
period rules, will be treated as a long-term capital loss, to the extent the
shareholder received distributions from us that were treated as long-term
capital gains. Capital losses generally are deductible only to the
extent of a U.S. Shareholder’s capital gain.
Backup
Withholding.
We will report to our U.S. Shareholders and the
IRS, the amount of dividends paid during each calendar year and the amount of
tax withheld, if any, with respect thereto. A U.S. Shareholder may be
subject to backup withholding tax (currently at a rate of 28%) with respect to
dividends paid unless the shareholder (i) is a corporation or comes within
certain other exempt categories and, if required, demonstrates this fact, or
(ii) provides a taxpayer identification number and certifies as to no loss of
exemption, and otherwise complies with the applicable requirements of the backup
withholding rules. An individual U.S. Shareholder may satisfy these
requirements by providing us with a properly completed and signed IRS Form
W-9. Individual U.S. Shareholders who do not provide us with their
correct taxpayer identification numbers may be subject to penalties imposed by
the IRS. Any amount withheld will be creditable against the U.S.
Shareholder’s income tax liability.
Tax-Exempt
Shareholders.
The IRS has ruled that amounts distributed as
dividends by a qualified REIT generally do not constitute unrelated business
taxable income (“UBTI”) if received by a tax-exempt entity. Based on
that ruling, dividend income from our shares generally will not be UBTI to a
tax-exempt U.S. Shareholder, provided that the shareholder has not held its
Common Shares as “debt financed property” within the meaning of the
Code. Similarly, income from selling our Common Shares generally will
not constitute UBTI to a tax-exempt U.S. Shareholder unless the shareholder has
held its Common Shares as “debt financed property.”
Notwithstanding
the above paragraph, tax-exempt U.S. Shareholders will be required to treat as
UBTI any dividends paid by us that are allocable to our excess inclusion income,
if any. (See “
Taxable Mortgage Pools and Excess
Inclusion Income
” above.) Also, if we are a “pension-held
REIT,” then any qualified pension trust that holds more than 10% of our Common
Shares will have to treat dividends paid by us as UBTI in the same proportion
that our gross income would be UBTI. A qualified pension trust is any
trust described in section 401(a) of the Code that is exempt from tax under
section 501(a) of the Code. In general, we will be treated as a
“pension-held REIT” only if both (a) we are predominantly owned by qualified
pension trusts (that is, at least one qualified pension trust holds more than
25% of our shares, or one or more qualified pension trusts, each of which owns
more than 10% of our shares, hold in the aggregate more than 50% of our shares)
and (b) we would not qualify as a REIT if we had to treat our Common Shares
owned by a qualified pension trust as owned by an “individual” (instead of
treating such stock as owned by the qualified pension trust’s multiple
beneficiaries). As a result of certain limitations on the transfer
and ownership of shares contained in the Declaration of Trust, we do not expect
to be classified as a pension-held REIT.
Tax-exempt
stockholders that are social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts and qualified group legal services
plans exempt from federal income taxation under sections
501(c)(7),(c)(9),(c)(17) and (c)(20), respectively, of the Code, are subject to
different UBTI rules, which generally will require them to characterize our
distributions as UBTI.
Non-U.S.
Shareholders
The rules
governing the U.S. federal income taxation of shareholders (which we call
“non-U.S. Shareholders”) who or which are not subject to U.S. federal income
taxation, are complex, and no attempt will be made herein to provide more than a
limited summary of those rules. The discussion below assumes that the
non-U.S. Shareholder’s investment in our shares is not effectively connected
with a trade or business conducted in the United States by the non-U.S.
Shareholder, or, if a tax treaty applies to the non-U.S. Shareholder, that its
investment in our shares is not attributable to a United States permanent
establishment maintained by the non-U.S. Shareholder. WE RECOMMEND
THAT NON-U.S. SHAREHOLDERS CONSULT WITH THEIR OWN TAX ADVISORS TO DETERMINE THE
IMPACT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS AND REPORTING
REQUIREMENTS WITH REGARD TO AN INVESTMENT IN OUR SHARES.
Ordinary
Dividends.
Distributions, other than capital gain dividends
and distributions that are treated as attributable to gain from sales or
exchanges by us of U.S. real property interests (discussed below), will be
treated as ordinary dividends to the extent that they are made out of our
current or accumulated earnings and profits. Such dividends paid to
non-U.S. Shareholders will ordinarily be subject to a U.S. federal withholding
tax of 30% of the gross amount of the distribution, unless an applicable tax
treaty reduces that tax rate. We expect to withhold U.S. income tax
at the rate of 30% on the gross amount of any ordinary dividends paid to a
non-U.S. Shareholder, unless we receive the requisite proof that (i) a lower
treaty rate applies or (ii) the income is “effectively connected
income.” A non-U.S. Shareholder claiming the benefit of a tax treaty
may need to satisfy certification and other requirements, such as providing an
IRS Form W-8BEN. A non-U.S. Shareholder who wishes to claim that
distributions are effectively connected with a United States trade or business
may need to satisfy certification and other requirements, such as providing IRS
Form W-8ECI. Other requirements, such as providing an IRS Form
W-8IMY, may apply to a non-U.S. Shareholder that is a financial intermediary or
a foreign partnership.
Distributions
in excess of our current and accumulated earnings and profits that are not
treated as attributable to the gain from a disposition of U.S. real property
will be treated as a non-taxable return of capital to a Non-U.S. Shareholder up
to the amount of the non-U.S. Shareholder’s adjusted basis in its Common
Shares. To the extent that such distributions exceed the adjusted
basis of a non-U.S. Shareholder’s Common Shares, they will give rise to a U.S.
tax liability only if the non-U.S. Shareholder otherwise would be subject to tax
on any gain from the sale or disposition of its Common Shares, as described
below. If it cannot be determined at the time a distribution is made
whether the distribution will exceed our current and accumulated earnings and
profits, then the distribution will be subject to withholding at the rate
applicable to ordinary dividends. However, the non-U.S. Shareholder
may seek a refund of these amounts from the IRS if it is subsequently determined
that the distribution did, in fact, exceed our current and accumulated earnings
and profits.
Capital Gain
Dividends.
Under the Foreign Investment in Real Property Tax
Act of 1980 (“FIRPTA”), gain from the sale or exchange of United States real
property interests generally is taxable to non-U.S. persons as if such gain were
effectively connected with a U.S. trade or business. However, capital
gain dividends and dividends treated as attributable to the gain from a
disposition of U.S. real property (collectively, “FIRPTA dividends”) paid by us
to a non-U.S. Shareholder with respect to our Common Shares generally will not
be subject to FIRPTA if the non-U.S. Shareholder has not owned more than 5% of
our Common Shares at any time during the taxable year in which the dividend is
received. Instead, such capital gain dividends will be treated the
same as ordinary dividends, and therefore will be subject to a U.S. federal
withholding tax of 30% unless reduced under an income tax
treaty. Non-U.S. Shareholders that do not qualify for this exception
will be taxed on our capital gain distributions at the same capital gain rates
applicable to U.S. Shareholders (subject to any applicable alternative minimum
tax and special alternative minimum tax in the case of nonresident alien
individuals), and we will be required to withhold U.S. tax equal to 35% from
such distributions. The 35% tax withheld may be claimed by a non-U.S.
Shareholder as a credit against its reported U.S. federal income tax
liability. In addition to regular U.S. income tax, corporate non-U.S.
Shareholders that do not qualify for the FIRPTA exception may be subject to a
30% branch profits tax on FIRPTA dividends unless the shareholder is entitled to
treaty relief or other exemption.
Sales of
Shares.
Gain recognized by a non-U.S. Shareholder upon a sale
or exchange of our Common Shares generally will not be taxed under FIRPTA
provided we are a “domestically controlled REIT.” In general, we will
qualify as a domestically controlled REIT if at all times during a designated
testing period less than 50% in value of our shares are held (directly or
indirectly) by foreign persons. We currently are a domestically
controlled REIT. Gain not subject to FIRPTA nevertheless will be
subject to a 30% U.S. tax if the non-U.S. Shareholder is an alien individual who
is present in the United States for 183 days or more during the taxable year,
and certain other requirements are met.
Although
we anticipate that we continue to qualify as a domestically controlled REIT,
because our Common Shares are publicly traded, no assurance can be given that we
will continue to qualify. If we were not a domestically controlled
REIT, then a non-U.S. Shareholder’s sale of Common Shares generally would not be
subject to tax under FIRPTA if the non-U.S. Shareholder has not owned more than
5% of our Common Shares during a designated testing period. If gain
on the sale of Common Shares is subject to tax under FIRPTA, then a Non-U.S.
Shareholder will be subject to income tax (but will not also be subject to a
branch profits tax) as described above under “—
Taxation of Shareholders
—
Non-U.S. Shareholders
—
Capital Gain Dividends
,”
and the purchaser of such Common Shares will be required to withhold 10% of the
gross purchase price.
Federal Estate
Taxes.
In general, if an individual who is not a citizen or
resident (as defined in the Code) of the United States owns (or is treated as
owning) our Common Shares at the date of death, our Common Shares will be
included in the individual’s estate for United States federal estate tax
purposes, unless an applicable estate tax treaty provides
otherwise.
Backup Withholding and Information
Reporting.
Generally, we must report annually to the IRS the
amount of dividends paid to a non-U.S. Shareholder, such Shareholder’s name and
address, and the amount of tax withheld, if any. Dividends or
proceeds from the disposition of Common Shares that are paid to a non-U.S.
Shareholder may be subject to information reporting and backup withholding
unless such Shareholder establishes an exemption, for example, by properly
certifying its non-United States status on an IRS Form W-8BEN or another
appropriate version of IRS Form W-8. Notwithstanding the foregoing,
backup withholding and information reporting may apply if either we or our
paying agent has actual knowledge, or reason to know, that a non-U.S.
Shareholder is a United States person.
A
non-U.S. Shareholder generally may obtain a refund of any amounts withheld under
the backup withholding rules that exceed its income tax liability by filing a
refund claim with the IRS.
Other
Tax Consequences
We and
our shareholders may be subject to state or local taxation in various state and
local jurisdictions, including those in which we or they transact business or
reside. State and local tax laws may not conform to the federal
income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of state
and local tax laws on an investment in our shares.
PLAN
OF DISTRIBUTION
The
Selling Shareholders and their pledgees, donees, transferees or other successors
in interest may offer and sell, from time to time, some or all of the Common
Shares covered by this prospectus. We have registered the Common
Shares covered by this prospectus for offer and sale by the Selling Shareholders
so that those Common Shares may be freely sold to the public by
them. Registration of the Common Shares covered by this prospectus
does not mean, however, that those shares necessarily will be offered or
sold. We will not receive any proceeds from any sale of the Common
Shares by the Selling Shareholders. We have agreed to pay all costs,
expenses and fees in connection with the registration of the Common Shares,
including fees of our counsel and accountants, fees payable to the SEC and
listing fees. We estimate those fees and expenses to be approximately
$39,990. The Selling Shareholders will pay all underwriting discounts
and commissions and similar selling expenses, if any, attributable to the sale
of the Common Shares covered by this prospectus.
The
Selling Shareholders and their distributees, pledgees, donees, transferees or
other successors in interest may sell the Common Shares covered by this
prospectus from time to time, at market prices prevailing at the time of sale,
at prices related to market prices, at a fixed price or prices subject to change
or at negotiated prices, by a variety of methods including the
following:
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in privately negotiated
transactions;
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through broker-dealers, who may
act as agents or principals;
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in a block trade in which a
broker-dealer will attempt to sell a block of Common Shares as agent but
may
position and resell
a portion of the block as principal to facilitate the
transaction;
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through one or more underwriters
on a firm commitment or best-efforts
basis;
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directly to one or more
purchasers;
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in
any combination of the above.
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In
effecting sales, brokers or dealers engaged by the Selling Shareholders may
arrange for other brokers or dealers to participate. Broker-dealer
transactions may include:
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purchases of the Common Shares by
a broker-dealer as principal and resales of the Common Shares by the
broker-dealer for its account under this
prospectus;
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ordinary brokerage transactions;
or
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transactions in which the
broker-dealer solicits
purchasers.
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At any
time a particular offer of the Common Shares covered by this prospectus is made,
a revised prospectus or prospectus supplement, if required, will be distributed
which will state the aggregate amount of Common Shares covered by this
prospectus being offered and the terms of the offering, including the name or
names of any underwriters, dealers, brokers or agents, any discounts,
commissions, concessions and other items constituting compensation from the
Selling Shareholders and any discounts, commissions or concessions allowed or
reallowed or paid to dealers. Any prospectus supplement, and, if
necessary, a post-effective amendment to the registration statement of which
this prospectus is a part will be filed with the SEC to reflect the disclosure
of additional information with respect to the distribution of the Common Shares
covered by this prospectus.
In
connection with the sale of the Common Shares covered by this prospectus through
underwriters, underwriters may receive compensation in the form of underwriting
discounts or commissions and may also receive commissions from purchasers of
Common Shares for whom they may act as agent. Underwriters may sell
to or through dealers, and these dealers may receive compensation in the form of
discounts, concessions or commissions from the underwriters and commissions from
the purchasers for whom they may act as agent.
The
Common Shares are listed on the NYSE under the symbol “FUR.”
Any
underwriters, broker-dealers or agents participating in the distribution of the
Common Shares covered by this prospectus may be deemed to be “underwriters”
within the meaning of the Securities Act of 1933, and any commissions received
by any of those underwriters, broker-dealers or agents may be deemed to be
underwriting commissions under the Securities Act of 1933.
Some of
the Common Shares covered by this prospectus may be sold in private transactions
or under Rule 144 under the Securities Act of 1933 rather than under this
prospectus.
EXPERTS
The
financial statements for the year ended December 31, 2006 before the effects of
the adjustments to retrospectively apply the change in accounting resulting from
the adoption of Statement of Financial Accounting Standards No. 160
(“SFAS 160”),
Non-controlling
Interests in Consolidated Financial Statements, an amendment to ARB 51
as
described in Note 2 and the adjustments to the 2006 earnings per share to
retrospectively apply the effect of the reverse stock split of the Company's
Common Shares of Beneficial Interest, (not separately included or incorporated
by reference in the Prospectus) have been audited by Deloitte & Touche LLP,
an independent registered public accounting firm. The adjustments to
those financial statements to retrospectively apply the change in accounting
principle resulting from the adoption of SFAS 160 as described in Note 2 and the
adjustments to the 2006 earnings per share to retrospectively apply the effect
of the reverse stock split of the Company's Common Shares of Beneficial Interest
have been audited by PricewaterhouseCoopers LLP, an independent registered
public accounting firm. The consolidated financial
statements for the year ended December 31, 2006 incorporated in this
prospectus by reference to the Current Report on Form 8-K dated August 27, 2009,
have been so incorporated in reliance on the reports of (i) Deloitte &
Touche LLP solely with respect to those financial statements before the effects
of the adjustments to retrospectively apply the change in accounting resulting
from the adoption of SFAS 160 as described in Note 2 and the adjustments to the
2006 earnings per share to retrospectively apply the effect of the reverse stock
split of the Company's Common Shares of Beneficial Interest and (ii)
PricewaterhouseCoopers LLP solely with respect to the adjustments to those
financial statements to retrospectively apply the change in accounting resulting
from the adoption of SFAS 160 as described in Note 2 and the adjustments to the
2006 earnings per share to retrospectively apply the effect of the reverse stock
split of the Company's Common Shares of Beneficial Interest, given on the
authority of such firms as experts in auditing and accounting.
The
financial statements as of December 31, 2008 and 2007 and for the years ended
December 31, 2008 and 2007 incorporated in this Prospectus by reference to
Winthrop Realty Trust's Current Report on Form 8-K dated August 27, 2009 and the
financial statement schedule and management's assessment of the effectiveness of
internal control over financial reporting (which is included in Management's
Report on Internal Control over Financial Reporting) incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of Winthrop Realty
Trust as of December 31, 2008 and 2007 and for the years ended December 31, 2008
and 2007 have been so incorporated in reliance on the report
, which
contains a paragraph relating to the Company's adoption of SFAS 160 as of
January 1, 2009,
of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
The
financial statements of Lex-Win Concord LLC incorporated in this Prospectus by
reference to Winthrop Realty Trust's Current Report on Form 8-K dated August 27,
2009 have been so incorporated in reliance on the report
, which
contains an explanatory paragraph relating to Lex-Win Concord LLC's inability to
continue as a going concern as described in Note 16 to the financial
statements,
of PricewaterhouseCoopers LLP, an independent registered
public accounting firm, given on the authority of said firm as experts in
auditing and accounting.
On
November 1, 2008, our auditors, Tauber & Balser, P.C., combined with, and
changed their name to, Habif, Arogeti & Wynne, LLP. The financial
statements of the Chicago Properties (our Marc Realty joint venture) as of and
for the year ended December 31, 2007 incorporated in this prospectus by
reference to Winthrop Realty Trust’s Annual Report on Form 10-K for the year
ended December 31, 2008 have been so incorporated in reliance on the report of
Tauber & Balser, P.C., an independent registered public accounting firm,
given on the authority of said firm as experts in auditing and
accounting.
LEGAL
MATTERS
Certain
legal matters, including the legality of the securities offered hereby, have
been passed upon by Hahn Loeser & Parks LLP. Certain tax matters
have been passed upon by Katten Muchin Rosenman LLP.
WHERE
YOU CAN FIND MORE INFORMATION
We are
subject to the informational requirements of the Securities Exchange Act of 1934
which requires us to file reports and other information with the Securities and
Exchange Commission. You can inspect and copy reports, proxy
statements and other information filed by us at the Public Reference Room
maintained by the SEC at 100 F Street, N.E., Washington, D.C.
20549.
You can
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. You can obtain copies of this material by mail
from the Public Reference Room of the SEC at 1580, 100 F Street, N.E.,
Washington, D.C. 20549, at prescribed rates. You can also obtain such
reports, proxy statements and other information from the web site that the SEC
maintains at http://www.sec.gov.
Reports,
proxy statements and other information concerning us may also be obtained
electronically at our website, http://www.winthropreit.com, and through a
variety of databases, including, among others, the SEC’s Electronic Data
Gathering and Retrieval (“EDGAR”) program, Knight-Ridder Information Inc.,
Federal Filing/Dow Jones and Lexis/Nexis.
INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
The SEC
allows us to “incorporate by reference” the information we file with them, which
means that we can disclose important information to you by referring you to
those documents. The information incorporated by reference is
considered to be part of this prospectus, and information that we file later
with the SEC will automatically update and supersede this
information. We incorporate by reference the following
documents:
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Annual Report on Form 10-K for
the year ended December 31, 2008 (with respect to Items 6, 7, 7A and 8, as
amended by the Current Report on Form 8-K filed on August 28,
2009);
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Quarterly Report on Form 10-Q for
the quarter ended September 30,
2009;
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Quarterly Report on Form 10-Q for
the quarter ended June 30,
2009;
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Quarterly Report on Form 10-Q for
the quarter ended March 31,
2009;
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Current Reports on Form 8-K filed
on November 6, 2009, November 2, 2009, October 14, 2009, September 25,
2009, August 28, 2009, August 7, 2009 (solely with respect to Item 8.01),
July 15, 2009, June 4, 2009, May 8, 2009 (solely with respect to Item
8.01), April 21, 2009, March 6, 2009 (solely with respect to Items 1.01
and 8.01), February 13, 2009, and January 8, 2009;
and
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Our Definitive Proxy Statement on
Schedule 14A dated April 21,
2009.
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All
documents filed by us with the SEC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934, as amended, which is commonly
referred to as the Exchange Act, after the date of this prospectus and prior to
the termination of the offering of all securities under this prospectus will
also be deemed to be incorporated by reference into this prospectus and to be a
part hereof.
You may
request a copy of these filings, at no cost, by writing or telephoning us at the
following address:
Beverly
Bergman, Director of Investor Relations
Winthrop
Realty Trust
7
Bulfinch Place, Suite 500
Boston,
MA 02114
(617)
570-4614
This
prospectus is part of a registration statement we filed with the
SEC. You should rely only on the information or representations
provided in or incorporated by reference into this prospectus. We
have not authorized anyone else to provide you with different
information. You should not assume that the information in this
prospectus or any supplement is accurate as of any date other than the date on
the front of those documents.
No
dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference in this prospectus in connection with the offer made
by this prospectus, and, if given or made, such information or representations
must not be relied upon as having been authorized by us. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy any security other than the securities offered hereby, nor does it
constitute an offer to sell or a solicitation of any offer to buy any of the
shares offered by anyone in any jurisdiction in which such offer or solicitation
is not authorized, or in which the person making such offer or solicitation is
not qualified to do so, or to any person to whom it is unlawful to make such
offer or solicitation.
Neither
the delivery of this prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof.
The date
of this prospectus is December 21, 2009.