[LETTERHEAD OF WINTHROP REALTY TRUST]
March 2007
Fellow Shareholders:
Our Company continued to enjoy success in the implementation of our
business strategy throughout 2006 as demonstrated by the key metrics of
operating results, balance sheet growth and capitalization. A comparison of
these performance metrics for the years 2003 through 2006 is as follows:
2006 2005 2004 2003
---- ---- ---- ----
(in thousands)
Net Cash Flow from Operations $ 27,687 $ 15,870 $ 3,987 ($ 3,747)
Total Assets(1) 851,620 658,848 289,968 146,838
Total Shareholder Equity(1) 323,586 159,606 120,142 96,720
Dividends Applicable to Common Shares 16,069 3,914 -- --
Dividends per Common Share .30 .11 -- --
(1) Under Generally Accepted Accounting Principles
Moreover, total return to common shareholders for 2006, inclusive of dividends
paid, was 26.3%. Since current management assumed responsibility for the Company
on January 1, 2004, total return to common shareholders has been 239% through
December 31, 2006.
Due to the auction like market for single asset transactions prevalent
throughout 2006, the Company pursued new investments primarily through the
formation of a series of joint ventures both for valuation and sourcing
considerations. Concord Debt Holdings LLC ("Concord"), a 50/50 joint venture
formed initially with Newkirk Realty Trust, Inc. and subsequently with its
merged successor, Lexington Realty Trust, allowed the Company to invest more
than $50 million of equity capital in debt instruments backed by assets of the
type in which we historically invest at loss exposure levels which were
substantially below our view of the asset's underlying value. Our debt
investments through Concord enable us to generate relatively high current
returns on a reduced risk adjusted basis while maintaining all of our historic
investment criteria. To date, Concord has purchased or committed to purchase in
excess of $1.0 billion of debt instruments. In December 2006, Concord formed its
first collateralized debt obligation which issued approximately $365 million of
investment grade debt while retaining approximately $88 million of equity. The
Company currently has committed $100 million of capital to this venture and it
is our current intention to significantly grow Concord in the future.
Expanding upon the success enjoyed by the Company with its Marc Realty
Chicago office joint venture, the Company entered into joint ventures with Sealy
& Company, Inc. to acquire flex office warehouse space in the Southeast and
Vision Property Services LLC to acquire turnaround apartment properties located
primarily west of the Mississippi River. These ventures reflect our intention to
partner with experienced real estate operators who have specialized skill sets
in particular markets which can provide the Company with both compelling real
estate opportunities and the management expertise to maximize their value.
Accordingly, it is our intention to create more of these relationships in the
near term.
We are particularly pleased with our leasing results for the year. Our
463,000 square foot warehouse in Jacksonville, Florida, which was vacated by
Winn-Dixie in 2005 as a result of its bankruptcy, is presently 83% leased. In
addition, the 54,000 square foot office building in suburban Chicago which was
acquired vacant in 2006 is presently 100% leased. During 2006, we entered into
18 new leases and renewed 14 leases totaling approximately 576,000 square feet,
resulting in portfolio occupancy increasing to 98%.
Significant strides were made this year in improving our balance sheet.
The strength in the Company's share price permitted us to convert our Series A
Preferred Shares into 4,836,763 common shares thereby eliminating the 8.4%
coupon. In addition, the Company successfully executed on its rights offering to
existing shareholders issuing an additional 5,220,038 common shares raising
$27.1 million in new capital. Further, the Company instituted a dividend
reinvestment and stock purchase plan which permits shareholders to reinvest all
or a portion of their quarterly dividends in new common shares at a 2% discount
to the average of the high and low price of our common shares on the date of
purchase. Our most important accomplishment this year was the issuance and sale
of 19,550,000 common shares in November pursuant to an underwritten public
offering at a price of $6.00 per share providing the Company with net proceeds
of $110.8 million.
In this frothy investment environment with prices for assets bid up, we
believe that it is incumbent on management to constantly review our portfolio to
determine which assets have appreciated in value to the point where sale or
recapitalization is warranted in order to maximize our return on capital. As a
result, four of the Marc Realty properties were sold in 2006 and a fifth was
sold during the first quarter of 2007. Further, we refinanced the entire Finova
portfolio in 2006 and fully liquidated our investment in Sizeler Property
Investors. This process is continuous and an ongoing one in which we are
constantly engaged.
As with most real estate investors, the Company has benefited from the
tailwinds of low interest rates and excess liquidity in its capital markets. On
the other hand, this market has made the current investment climate a
challenging one for a company such as ours which pursues an opportunistic
investment strategy. Whether this trend constitutes a paradignamic change or the
apogee of an upward cycle awaits future determination. In any event our
commitment to a disciplined approach to our investment strategy will be
unaltered.
On behalf of the Company, I must once again personally acknowledge the
enormous contribution to the Company's success made by our management team, all
of our advisor's extremely dedicated personnel and the astute participation of
our Board of Trustees.
I look forward to meeting personally with those of you who wish to attend
our annual meeting and addressing any questions you might have.
Sincerely,
/s/ Michael L. Ashner
Michael L. Ashner
Chief Executive Officer