Note 10. CT Legacy REIT, Excluding Securitization Vehicles

As described in Note 1, on March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, and contributed certain of our legacy assets and debt obligations to a newly formed subsidiary, CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT.

CT Legacy REIT is a consolidated VIE that is economically owned 52% by us, 24% by an affiliate of Five Mile, and 24% by the former lenders under our senior credit facility. In addition, the former holders of our junior subordinated notes received class B common stock of CT Legacy REIT, a subordinate class of common stock which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in the common stock of CT Legacy REIT, after aggregate cash distributions of $50.0 million have been paid to all other classes of common stock.

As of September 30, 2011, our consolidated balance sheet includes an aggregate $260.1 million of assets and $227.5 million of liabilities related to CT Legacy REIT. In addition, CT Legacy REIT consolidates three securitization trusts which are presented on our consolidated balance sheets with other securitization trusts owned by us directly, which are discussed in Note 11.

The liabilities of CT Legacy REIT are all non-recourse to us, and we are not obligated to provide, nor have we provided, any financial support to CT Legacy REIT. Accordingly, other than in the event of a breach of certain limited non-recourse, “bad boy” carve outs, our maximum exposure to loss as a result of our investment in CT Legacy REIT is limited to $162.9 million, the face amount of our equity interest in CT Legacy REIT’s net assets. After giving effect to provisions for loan losses and other-than-temporary impairments recorded as of September 30, 2011, our remaining net exposure to loss from CT Legacy REIT is $61.1 million.

As described in Note 2, our consolidated balance sheets separately present: (i) our direct assets and liabilities, (ii) the direct assets and liabilities of CT Legacy REIT, and (iii) the assets and liabilities of consolidated securitization vehicles, some of which are subsidiaries of CT Legacy REIT. The following disclosures relate specifically to the direct assets and liabilities of CT Legacy REIT, as separately stated on our consolidated balance sheets.

A. Securities Held-to-Maturity – CT Legacy REIT

CT Legacy REIT’s securities portfolio consists of CMBS, CDOs, and other securities. Activity relating to these securities for the nine months ended September 30, 2011 was as follows (in thousands):

	CMBS			CDOs & Other		Total Book Value (1)

December 31, 2010		$—			$—		$—

Transfer from Capital Trust, Inc.		2,356			1,221		3,577
Principal paydowns		(94	)		—		(94	)
Consolidation of additional securitization vehicle (2)		(1,120	)		—		(1,120	)
Discount/premium amortization & other (3)		205			23		228

September 30, 2011		$1,347			$1,244		$2,591


(1)	Includes securities with a total face value of $29.5 million as of September 30, 2011.
(2)	Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with a net book value of $1.1 million. See Note 11 for additional discussion.
(3)	Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.

As of September 30, 2011, all of CT Legacy REIT’s securities were classified as held-to-maturity.

The following table allocates the book value of CT Legacy REIT’s securities as of September 30, 2011 between their amortized cost basis, amounts related to mark-to-market adjustments on securities previously classified as available-for-sale, and the portion of other-than-temporary impairments not related to expected credit losses (in thousands):

	CMBS			CDOs & Other		Total Securities
Amortized cost basis		$2,369			$1,244		$3,613
Mark-to-market adjustments on securities previously classified as available-for-sale		(531	)		—		(531	)
Other-than-temporary impairments recognized in accumulated other comprehensive income		(491	)		—		(491	)

Total book value as of September 30, 2011		$1,347			$1,244		$2,591

The following table details overall statistics for CT Legacy REIT’s securities portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of securities	6	─
Number of issues	5	─
Rating (1) (2)	CCC	N/A
Fixed / Floating (in millions) (3)	$2 / $1	$─ / $─
Coupon (1) (4)	8.38%	N/A
Yield (1) (4)	6.41%	N/A
Life (years) (1) (5)	5.6	N/A


(1)	Represents a weighted average as of September 30, 2011.
(2)	Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for each security.
(3)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate securities.
(4)	Coupon is based on the securities’ contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.24% as of September 30, 2011.
(5)	Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment.

The table below details the ratings and vintage distribution of CT Legacy REIT’s securities as of September 30, 2011 (in thousands):

	Rating as of September 30, 2011
Vintage		B	CCC and Below		Total
2003		$—		$1,246		$1,246
1997		189		—		189
1996		—		1,156		1,156
Total		$189		$2,402		$2,591

Other-than-temporary impairments

Certain of the securities which were transferred to CT Legacy REIT have previously been other-than-temporarily impaired both during the nine months ended September 30, 2011, and in prior periods. The following table summarizes activity related to the other-than-temporary impairments of these securities as of September 30, 2011 (in thousands):

	Gross Other-Than-Temporary Impairments			Credit Related Other-Than-Temporary Impairments			Non-Credit Related Other-Than-Temporary Impairments

December 31, 2010		$—			$—			$—

Transfer from Capital Trust, Inc.		30,470			29,362			1,108
Amortization of other-than-temporary impairments		(228	)		(149	)		(79	)
Consolidation of additional securitization vehicle (1)		(3,357	)		(2,819	)		(538	)

September 30, 2011		$26,885			$26,394			$491


(1)	Beginning in the third quarter of 2011, CT Legacy REIT consolidated an additional securitization vehicle, which was previously accounted for as part of its securities portfolio with an other-than-temporary impairment of $3.4 million. See Note 11 for additional discussion.

Unrealized losses and fair value of securities

Certain of CT Legacy REIT’s securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in credit spreads and interest rates. The following table shows the gross unrealized losses and fair value of securities for which the fair value is lower than their book value as of September 30, 2011, and that are not deemed to be other-than-temporarily impaired (in millions):

	Less Than 12 Months				Greater Than 12 Months					Total

	Estimated Fair Value		Gross Unrealized Loss		Estimated Fair Value		Gross Unrealized Loss			Estimated Fair Value		Gross Unrealized Loss			Book Value (1)

Floating Rate		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3

Fixed Rate		—		—		—		—			—		—			—

Total		$—		$—		$0.2		($1.1	)		$0.2		($1.1	)		$1.3


(1)	Excludes, as of September 30, 2011, $1.3 million of securities which were carried at or below fair value and securities against which an other-than-temporary impairment equal to the entire book value was recognized in earnings.

As of September 30, 2011, one of CT Legacy REIT's securities with a book value of $1.3 million was carried at a value in excess of its fair value. Fair value for this security was $158,000 as of September 30, 2011. In total, as of September 30, 2011, CT Legacy REIT had six investments in securities with an aggregate book value of $2.6 million that have an estimated fair value of $1.8 million, including two investments in CMBS with an estimated fair value of $1.6 million and four investments in CDOs and other securities with an estimated fair value of $158,000.

We determine fair values using third party dealer assessments of value, and our own internal financial model-based estimations of fair value. See Note 17 for further discussion of fair value. We regularly examine our securities portfolio and have determined that, despite the differences between book value and fair value discussed above, our expectations of future cash flows have changed adversely for six of our securities, against which we have recognized other-than-temporary-impairments.

Our estimation of cash flows expected to be generated by our securities portfolio is based upon an internal review of the underlying loans securing our investments both on an absolute basis and compared to our initial underwriting for each investment. Our efforts are supplemented by third-party research reports, third-party market assessments and our dialogue with market participants. As of September 30, 2011, we do not intend to sell our securities, nor do we believe it is more likely than not that we will be required to sell our securities before recovery of their amortized cost bases, which may be at maturity. This, combined with our assessment of cash flows, is the basis for our conclusion that these investments are not impaired, other than as described above, despite the differences between estimated fair value and book value. We attribute the difference between book value and estimated fair value to the current market dislocation and a general negative bias against structured financial products such as CMBS and CDOs.

Investments in variable interest entities

CT Legacy REIT’s securities portfolio includes investments in both CMBS and CDOs, which securitization structures are generally considered VIEs. We have not consolidated these VIEs due to our determination that, based on the structural provisions of each entity and the nature of our investments, we do not have the power to direct the activities that most significantly impact these entities' economic performance.

These securities were acquired through investment, and do not represent a securitization or other transfer of our assets. We are not named as special servicer on these investments, nor do we have the right to name special servicer.

CT Legacy REIT is not obligated to provide, nor has it provided, any financial support to these entities. As of September 30, 2011, CT Legacy REIT’s maximum exposure to loss as a result of its investment in these entities is $29.5 million, the principal amount of its securities portfolio. We have recorded other-than-temporary impairments of $26.9 million against this portfolio, resulting in a net exposure to loss of $2.6 million as of September 30, 2011.

B. Loans Receivable, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans receivable for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value			Provision for Loan Losses			Net Book Value (1)

December 31, 2010		$—			$—			$—

Transfer from Capital Trust, Inc. on March 31, 2011		739,694			(244,282	)		495,412
Satisfactions (2)		(241,442	)		—			(241,442	)
Principal paydowns		(20,596	)		—			(20,596	)
Discount/premium amortization & other		936			—			936
Provision for loan losses		—			5,049			5,049
Realized loan losses		(1,434	)		1,434			—
Reclassification to loans held-for-sale		(32,331	)		—			(32,331	)

September 30, 2011		$444,827			($237,799	)		$207,028


(1)	Includes loans with a total principal balance of $444.5 million as of September 30, 2011.
(2)	Includes final maturities, full repayments, and sales.

The following table details overall statistics for CT Legacy REIT’s loans receivable portfolio as of September 30, 2011 and December 31, 2010:

	September 30, 2011	December 31, 2010
Number of investments	18	─
Fixed / Floating (in millions) (1)	$48 / $159	$─ / $─
Coupon (2) (3)	4.37%	N/A
Yield (2) (3)	4.90%	N/A
Maturity (years) (2) (4)	1.6	N/A


(1)	Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans.
(2)	Represents a weighted average as of September 30, 2011.
(3)	Calculations for floating rate loans are based on LIBOR of 0.24% as of September 30, 2011.
(4)	Represents the final maturity of each investment assuming all extension options are executed.

The tables below detail the types of loans in CT Legacy REIT’s portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011				December 31, 2010
Asset Type	Book Value		Percentage		Book Value		Percentage
Senior mortgages		$78,429		37%		$—		―%
Subordinate interests in mortgages		66,013		32		—		―
Mezzanine loans		39,401		19		—		―
Other		23,185		12		—		―
Total		$207,028		100%		$—		―%

Property Type	Book Value		Percentage		Book Value		Percentage
Office		$84,238		41%		$—		―%
Hotel		75,517		36		—		―
Multifamily		14,212		7		—		―
Other		33,061		16		—		―
Total		$207,028		100%		$—		―%

Geographic Location	Book Value		Percentage		Book Value		Percentage
Northeast		$56,216		27%		$—		―%
West		45,731		22		—		―
Southwest		40,754		19		—		―
Southeast		20,072		10		—		―
Northwest		9,876		5		—		―
International		34,379		17		—		―
Total		$207,028		100%		$—		―%

Loan risk ratings

Quarterly, management evaluates CT Legacy REIT’s loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, management assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.

The following table allocates the net book value and principal balance of CT Legacy REIT’s loans receivable based on our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Loans Receivable as of September 30, 2011						Loans Receivable as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		3		$56,519		$56,949		—		$—		$—
	4 - 5		7		99,094		99,066		—		—		—
	6 - 8		8		288,873		51,013		—		—		—

Total			18		$444,486		$207,028		—		$—		$—

In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate CT Legacy REIT’s loans receivable by both loan type and our internal risk ratings as of September 30, 2011 and December 31, 2010 (in thousands):

		Senior Mortgage Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		—		$—		$—		—		$—		$—
	4 - 5		3		48,503		48,475		—		—		—
	6 - 8		2		43,047		29,953		—		—		—

Total			5		$91,550		$78,428		—		$—		$—

		Subordinate Interests in Mortgages
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		1		$13,000		$13,000		—		$—		$—
	4 - 5		2		31,954		31,954		—		—		—
	6 - 8		4		85,537		21,060		—		—		—

Total			7		$130,491		$66,014		—		$—		$—

		Mezzanine & Other Loans
		as of September 30, 2011						as of December 31, 2010
Risk Rating		Number of Loans		Principal Balance		Net Book Value		Number of Loans		Principal Balance		Net Book Value
	1 - 3		2		$43,519		$43,949		—		$—		$—
	4 - 5		2		18,637		18,637		—		—		—
	6 - 8		2		160,289		—		—		—		—

Total			6		$222,445		$62,586		—		$—		$—

Loan impairments

The following table describes CT Legacy REIT’s impaired loans as of September 30, 2011, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments (in thousands):

			September 30, 2011
Impaired Loans	No. of Loans		Gross Book Value		Provision for Loan Loss			Net Book Value
Performing loans		3		$201,165		($191,289	)		$9,876
Non-performing loans		3		68,520		(46,510	)		22,010

Total impaired loans		6		$269,685		($237,799	)		$31,886

The following table details the allocation of CT Legacy REIT’s provision for loan losses as of September 30, 2011 (in thousands):

	September 30, 2011
Impaired Loans	Principal Balance		Provision for Loan Loss		Loss Severity
Mezzanine & other loans		$222,445		$160,289		72%
Subordinate interests in mortgages		130,491		64,448		49
Senior mortgages		91,550		13,062		14
Total/Weighted Average		$444,486		$237,799		53%

Generally, we have recorded provisions for loan loss against all loans which are in maturity default, or otherwise have past-due principal payments. As of September 30, 2011, CT Legacy REIT had three loans with an aggregate net book value of $43.5 million which were in maturity default but had no provision recorded. We expect to collect all principal and interest due under these loans upon their resolution.

The following table details CT Legacy REIT’s average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the nine months ended September 30, 2011 (in thousands):

Income on Impaired Loans for the Nine Months Ended September 30, 2011
Asset Type	Average Net Book Value		Income Recorded (1)
Senior Mortgage Loans		$9,779		$200
Subordinate Interests in Mortgages		23,091		208
Mezzanine & Other Loans		—		3,187

Total		$32,870		$3,595


(1)	Substantially all of the income recorded on impaired loans during the period was received in cash. See also Note 4 for disclosure of income recorded on impaired loans prior to their transfer to CT Legacy REIT, substantially all of which was also received in cash.

Nonaccrual loans

In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of management, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on CT Legacy REIT’s nonperforming loans as of September 30, 2011.

The following table details CT Legacy REIT’s loans receivable which are on nonaccrual status as of September 30, 2011 (in thousands):

Non-Accrual Loans Receivable as of September 30, 2011
Asset Type	Principal Balance		Net Book Value
Senior Mortgage Loans		$25,100		$12,038
Subordinate Interests in Mortgages		85,537		21,059
Mezzanine & Other Loans		152,289		—

Total		$262,926		$33,097

Loan modifications

During the nine months ended September 30, 2011, two modifications of CT Legacy REIT loans were considered troubled debt restructurings, as defined under GAAP. A troubled debt restructuring is generally any modification of a loan to a borrower that is experiencing financial difficulties, where a lender agrees to terms that are more favorable to the borrower than is otherwise available in the current market. These loan modifications included: (i) a nine-month extension of a $18.0 million senior mortgage loan which is in maturity default, and (ii) a two-year extension of a $24.3 million subordinate mortgage interest, including a 2.0% spread increase which will accrue on a deferred basis. Both of these loans have been individually assessed for impairment, and have not been impaired due to our determination that the underlying collateral value is sufficient to cover our investment in the loans.

C. Loans Held-for-Sale, Net – CT Legacy REIT

Activity relating to CT Legacy REIT’s loans held-for-sale for the nine months ended September 30, 2011 was as follows (in thousands):

	Gross Book Value		Valuation Allowance			Net Book Value

December 31, 2010		$—		$—			$—

Reclassification from loans receivable		32,331		—			32,331
Valuation allowance on loans held-for-sale		—		(224	)		(224	)

September 30, 2011		$32,331		($224	)		$32,107

During the second quarter of 2011, CT Legacy REIT reclassified a $32.5 million senior mortgage loan to loans held-for-sale, against which it has recorded a $224,000 valuation allowance to reflect this loan at its approximate fair value.

D. Debt Obligations – CT Legacy REIT

As of September 30, 2011, CT Legacy REIT had $130.8 million of total debt obligations outstanding. The balances of each category of debt, their respective coupons and all-in effective costs (including the amortization of fees and expenses) were as follows (in thousands):

	September 30, 2011				December 31, 2010		September 30, 2011
Debt Obligations	Principal Balance		Book Value		Book Value		Coupon (1)			All-In Cost (1)				Maturity Date (2)

Repurchase obligation (JPMorgan)		$66,637		$66,637		$—		2.74	%		2.74	%		December 15, 2014

Mezzanine loan(3)		64,134		53,367		—		15.00	%		18.74	%		March 31, 2016

Total/Weighted Average		$130,771		$120,004		$—		8.75	%		10.59	%	(4)	August 3, 2015


(1)	Assumes LIBOR of 0.24% at September 30, 2011 for floating rate debt obligations.
(2)	Maturity dates represent the contractual maturity of each facility.
(3)	The mezzanine loan carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred. The all-in cost of the mezzanine loan includes the amortization of deferred fees and expenses.
(4)	Including the impact of interest rate hedges with an aggregate notional balance of $60.9 million as of September 30, 2011, the effective all-in cost of CT Legacy REIT’s debt obligations would be 12.88% per annum.

Repurchase Obligations

In conjunction with our March 2011 restructuring, on March 31, 2011 our legacy repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were assumed by wholly-owned subsidiaries of CT Legacy REIT, and the recourse to Capital Trust, Inc. was eliminated. The balances then outstanding under the three repurchase obligations with JP Morgan, Morgan Stanley and Citigroup were $173.5 million, $93.2 million, and $38.1 million, respectively.

During the second quarter of 2011, the Morgan Stanley and Citigroup repurchase obligations were fully repaid and extinguished, and the remaining collateral thereunder was released.

The JP Morgan facility matures on December 15, 2014 and bears interest at a rate of LIBOR + 2.50% per annum (2.74% as of September 30, 2011), which rate will increase to LIBOR + 3.00% per annum for the period from March 31, 2013 through March 30, 2014, and then to LIBOR + 3.50% per annum for the period from March 31, 2014 through maturity. In addition, periodic repayment targets must be met under the facility, which require the outstanding balance be reduced to: $110.0 million by December 15, 2011, $65.0 million by December 15, 2012, and $30 million by December 15, 2013. As of September 30, 2011, the JP Morgan facility had an outstanding balance of $66.6 million.

The following table details the aggregate outstanding principal balance, book value and fair value of CT Legacy REIT’s assets, primarily loans receivable, which were pledged as collateral under the JP Morgan repurchase facility as of September 30, 2011, as well as the amount at risk (in thousands). The amount at risk is generally equal to the book value of our collateral less the outstanding principal balance of the repurchase facility.

Loans and Securities Collateral Balances,

as of September 30, 2011

Repurchase Lender

Facility Balance

Principal Balance

Book Value

Fair Value (1)

Amount at Risk (2)

JP Morgan

$66,637

$318,240

$177,213

$157,252

$124,317


(1)	Fair values represent the amount at which assets could be sold in an orderly transaction between a willing buyer and willing seller. The immediate liquidation value of these assets would likely be substantially lower.
(2)	Amount at risk is calculated on an asset-by-asset basis for each facility and considers the greater of (a) the book value of an asset and (b) the fair value of an asset, in determining the total risk.

Mezzanine Loan

On March 31, 2011, CT Legacy REIT entered into an $83.0 million mezzanine loan with Five Mile that carries a 15.0% per annum interest rate, of which 7.0% per annum may be deferred, and that matures on March 31, 2016. The mezzanine loan is not recourse to Capital Trust, Inc. except for certain limited non-recourse, “bad boy” carve outs.

The mezzanine loan is collateralized by 100% of the equity interests in a subsidiary of CT Legacy REIT, which in-turn owns all of CT Legacy REIT’s assets, subject in-part to the repurchase obligations described above. Five Mile has consent rights with respect to material actions concerning CT Legacy REIT’s assets such as material modifications, sales, and/or the pursuit of certain remedies with regard to such assets. The mezzanine loan also contains covenants that (i) prohibit CT Legacy REIT from paying common stock cash dividends until the mezzanine loan has been repaid, (ii) prohibit us from selling or otherwise transferring our equity interests in CT Legacy REIT, and (iii) require the continued employment of certain key employees.

In addition, an affiliate of Five Mile acquired a 24% equity interest in the common stock of CT Legacy REIT in conjunction with the making of the mezzanine loan.

As of September 30, 2011, the mezzanine loan had an outstanding principal balance of $64.1 million (including deferred interest) and a book balance of $53.4 million. The difference between book balance and principal outstanding is due to costs associated with the mezzanine loan, primarily the equity interest in CT Legacy REIT discussed above. Including the amortization of these costs, the mezzanine loan has an all-in cost of 18.74%.

E. Participations Sold – CT Legacy REIT

Participations sold represent interests in certain loans that we originated and subsequently sold to one of our investment management vehicles or to third parties. We present these participations sold as both assets and non-recourse liabilities because these arrangements do not qualify as sales under GAAP. Generally, participations sold are recorded as assets and liabilities in equal amounts on our consolidated balance sheets, and an equivalent amount of interest income and interest expense is recorded on our consolidated statements of operations. However, impaired loan assets must be reduced through the provision for loans losses while the associated non-recourse liability cannot be reduced until the participation has been contractually extinguished. This can result in an imbalance between the loan participations sold asset and liability. We have no economic exposure to these liabilities.

In connection with our March 2011 restructuring, a $152.3 million loan, in which we have previously sold a $97.5 million participation, was transferred to CT Legacy REIT.

The following table describes CT Legacy REIT’s participations sold assets and liabilities as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30,			December 31,
	2011			2010
Participations sold assets
Gross carrying value		$97,465			$—
Less: Provision for loan losses		(97,465	)		—
Net book value of assets		—			—

Participations sold liabilities
Net book value of liabilities		97,465			—
Net impact to shareholders' equity		($97,465	)		$—

F. Derivative Financial Instruments – CT Legacy REIT

To manage interest rate risk, we have historically employed interest rate swaps, or other arrangements, to convert a portion of our floating rate debt to fixed rate debt in order to index-match our assets and liabilities. The interest rate swaps that we have employed were designated as cash flow hedges and designed to hedge fixed rate assets against floating rate liabilities. Under cash flow hedges, we pay our hedge counterparties a fixed rate amount and our counterparties pay us a floating rate amount, which we settle monthly, and record as a component of interest expense. Our counterparties in these transactions are financial institutions and we are dependent upon the financial health of these counterparties and a functioning interest rate derivative market in order to effectively execute our hedging strategy.

The following table summarizes the notional amounts and fair values of CT Legacy REIT’s interest rate swaps as of September 30, 2011 and December 31, 2010 (in thousands). The notional amount provides an indication of the extent of our involvement in the instruments at that time, but does not represent exposure to credit or interest rate risk.

Counterparty	September 30, 2011 Notional Amount		Interest Rate (1)			Maturity		September 30, 2011 Fair Value			December 31, 2010 Fair Value
JPMorgan Chase		$17,623		5.14	%		2014		($2,086	)		$—
JPMorgan Chase		16,636		4.83	%		2014		(2,048	)		—
JPMorgan Chase		16,403		5.52	%		2018		(3,408	)		—
JPMorgan Chase		7,062		5.11	%		2016		(1,229	)		—
JPMorgan Chase		3,176		5.45	%		2015		(555	)		—
Total/Weighted Average		$60,900		5.17	%		2015		($9,326	)		$—


(1)	Represents the gross fixed interest rate we pay to our counterparties under these derivative instruments. We receive an amount of interest indexed to one-month LIBOR on all of our interest rate swaps.

During the second quarter of 2011, as a result of significant repayments of CT Legacy REIT’s floating rate debt obligations, these interest rate swaps ceased to be highly effective hedging instruments. We therefore discontinued the designation of these hedges as cash flow hedges. As a result, beginning in the second quarter of 2011, any change in the fair values of these interest rate swaps is recorded as a non-cash component of interest expense on our consolidated statement of operations. We recognized $1.8 million of such non-cash interest expense during the nine months ended September 30, 2011.

In addition, as a result of the termination of the effective hedge designation, we reclassified $3.2 million from accumulated other comprehensive income as non-cash interest expense on our consolidated financial statements. In future periods we will recognize additional non-cash interest expense as the remaining balance of accumulated other comprehensive income is amortized over the life of each related facility. Net payments under such interest rate swaps during the nine months ended September 30, 2011 totaled $1.5 million, and were recorded as a component of interest expense.

Over the next twelve months, we expect approximately $2.3 million to be reclassified from other comprehensive income to interest expense. This amount represents the amortization of losses previously recorded in other comprehensive income on interest rate swaps which are no longer designated as cash flow hedges.

As of September 30, 2011, CT Legacy REIT has not posted any assets as collateral under derivative agreements.