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EX-31.1 - BLACKSTONE MORTGAGE TRUST, INC.e605983_ex31-1.htm
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EX-32.2 - BLACKSTONE MORTGAGE TRUST, INC.e605983_ex32-2.htm
EX-32.1 - BLACKSTONE MORTGAGE TRUST, INC.e605983_ex32-1.htm
EX-99.1 - BLACKSTONE MORTGAGE TRUST, INC.e605983_ex99-1.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2009

OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________

Commission File Number 1-14788

Capital Trust, Inc.
(Exact name of registrant as specified in its charter)


Maryland
94-6181186
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
410 Park Avenue, 14th Floor, New York, NY
10022
(Address of principal executive offices)
(Zip Code)
   
 (212) 655-0220
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x   No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o   No o [This requirement is currently not applicable to the registrant.] 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer ý
Non-accelerated filer   o (Do not check if a smaller reporting company)
 
Smaller Reporting Company o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of outstanding shares of the registrant's class A common stock, par value $0.01 per share, as of October 28, 2009 was 22,046,680.
 

 
CAPITAL TRUST, INC.
INDEX
 
Part I.
 
Financial Information
   
             
   
Item 1:
   
1
             
         
1
             
         
2
             
         
3
             
         
4
             
         
5
   
 
       
   
Item 2:
   
35
   
 
       
   
Item 3:
   
54
             
   
Item 4:
   
56
             
Part II.  
 
Other Information
   
         
   
Item 1:
   
57
             
   
Item 1A:
   
57
             
   
Item 2:
   
57
             
   
Item 3:
   
57
             
   
Item 4:
   
57
             
   
Item 5:
   
57
             
   
Item 6:
   
58
             
         
  59
 

 
Capital Trust, Inc. and Subsidiaries
 
Consolidated Balance Sheets
 
September 30, 2009 and December 31, 2008
 
(in thousands except per share data)
 
             
   
September 30,
   
December 31,
 
Assets
 
2009
   
2008
 
   
(unaudited)
       
             
Cash and cash equivalents
  $ 28,575     $ 45,382  
Restricted cash
    155       18,821  
Securities held-to-maturity
    746,319       852,211  
Loans receivable, net
    1,587,590       1,790,234  
Loans held-for-sale, net
    12,000       92,175  
Real estate held-for-sale
          9,897  
Equity investments in unconsolidated subsidiaries
    1,624       2,383  
Accrued interest receivable
    4,913       6,351  
Deferred income taxes
    1,706       1,706  
Prepaid expenses and other assets
    7,742       18,369  
Total assets
  $ 2,390,624     $ 2,837,529  
                 
Liabilities & Shareholders' Equity
               
                 
Liabilities:
               
Accounts payable and accrued expenses
  $ 9,741     $ 11,478  
Repurchase obligations
    491,833       699,054  
Collateralized debt obligations
    1,124,983       1,156,035  
Senior credit facility
    99,443       100,000  
Junior subordinated notes
    127,075       128,875  
Participations sold
    289,795       292,669  
Interest rate hedge liabilities
    34,508       47,974  
Total liabilities
    2,177,378       2,436,085  
                 
                 
Shareholders' equity:
               
Class A common stock $0.01 par value 100,000 shares authorized, 21,759
     and 21,740 shares issued and outstanding as of September 30, 2009 and
     December 31, 2008, respectively ("class A common stock")
    218       217  
Restricted class A common stock $0.01 par value, 287 and 331 shares issued
     and outstanding as of September 30, 2009 and December 31, 2008,
     respectively ("restricted class A common stock" and together with class
     A common stock, "common stock")
    3       3  
Additional paid-in capital
    559,859       557,435  
Accumulated other comprehensive loss
    (47,878 )     (41,009 )
Accumulated deficit
    (298,956 )     (115,202 )
Total shareholders' equity
    213,246       401,444  
Total liabilities and shareholders' equity
  $ 2,390,624     $ 2,837,529  
 
See accompanying notes to consolidated financial statements.
 
- 1 -

 
Capital Trust, Inc. and Subsidiaries
 
Consolidated Statements of Operations
 
Three and Nine Months Ended September 30, 2009 and 2008
 
(in thousands, except share and per share data)
 
(unaudited)
 
   
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Income from loans and other investments:
                       
     Interest and related income
  $ 29,527     $ 44,141     $ 93,341     $ 149,725  
     Less: Interest and related expenses
    19,604       28,175       61,116       98,918  
Income from loans and other investments, net
    9,923       15,966       32,225       50,807  
                                 
Other revenues:
                               
     Management fees from affiliates
    2,959       3,477       8,768       9,827  
     Servicing fees
    168       116       1,502       337  
     Other interest income
    16       483       153       1,307  
          Total other revenues
    3,143       4,076       10,423       11,471  
                                 
Other expenses:
                               
     General and administrative
    5,492       5,711       18,450       18,819  
     Depreciation and amortization
    51       13       65       140  
          Total other expenses
    5,543       5,724       18,515       18,959  
                                 
Total other-than-temporary impairments of securities
    (77,883 )           (96,529 )      
Portion of other-than-temporary impairments of securities recognized in other comprehensive income
    11,987             17,612        
Impairment of goodwill
                (2,235 )      
Impairment of real estate held-for-sale
                (2,233 )      
Net impairments recognized in earnings
    (65,896 )           (83,385 )      
                                 
Provision for loan losses
    (47,222 )           (113,716 )     (56,000 )
Valuation allowance on loans held-for-sale
                (10,363 )      
Gain on extinguishment of debt
                      6,000  
Gain on sale of investments
                      374  
Loss from equity investments
    (862 )     (625 )     (3,074 )     (549 )
(Loss) income before income taxes
    (106,457 )     13,693       (186,405 )     (6,856 )
           Income tax provision/(benefit)
          26       (408 )     (475 )
Net (loss) income
  $ (106,457 )   $ 13,667     $ (185,997 )   $ (6,381 )
                                 
Per share information:
                               
Net (loss) income per share of common stock:
                               
          Basic
  $ (4.75 )   $ 0.61     $ (8.32 )   $ (0.31 )
          Diluted
  $ (4.75 )   $ 0.61     $ (8.32 )   $ (0.31 )
                                 
Weighted average shares of common stock outstanding:
                               
          Basic
    22,426,623       22,247,042       22,361,541       20,707,262  
          Diluted
    22,426,623       22,250,631       22,361,541       20,707,262  
                                 
Dividends declared per share of common stock
  $     $ 0.60     $     $ 2.20  
 
See accompanying notes to consolidated financial statements.
 
- 2 -

 
Capital Trust, Inc. and Subsidiaries
 
Consolidated Statements of Changes in Shareholders' Equity
 
For the Nine Months Ended September 30, 2009 and 2008
 
(in thousands)
 
(unaudited)
 
                                             
   
Comprehensive Loss
 
Class A Common Stock
 
Restricted Class A Common Stock
 
Additional Paid-In Capital
   
Accumulated Other Comprehensive Loss
   
Accumulated Deficit
   
Total
 
 Balance at January 1, 2008
          $ 172     $ 4     $ 426,113     $ (8,684 )   $ (9,368 )   $ 408,237  
                                                         
 Net loss
  $ (6,381 )                               (6,381 )     (6,381 )
 Unrealized loss on derivative financial instruments
    (1,233 )                         (1,233 )           (1,233 )
 Unrealized gain on available-for-sale security
    277                           277             277  
 Reclassification to gain on sale of investments
    (482 )                         (482 )           (482 )
 Amortization of unrealized gain on securities
    (1,278 )                         (1,278 )           (1,278 )
 Deferred loss on settlement of swap
    (612 )                         (612 )           (612 )
 Amortization of deferred gains and losses on settlement of swaps
    (140 )                         (140 )           (140 )
 Shares of class A common stock issued in public offering
            40             112,567                   112,607  
 Shares of class A common stock issued under dividend reinvestment plan and stock purchase plan
            5             12,835                   12,840  
 Sale of shares of class A common stock under stock option agreement
                        180                   180  
 Restricted class A common stock earned
                        2,759                   2,759  
 Dividends declared on common stock
                                    (48,294 )     (48,294 )
                                                           
 Balance at September 30, 2008
  $ (9,849 )     $ 217     $ 4     $ 554,454     $ (12,152 )   $ (64,043 )   $ 478,480  
                                                           
 Balance at January 1, 2009
            $ 217     $ 3     $ 557,435     $ (41,009 )   $ (115,202 )   $ 401,444  
                                                           
 Net loss
  $ (185,997 )                               (185,997 )     (185,997 )
                                                           
 Cumulative effect of change in accounting principle
                              (2,243 )     2,243        
 Unrealized gain on derivative financial instruments
    13,465                           13,465             13,465  
 Amortization of unrealized gain on securities
    (675 )                         (675 )           (675 )
 Amortization of deferred gains and losses on settlement of swaps
    (70 )                         (70 )           (70 )
 Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses
    (17,346 )                         (17,346 )           (17,346 )
 Issuance of warrants in conjunction with debt restructuring
                        940                   940  
 Restricted class A common stock earned
            1             1,091                   1,092  
 Deferred directors' compensation
                        393                   393  
                                                           
 Balance at September 30, 2009
  $ (190,623 )     $ 218     $ 3     $ 559,859     $ (47,878 )   $ (298,956 )   $ 213,246  
 
See accompanying notes to consolidated financial statements.
 
- 3 -

 
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2009 and 2008
(in thousands)
(unaudited)
             
   
2009
   
2008
 
Cash flows from operating activities:
           
Net loss
  $ (185,997 )   $ (6,381 )
Adjustments to reconcile net loss to net cash provided by
               
operating activities:
               
Net impairments recognized in earnings
    83,385        
Provision for loan losses
    113,716       56,000  
Valuation allowance on loans held-for-sale
    10,363        
Gain on extinguishment of debt
          (6,000 )
Gain on sale of investments
          (374 )
Loss from equity investments
    3,074       549  
Employee stock-based compensation
    1,102       2,759  
Depreciation and amortization
    65       140  
Amortization of premiums/discounts on loans and securities and deferred interest on loans
    (4,966 )     (8,050 )
Amortization of deferred gains and losses on settlement of swaps
    (70 )     (140 )
Amortization of deferred financing costs and premiums/discounts on
               
debt obligations
    7,109       4,003  
Deferred directors' compensation
    393       393  
Changes in assets and liabilities, net:
               
Accrued interest receivable
    1,439       3,026  
Deferred income taxes
          (501 )
Prepaid expenses and other assets
    2,220       3,943  
Accounts payable and accrued expenses
    (1,747 )     (6,102 )
Net cash provided by operating activities
    30,086       43,265  
                 
Cash flows from investing activities:
               
Purchases of securities
          (660 )
Principal collections and proceeds from securities
    11,342       27,896  
Origination/purchase of loans receivable
          (47,193 )
Add-on fundings under existing loan commitments
    (7,698 )     (68,151 )
Principal collections of loans receivable
    56,188       206,008  
Proceeds from operation/disposition of real estate held-for-sale
    7,665        
Contributions to unconsolidated subsidiaries
    (2,315 )     (3,473 )
Increase in restricted cash
          (12,535 )
Net cash provided by investing activities
    65,182       101,892  
                 
Cash flows from financing activities:
               
Decrease in restricted cash
    18,666        
Borrowings under repurchase obligations
          184,025  
Repayments under repurchase obligations
    (93,709 )     (273,674 )
Borrowings under senior credit facility
          25,000  
Repayments under senior credit facility
    (2,500 )      
Repayment of collateralized debt obligations
    (31,636 )     (33,274 )
Repayment of participations sold
    (2,889 )      
Settlement of interest rate hedges
          (612 )
Payment of deferred financing costs
    (7 )     (306 )
Proceeds from stock options exercised
          180  
Dividends paid on common stock
          (82,532 )
Proceeds from sale of shares of class A common stock and stock purchase plan
          123,108  
Proceeds from dividend reinvestment plan
          2,339  
Net cash used in financing activities
    (112,075 )     (55,746 )
                 
Net (decrease)/increase in cash and cash equivalents
    (16,807 )     89,411  
Cash and cash equivalents at beginning of period
    45,382       25,829  
Cash and cash equivalents at end of period
  $ 28,575     $ 115,240  
 
See accompanying notes to consolidated financial statements.
 
- 4 -

 
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
 
1.   Organization
 
References herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
 
We are a fully integrated, self-managed, real estate finance and investment management company that specializes in credit sensitive financial products. To date, our investment programs have focused on loans and securities backed by commercial real estate assets. We invest for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. From the inception of our finance business in 1997 through September 30, 2009, we have completed over $11.1 billion of investments in the commercial real estate debt arena. We conduct our operations as a real estate investment trust, or REIT, for federal income tax purposes and we are headquartered in New York City.
 
2.   Summary of Significant Accounting Policies
 
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related management’s discussion and analysis of financial condition and results of operations filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. In our opinion, all material adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included. The results of operations for the nine months ended September 30, 2009 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2009.
 
Accounting Standards Codification
In June 2009, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards No. 168, “The FASB Accounting Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162,” or FAS 168. FAS 168 establishes the FASB Accounting Standards Codification, or the Codification, as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP, and states that all guidance contained in the Codification carries equal level of authority. Rules and interpretive releases of the Securities and Exchange Commission, or SEC, under federal securities laws are also sources of authoritative GAAP for SEC registrants. The Codification does not change GAAP, however it does change the way in which it is to be researched and referenced. FAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. Accordingly, references to pre-Codification accounting literature in our financial statements have been removed.
 
Principles of Consolidation
The accompanying financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries and our interests in variable interest entities in which we are the primary beneficiary, prepared in accordance with GAAP. All significant intercompany balances and transactions have been eliminated in consolidation. Our co-investment interest in the private equity funds we manage, CT Mezzanine Partners III, Inc., or Fund III, and CT Opportunity Partners I, LP, or CTOPI, and others are accounted for using the equity method. These entities’ assets and liabilities are not consolidated into our financial statements due to our determination that either (i) for entities that are variable interest entities we are not the primary beneficiary of such entities’ variability, generally due to the insignificance of our share of ownership and certain control provisions for these entities, or (ii) for entities that are not variable interest entities, the investors have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the earnings or losses of these entities on a single line item in our consolidated statements of operations as income/(loss) from equity investments.
 
CTOPI maintains its financial records at fair value in accordance with GAAP. We have applied such accounting relative to our investment in CTOPI, and include any adjustments to fair value recorded at the fund level in determining the income/(loss) we record on our equity investment in CTOPI.
 
Revenue Recognition
Interest income from our loans receivable is recognized over the life of the investment using the effective interest method and is recorded on the accrual basis. Fees, premiums, discounts and direct costs associated with these investments are deferred until the loan is advanced and are then recognized over the term of the loan as an adjustment to yield. For loans where we have unfunded commitments, we amortize these fees and other items on a straight line basis. Fees on commitments that expire unused are recognized at expiration. Income recognition is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. Income recognition is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.
 
- 5 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
Fees from special servicing and asset management services are recorded on an accrual basis as services are rendered under the applicable agreements, and when receipt of fees is reasonably certain. We do not recognize incentive income from our investment management business until contingencies have been eliminated. Accordingly, revenue recognition has been deferred for certain fees received which are subject to potential repayment provisions. Depending on the structure of our investment management vehicles, certain incentive fees may be in the form of carried interest or promote distributions.
 
Cash and Cash Equivalents
We classify highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. We place our cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. As of, and for the periods ended, September 30, 2009 and December 31, 2008, we had bank balances in excess of federally insured amounts. We have not experienced any losses on our demand deposits, commercial paper or money market investments.
 
Restricted Cash
Restricted cash as of September 30, 2009 was comprised of $155,000 held on deposit with the trustee for our collateralized debt obligations, or CDOs, and is expected to be used to pay contractual interest and principal. Restricted cash as of December 31, 2008 was $18.8 million.
 
Securities
We classify our securities as held-to-maturity, available-for-sale, or trading on the date of acquisition of the investment. On August 4, 2005, we decided to change the accounting classification of certain of our securities from available-for-sale to held-to-maturity. Held-to-maturity investments are stated at cost adjusted for the amortization of any premiums or discounts, which are amortized through the consolidated statements of operations using the effective interest method. Other than in the instance of an other-than-temporary impairment (as discussed below), these held-to-maturity investments are shown in our consolidated financial statements at their adjusted values pursuant to the methodology described above.
 
We may also invest in securities which may be classified as available-for-sale. Available-for-sale securities are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income/(loss) in shareholders’ equity. Many of these investments are relatively illiquid and management must estimate their values. In making these estimates, management utilizes market prices provided by dealers who make markets in these securities, but may, under limited circumstances, adjust these valuations based on management’s judgment. Changes in the valuations do not affect our reported income or cash flows, but impact shareholders’ equity and, accordingly, book value per share.
 
Income from our securities is recognized using a level yield with any purchase premium or discount accreted through income over the life of the security. This yield is calculated using cash flows expected to be collected which are based on a number of assumptions on the underlying loans. Examples include, among other things, the rate and timing of principal payments, including prepayments, repurchases, defaults and liquidations, the pass-through or coupon rate and interest rates. Additional factors that may affect our reported interest income on our securities include interest payment shortfalls due to delinquencies on the underlying mortgage loans and the timing and magnitude of expected credit losses on the mortgage loans underlying the securities that are impacted by, among other things, the general condition of the real estate market, including competition for tenants and their related credit quality, and changes in market rental rates. These uncertainties and contingencies are difficult to predict and are subject to future events that may alter the assumptions.
 
Further, as required under GAAP, when, based on current information and events, there has been an adverse change in cash flows expected to be collected from those previously estimated, an other-than-temporary impairment is deemed to have occurred. A change in expected cash flows is considered adverse if the present value of the revised cash flows (taking into consideration both the timing and amount of cash flows expected to be collected) discounted using the security’s current yield is less than the present value of the previously estimated remaining cash flows, adjusted for cash receipts during the intervening period. Should an other-than-temporary impairment be deemed to have occurred, the security is written down to fair value. The total other-than-temporary impairment is bifurcated into (i) the amount related to expected credit losses, and (ii) the amount related to fair value adjustments in excess of expected credit losses, or the Valuation Adjustment. The portion of the other-than-temporary impairment related to expected credit losses is calculated by comparing the amortized cost basis of the security to the present value of cash flows expected to be collected, discounted at the security’s current yield, and is recognized through earnings in the consolidated statement of operations. The remaining other-than-temporary impairment related to the Valuation Adjustment is recognized as a component of accumulated other comprehensive income/(loss) in shareholders’ equity. A portion of other-than-temporary impairments recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through other comprehensive income/(loss) are amortized over the life of the security with no impact on earnings.
 
- 6 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
From time to time we purchase securities and other investments in which we have a level of control over the issuing entity; we refer to these investments as controlling class investments. Generally, these and similar instruments could be required to be presented on a consolidated basis. However, based upon the specific circumstances of certain of our securities that are controlling class investments and our interpretation of the exemption for qualifying special purpose entities under GAAP, we have concluded that the entities that have issued the controlling class investments should not be presented on a consolidated basis. As discussed further below, recent modifications to GAAP may impact our consolidation conclusions regarding these entities effective January 1, 2010.
 
Loans Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related Allowance
We purchase and originate commercial real estate debt and related instruments, or Loans, generally to be held as long-term investments at amortized cost. Management must periodically evaluate each of these Loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the Loan. If a Loan were determined to be impaired, we would write down the Loan through a charge to the provision for loan losses. Impairment on these loans is measured by comparing the estimated fair value of the underlying collateral to the carrying value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by management. Actual losses, if any, could ultimately differ from these estimates.
 
Loans held-for-sale are carried at the lower of our amortized cost basis and fair value. A reduction in the fair value of loans held-for-sale is recorded as a charge to our consolidated statement of operations as a valuation allowance on loans held-for-sale.
 
Deferred Financing Costs
The deferred financing costs which are included in prepaid expenses and other assets on our consolidated balance sheets include issuance costs related to our debt obligations and are amortized using the effective interest method or a method that approximates the effective interest method over the life of the related obligations.
 
Repurchase Obligations
In certain circumstances, we have financed the purchase of investments from a counterparty through a repurchase agreement with that same counterparty. We currently record these investments in the same manner as other investments financed with repurchase agreements, with the investment recorded as an asset and the related borrowing under any repurchase agreement recorded as a liability on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on the consolidated statements of operations.
 
For fiscal years beginning after November 15, 2008, recent revisions to GAAP presume that an initial transfer of a financial asset and a repurchase financing shall not be evaluated as a linked transaction and shall be evaluated separately. If the transaction does not meet the requirements for sale accounting, it shall generally be accounted for as a forward contract, as opposed to the current presentation, where the purchased asset and the repurchase liability are reflected separately on the balance sheet. This revised guidance is effective on a prospective basis, with earlier application prohibited. Given that the revised guidance is to be applied prospectively, our adoption on January 1, 2009 did not have a material impact on our consolidated financial statements with respect to our existing transactions. New transactions entered into subsequently, which are subject to the revised guidance, may be presented differently on our consolidated financial statements.
 
Interest Rate Derivative Financial Instruments
In the normal course of business, we use interest rate derivative financial instruments to manage, or hedge, cash flow variability caused by interest rate fluctuations. Specifically, we currently use interest rate swaps to effectively convert floating rate liabilities that are financing fixed rate assets, to fixed rate liabilities. The differential to be paid or received on these agreements is recognized on the accrual basis as an adjustment to the interest expense related to the attendant liability. The interest rate swap agreements are generally accounted for on a held-to-maturity basis, and, in cases where they are terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. These swap agreements must be effective in reducing the variability of cash flows of the hedged items in order to qualify for the aforementioned hedge accounting treatment. Changes in value of effective cash flow hedges are reflected in our consolidated financial statements through accumulated other comprehensive income/(loss) and do not affect our net income. To the extent a derivative does not qualify for hedge accounting, and is deemed a non-hedge derivative, the changes in its value are included in net income.
 
- 7 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
To determine the fair value of interest rate derivative financial instruments, we use a third party derivative specialist to assist us in periodically valuing our interests.
 
Income Taxes
Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. Management believes that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we do not expect to pay substantial corporate level taxes (other than taxes payable by our taxable REIT subsidiaries). Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we may be subject to federal, state and local income tax on current and past income, and we may also be subject to penalties.
 
Accounting for Stock-Based Compensation
Compensation expense for the time vesting of stock-based compensation grants is recognized on the accelerated attribution method and compensation expense for performance vesting of stock-based compensation grants is recognized on a straight line basis. Compensation expense relating to stock-based compensation is recognized in net income using a fair value measurement method, which we determine with the assistance of a third-party appraisal firm.
 
The fair value of the restricted shares is measured on the grant date using a Monte Carlo simulation to estimate the probability of the market vesting conditions being satisfied. The Monte Carlo simulation is run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, and is then discounted to the grant date at a risk-free interest rate. The average of the values over all simulations is the expected value of the restricted shares on the grant date. The valuation is performed in a risk-neutral framework, so no assumption is made with respect to an equity risk premium. Significant assumptions used in the valuation include an expected term and stock price volatility, an estimated risk-free interest rate and an estimated dividend growth rate.
 
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.
 
Comprehensive Income / (Loss)
Total comprehensive loss was ($190.6) million and ($9.8) million, for the nine months ended September 30, 2009 and 2008, respectively. The primary components of comprehensive loss other than net income/(loss) are the unrealized gains/(losses) on derivative financial instruments and the component of other-than-temporary impairments of securities related to the Valuation Adjustment. As of September 30, 2009, accumulated other comprehensive loss was ($47.9) million, comprised of net unrealized gains on securities previously classified as available-for-sale of $5.9 million, other-than-temporary impairments of securities of ($19.6) million, net unrealized losses on cash flow swaps of ($34.5) million, and $288,000 of net deferred gains on the settlement of cash flow swaps.
 
Earnings per Share of Common Stock
Basic earnings per share, or EPS, is computed based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock and stock units outstanding during the period. Diluted EPS is based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock and stock units and potentially dilutive common stock options and warrants.
 
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.
 
Reclassifications
Certain reclassifications have been made in the presentation of the prior period consolidated financial statements to conform to the September 30, 2009 presentation.
 
Segment Reporting
We operate in two reportable segments. We have an internal information system that produces performance and asset data for the two segments along service lines.
 
- 8 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
The “Balance Sheet Investment” segment includes our portfolio of interest earning assets (including our co-investments in investment management vehicles) and the financing thereof.
 
The “Investment Management” segment includes the investment management activities of our wholly-owned investment management subsidiary, CT Investment Management Co. LLC, or CTIMCO, and its subsidiaries. CTIMCO is a taxable REIT subsidiary and serves as the investment manager of Capital Trust, Inc., all of our investment management vehicles and all of our CDOs, and serves as senior servicer and special servicer on certain of our investments and for third parties.
 
Goodwill
Goodwill represents the excess of acquisition costs over the fair value of the net assets of businesses acquired. Goodwill is reviewed, at least annually, in the fourth quarter to determine if there is an impairment at a reporting unit level, or more frequently if an indication of impairment exists. During the second quarter of 2009, we completely impaired goodwill, as described in Note 8. No impairment charges for goodwill were recorded during the year ended December 31, 2008.
 
Fair Value of Financial Instruments
The “Fair Value Measurements and Disclosures” topic of the Codification defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. Our assets and liabilities which are measured at fair value are indicated as such in the respective notes to the consolidated financial statements, and are discussed in Note 16.
 
Recent Accounting Pronouncements
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133,” or FAS 161. FAS 161 requires enhanced disclosures about an entity’s derivative and hedging activities, with the goal of improving the transparency of financial reporting. FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. FAS 161 encourages, but does not require, comparative disclosures for earlier periods at initial adoption. The adoption of FAS 161 on January 1, 2009, did not have a material impact on our consolidated financial statements. The required disclosures are included in Note 11. FAS 161 has been superseded by the Codification and its guidance incorporated into the “Derivatives and Hedging” topic presented therein.
 
In June 2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities,” or FSP EITF 03-06-1. Under the guidance of FSP EITF 03-06-1, unvested share-based awards that contain non-forfeitable rights to dividends or dividend equivalents are considered participating securities and shall be included in the computation of earnings-per-share, or EPS, pursuant to the two-class method. FSP EITF 03-06-1 was effective for fiscal years and interim periods beginning after December 15, 2008, with the requirement that any prior-period EPS presented in future consolidated financial statements be adjusted retrospectively to conform to current guidance. We currently present and have historically presented EPS based on both restricted and unrestricted shares of our class A common stock. Accordingly, the adoption of FSP EITF 03-06-1 as of January 1, 2009 did not have a material impact on our consolidated financial statements. FSP EITF 03-06-1 has been superseded by the Codification and its guidance incorporated into the “Earnings per Share” topic presented therein.
 
In April 2009, the FASB issued three concurrent Staff Positions, which included: (i) Staff Position No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” or FSP FAS 115-2, (ii) Staff Position No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for an Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” or FSP FAS 157-4, and (iii) Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosures About Fair Value of Financial Instruments, or FSP FAS 107-1. All three of these FASB Staff Positions are effective for periods ending after June 15, 2009, with earlier adoption permitted for periods ending after March 15, 2009. The adoption of FSP FAS 115-2, FSP FAS 157-4 and FSP FAS 107-1 is required to occur concurrently. Accordingly, we adopted all three of these standards as of January 1, 2009.
 
- 9 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
FSP FAS 115-2 provides additional guidance for other-than-temporary impairments on debt securities. In addition to existing guidance, under FSP FAS 115-2, an other-than-temporary impairment is deemed to exist if an entity does not expect to recover the entire amortized cost basis of a security. As discussed above, FSP FAS 115-2 provides for the bifurcation of other-than-temporary impairments into (i) amounts related to expected credit losses which are recognized through earnings, and (ii) amounts related to the Valuation Adjustment which are recognized as a component of other comprehensive income. Further, FSP FAS 115-2 requires certain disclosures for securities, which are included in Note 3. The adoption of FSP FAS 115-2 required a reassessment of all securities which were other-than-temporarily impaired as of January 1, 2009, the date of adoption, and resulted in a $2.2 million reclassification from the beginning balance of retained deficit to accumulated other comprehensive loss on our consolidated balance sheet. FSP FAS 115-2 has been superseded by the Codification and its guidance incorporated into the “Investments-Other” topic presented therein.
 
FSP FAS 157-4 provides additional guidance for fair value measures under FAS 157 in determining if the market for an asset or liability is inactive and, accordingly, if quoted market prices may not be indicative of fair value. The adoption of FSP FAS 157-4 did not have a material impact on our consolidated financial statements. FSP FAS 157-4 has been superseded by the Codification and its guidance incorporated into the “Fair Value Measurements and Disclosures” topic presented therein.
 
FSP FAS 107-1 extends the existing disclosure requirements related to the fair value of financial instruments to interim periods in addition to annual financial statements. The adoption of FSP FAS 107-1 did not have a material impact on our consolidated financial statements. The disclosure requirements under FSP FAS 107-1 are included in Note 16 to the consolidated financial statements. FSP FAS 107-1 has been superseded by the Codification and its guidance incorporated into the “Financial Instruments” topic presented therein.
 
In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, “Subsequent Events,” or FAS 165. FAS 165 requires that, for listed companies, subsequent events be evaluated through the date that financial statements are issued, and that financial statements clearly disclose the date through which subsequent events have been evaluated. FAS 165 is effective for periods ending after June 15, 2009. The adoption of FAS 165 as of April 1, 2009 did not have a material impact on our consolidated financial statements. FAS 165 has been superseded by the Codification and its guidance incorporated into the “Subsequent Events” topic presented therein.
 
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166, “Accounting for Transfers of Financial Assets, an amendment of FASB Statement No. 140,” or FAS 166. FAS 166 amends various components of the guidance governing sale accounting, including the recognition of assets obtained and liabilities assumed as a result of a transfer, and considerations of effective control by a transferor over transferred assets. In addition, FAS 166 removes the consolidation exemption for qualifying special purpose entities discussed above in relation to certain of our securities. FAS 166 is effective for the first annual reporting period that begins after November 15, 2009, with early adoption prohibited. While the amended guidance governing sale accounting is applied on a prospective basis, the removal of the qualifying special purpose entity exception will require us to evaluate certain entities for consolidation. While we are currently evaluating the effect of adoption of FAS 166, we currently believe that the presentation of our consolidated financial statements may significantly change prospectively upon adoption. FAS 166 has been superseded by the Codification and its guidance incorporated into the “Transfers and Servicing” topic presented therein.
 
In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46(R),” or FAS 167, which amends existing guidance for determining whether an entity is a variable interest entity, or VIE, and requires the performance of a qualitative rather than a quantitative analysis to determine the primary beneficiary of a VIE. Under this guidance, an entity would be required to consolidate a VIE if it has (i) the power to direct the activities that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. FAS 167 is effective for the first annual reporting period that begins after November 15, 2009, with early adoption prohibited. While we are currently evaluating the effect of adoption of FAS 167, we currently believe that the presentation of our consolidated financial statements may significantly change prospectively upon adoption. FAS 167 has been superseded by the Codification and its guidance incorporated into the “Consolidation” topic presented therein.
 
- 10 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
3.
Securities Held-to-Maturity
 
Our securities portfolio consists of commercial mortgage-backed securities, or CMBS, collateralized debt obligations, or CDOs, and other securities. Activity relating to our securities portfolio for the nine months ended September 30, 2009 was as follows (in thousands):
 
   
CMBS
   
CDOs & Other
     
Total
Book Value (3)
 
                     
December 31, 2008
    $669,029       $183,182         $852,211  
                           
Principal paydowns
    (2,461 )     (7,339 )       (9,800 )
Satisfactions (1)
    (1,542 )             (1,542 )
Discount/premium amortization & other (2)
    2,330       (351 )       1,979  
Other-than-temporary impairments:
                         
Recognized in earnings
    (15,881 )     (63,036 )       (78,917 )
Recognized in accumulated other comprehensive income
    (9,735 )     (7,877 )       (17,612 )
                           
September 30, 2009
    $641,740       $104,579         $746,319  
     
(1)
Includes final maturities and full repayments.
(2)
Includes mark-to-market adjustments on securities previously classified as available-for-sale, amortization of other-than-temporary impairments, and losses, if any.
(3)
Includes securities with a total face value of $870.8 million and $884.0 million as of September 30, 2009 and December 31, 2008, respectively.
 
The following table details overall statistics for our securities portfolio as of September 30, 2009 and December 31, 2008:
 
   
September 30, 2009
 
December 31, 2008
Number of securities
 
76
 
77
Number of issues
 
54
 
55
Rating (1) (2)
 
BB-
 
BB
Fixed / Floating (in millions) (3)
 
$662 / $84
 
$680 / $172
Coupon (1) (4)
 
6.20%
 
6.23%
Yield (1) (4)
 
6.64%
 
6.87%
Life (years) (1) (5)
 
4.0
 
4.6
     
(1)
Represents a weighted average as of September 30, 2009 and December 31, 2008, respectively.
(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 and exclude $37.9 million face value ($2.2 million book value as of September 30, 2009) of unrated equity investments in collateralized debt obligations.
(3)
Represents the total book value of our portfolio allocated between fixed rate and floating rate securities.
(4)
Calculations for floating rate securities is based on LIBOR of 0.25% and 0.44% as of September 30, 2009 and December 31, 2008, respectively.
(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.
 
- 11 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
The table below details the ratings and vintage distribution of our securities as of September 30, 2009 (in thousands):
 
   
 Rating as of September 30, 2009
Vintage
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC and
Below
   
Total
2007
 
 $—
 
 $—
 
 $—
 
 $—
 
$2,812
 
 $—
 
$32,776
   
$35,588
2006
 
 —
 
 —
 
 —
 
 —
 
 —
 
     20,684
 
     28,310
   
     48,994
2005
 
 —
 
 —
 
 —
 
     22,415
 
     20,428
 
 5,164
 
 1,500
   
     49,507
2004
 
 —
 
     24,856
 
     20,768
 
 —
 
     25,501
 
 9,781
 
 —
   
     80,906
2003
 
       9,905
 
 —
 
 —
 
       4,976
 
 —
 
     13,548
 
       1,150
   
     29,579
2002
 
 —
 
 —
 
 —
 
       6,605
 
 —
 
       2,587
 
     11,194
   
     20,386
2001
 
 —
 
 —
 
 —
 
       4,850
 
     14,214
 
 —
 
 —
   
     19,064
2000
 
       7,529
 
 —
 
 —
 
 —
 
       4,980
 
 —
 
     23,823
   
     36,332
1999
 
 —
 
 —
 
     11,460
 
       1,434
 
     17,356
 
 —
 
 —
   
     30,250
1998
 
   120,753
 
 —
 
     82,688
 
     75,094
 
     11,907
 
 —
 
     12,726
   
   303,168
1997
 
 —
 
 —
 
     35,192
 
       5,036
 
       8,563
 
          252
 
     18,474
   
     67,517
1996
 
     24,106
 
 —
 
 —
 
 —
 
 —
 
 —
 
          922
   
     25,028
Total
 
$162,293
 
$24,856
 
$150,108
 
$120,410
 
$105,761
 
$52,016
 
$130,875
   
$746,319
 
The table below details the ratings and vintage distribution of our securities as of December 31, 2008 (in thousands):
 
   
 Rating as of December 31, 2008
Vintage
 
AAA
 
AA
 
A
 
BBB
 
BB
 
B
 
CCC and
Below
   
Total
2007
 
 $—
 
 $—
 
 $—
 
 $—
 
$32,540
 
$41,525
 
$36,356
   
$110,421
2006
 
 —
 
 —
 
 —
 
     34,502
 
     14,395
 
 —
 
 —
   
     48,897
2005
 
 —
 
 —
 
 —
 
     47,012
 
     15,000
 
 —
 
 —
   
     62,012
2004
 
 —
 
     24,879
 
     28,106
 
     26,120
 
       9,054
 
 —
 
 —
   
     88,159
2003
 
       9,903
 
 —
 
 —
 
       4,972
 
       6,044
 
       7,691
 
       1,115
   
     29,725
2002
 
 —
 
 —
 
 —
 
       6,572
 
 —
 
     13,382
 
 —
   
     19,954
2001
 
 —
 
 —
 
 —
 
       4,871
 
     14,234
 
 —
 
 —
   
     19,105
2000
 
       7,597
 
 —
 
 —
 
 —
 
       5,515
 
 —
 
     27,490
   
     40,602
1999
 
 —
 
 —
 
     11,529
 
       1,441
 
     17,350
 
 —
 
 —
   
     30,320
1998
 
   122,013
 
 —
 
     82,455
 
     74,916
 
     19,347
 
 —
 
       5,144
   
   303,875
1997
 
 —
 
 —
 
     35,615
 
       5,585
 
       8,554
 
          262
 
     23,340
   
     73,356
1996
 
     23,750
 
 —
 
 —
 
 —
 
 —
 
 —
 
       2,035
   
     25,785
Total
 
$163,263
 
$24,879
 
$157,705
 
$205,991
 
$142,033
 
$62,860
 
$95,480
   
$852,211
 
As detailed in Note 2, on August 4, 2005 we changed the accounting classification of our then portfolio of securities from available-for-sale to held-to-maturity. While we typically account for the securities in our portfolio on a held-to-maturity basis, under certain circumstances we will account for securities on an available-for-sale basis. As of both September 30, 2009 and December 31, 2008, we had no securities classified as available-for-sale. Our securities’ book value as of September 30, 2009 is comprised of (i) our amortized cost basis, as defined under GAAP, of $760.0 million (of which $647.5 million related to CMBS and $112.5 million related to CDOs and other securities), (ii) amounts related to mark-to-market adjustments on securities previously classified as available-for-sale of $6.0 million and (iii) the portion of other-than-temporary impairments of ($19.6) million not related to expected credit losses.
 
Quarterly, we reevaluate our securities portfolio to determine if there has been an other-than-temporary impairment based upon expected future cash flows. As a result of this evaluation, under the guidance discussed in Note 2, we believe that during the quarter there has been an adverse change in expected cash flows for three of the securities in our portfolio and, therefore, recognized an aggregate gross other-than-temporary impairment of $77.9 million during the three months ended September 30, 2009. Of this total other-than-temporary impairment, $65.9 million is related to expected credit losses and has been recorded through earnings, and $12.0 million is related to fair value adjustments in excess of expected credit losses, or the Valuation Adjustment, and recorded as a component of accumulated other comprehensive income/(loss) on our consolidated balance sheet with no impact on earnings.
 
During the first nine months of 2009, we recorded a gross other-than-temporary impairment of $96.5 million, of which $78.9 million was related to expected credit losses and recorded through earnings, and $17.6 million was related to the Valuation Adjustment and recorded as a component of accumulated other comprehensive income/(loss) on our consolidated balance sheet with no impact on earnings.
 
- 12 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
To determine the component of the gross other-than-temporary impairment related to expected credit losses, we compare the amortized cost basis of each other-than-temporarily impaired security to the present value of its revised expected cash flows, discounted using its pre-impairment yield. Significant judgment of management is required in this analysis that includes, but is not limited to, (i) assumptions regarding the collectability of principal and interest, net of related expenses, on the underlying loans, (ii) current subordination levels at both the individual loans which serve as collateral under our securities and at the securities themselves, and (iii) the current unamortized discounts or premiums on our securities.
 
The following table summarizes activity related to the other-than-temporary impairments of our securities during the nine months ended September 30, 2009 (in thousands):
 
   
Gross Other-Than-Temporary Impairments
     
Credit Related Other-Than-Temporary Impairments
   
Non-Credit Related Other-Than-Temporary Impairments
 
                     
December 31, 2008
    $2,243         $2,243       $—  
                           
Impact of change in accounting principle (1)
            (2,243 )     2,243  
Additions due to change in expected
     cash flows
    96,529         78,917       17,612  
Amortization of other-than-temporary
     impairments
    (218 )       47       (265 )
                           
September 30, 2009
    $98,554         $78,964       $19,590  
     
(1)
Represents a reclassification to other comprehensive income of other-than-temporary impairments on securities which were previously recorded in earnings. As discussed in Note 2, upon adoption of FSP FAS 115-2 these impairments were reassessed and determined to be related to fair value adjustments in excess of expected credit losses.
 
Certain of our securities are carried at values in excess of their fair values. This difference can be caused by, among other things, changes in interest rates and credit spreads. As of September 30, 2009, 61 securities with an aggregate carrying value of $687.5 million were carried at values in excess of their fair values. Fair value for these securities was $448.1 million as of September 30, 2009. In total, as of September 30, 2009, we had 76 investments in securities with an aggregate carrying value of $746.3 million that have an estimated fair value of $513.8 million, including 65 investments in CMBS with an estimated fair value of $436.5 million and 11 investments in CDOs and other securities with an estimated fair value of $77.3 million (these valuations do not include the value of interest rate swaps entered into in conjunction with the purchase/financing of these investments). We determine fair values using third party dealer assessments of value, supplemented in limited cases with our own internal financial model-based estimations of fair value. We regularly examine our securities portfolio and have determined that, despite these changes in fair value, our expectations of future cash flows have only changed adversely for eleven 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, 2009, 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 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.
 
- 13 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
The following table shows the gross unrealized losses and fair value of our securities for which the fair value is lower than our book value as of September 30, 2009 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
    $—       $—       $26.6       ($51.5 )       $26.6       ($51.5 )       $78.1  
                                                             
Fixed Rate
    27.3       (4.0 )     394.2       (183.9 )       421.5       (187.9 )       609.4  
                                                             
Total
    $27.3       $(4.0 )     $420.8       ($235.4 )       $448.1       ($239.4 )       $687.5  
     
(1)
Excludes, as of September 30, 2009, $58.8 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 December 31, 2008 our securities portfolio included 77 investments in securities with an aggregate carrying value of $852.2 million that had an estimated market value of $582.5 million, including 66 investments in CMBS with an estimated fair value of $456.1 million and 11 investments in CDOs and other securities with an estimated fair value of $126.4 million. The following table shows the gross unrealized losses and fair value of our securities for which the fair value is lower than our book value as of December 31, 2008 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       ($0.6 )     $89.0       ($82.0 )       $89.2       ($82.6 )       $171.8  
                                                             
Fixed Rate
    183.8       (36.1 )     268.4       (156.4 )       452.2       (192.5 )       644.7  
                                                             
Total
    $184.0       ($36.7 )     $357.4       ($238.4 )       $541.4       ($275.1 )       $816.5  
     
(1)
Excludes, as of December 31, 2008, $35.7 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.
 
Our securities portfolio includes investments in three entities that are, or could potentially be construed to be, variable interest entities, as defined under GAAP. In each of these three cases, we own less than 50% of the variable interest, are not the primary beneficiary of such entities’ variability and, therefore, do not consolidate the operations of the entity in our consolidated financial statements. These entities have direct and synthetic exposure to real estate debt and securities in the aggregate amount of $1.7 billion that is financed by the issuance of CDOs to third parties. We have limited control over the operation of these entities and have not provided, nor are obligated to provide any financial support to any of these entities. One of the three entities was sponsored by us. Our maximum exposure to loss as a result of our involvement with these entities is $78.8 million, the principal amount of our investments. As of September 30, 2009, we have recorded other-than-temporary-impairments of $70.9 million against these investments, resulting in a net aggregate carrying value of $5.0 million which is recorded as part of our securities portfolio on our consolidated balance sheet.
 
- 14 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
4. Loans Receivable, net
 
Activity relating to our loans receivable for the nine months ended September 30, 2009 was as follows (in thousands):
 
   
Gross Book Value
   
Provision for Loan Losses
   
Net Book Value (3)
 
                   
December 31, 2008
    $1,847,811       ($57,577 )     $1,790,234  
                         
Additional fundings (1)
    6,471             6,471  
Satisfactions (2)
    (33,803 )           (33,803 )
Principal paydowns
    (22,385 )           (22,385 )
Discount/premium amortization & other
    1,151             1,151  
Provision for loan losses
          (113,716 )     (113,716 )
Realized loan losses
    (52,665 )     52,665        
Reclassification to loans held-for-sale
    (40,362 )           (40,362 )
                         
September 30, 2009
    $1,706,218       ($118,628 )     $1,587,590  
     
(1)
Additional fundings includes capitalized interest of $1.4 million for the nine months ended September 30, 2009.
(2)
Includes final maturities and full repayments.
(3)
Includes loans with a total principal balance of $1.71 billion and $1.86 billion as of September 30, 2009 and December 31, 2008, respectively.
 
The following table details overall statistics for our loans receivable portfolio as of September 30, 2009 and December 31, 2008:
 
         
   
September 30, 2009
 
December 31, 2008
Number of investments
 
65
 
73
Fixed / Floating (in millions) (1)
 
$132 / $1,456
 
$172 / $1,618
Coupon (2) (3)
 
3.49%
 
3.90%
Yield (2) (3)
 
3.52%
 
4.09%
Maturity (years) (2) (4)
 
2.6
 
3.3
     
(1)
Represents the net book value of our portfolio allocated between fixed rate and floating rate loans.
(2)
Represents a weighted average as of September 30, 2009 and December 31, 2008, respectively.
(3)
Calculations for floating rate loans are based on LIBOR of 0.25% as of September 30, 2009 and LIBOR of 0.44% as of December 31, 2008.
(4)
Represents the final maturity of the investment assuming all extension options are executed.
 
- 15 -

Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
 
The tables below detail the types of loans in our portfolio, as well as the property type and geographic distribution of the properties securing our loans, as of September 30, 2009 and December 31, 2008 (in thousands):
 
   
September 30, 2009
 
December 31, 2008
 
Asset Type
 
Book Value
   Percentage  
Book Value
  Percentage
Mezzanine loans
 
$598,109
   
38
 
$693,002
   
39
Subordinate mortgages
 
              498,503
   
31
   
              553,232
   
31
 
Senior mortgages
 
              384,297
   
24
   
              434,179
   
24
 
Other
 
              106,681
   
7
   
              109,821
   
6
 
Total
 
$1,587,590
   
100