8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 31, 2005

CAPITAL TRUST, INC.

(Exact Name of Registrant as specified in its charter)

               Maryland                
(State or other jurisdiction
of incorporation)                1-14788                
(Commission File
Number)                94-6181186                
(IRS Employer
Identification No.)

410 Park Avenue, 14th Floor, New York, NY 10022

(Address of Principal Executive Offices) (Zip Code)

Registrant’s telephone number, including area code: (212) 655-0220

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition

On October 31, 2005, Capital Trust, Inc. (the “Company”) issued a press release reporting the financial results for its fiscal quarter ended September 30, 2005. A copy of the press release is attached to this Current Report on Form 8-K (“Current Report”) as Exhibit 99.1 and is incorporated herein solely for purposes of this Item 2.02 disclosure.

On November 1, 2005, the Company held a conference call to discuss the financial results of the Company for its fiscal quarter ended September 30, 2005. A copy of the transcript of the call is attached to this Current Report as Exhibit 99.2 and is incorporated herein solely for purposes of this Item 2.02 disclosure. The transcript has been selectively edited to facilitate the understanding of the information communicated during the conference call.

The information in this Current Report, including the exhibits attached hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of such section. The information in this Current Report, including the exhibits, shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act, regardless of any incorporation by reference language in any such filing.

Item 9.01		Financial Statements and Exhibits
	(c) Exhibits
	Exhibit Number		Description
	99.1 99.2		Press Release dated October 31, 2005 Transcript from third quarter earnings conference call held on November 1, 2005

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

CAPITAL TRUST, INC.

By:     /s/ Geoffrey G. Jervis

      Name:     Geoffrey G. Jervis

      Title:       Chief Financial Officer

Date: November 3, 2005

Exhibit Index

Exhibit Number	Description
99.1 99.2	Press Release dated October 31, 2005 Transcript from third quarter earnings conference call held on November 1, 2005

EX-99

Exhibit 99.1

Contact: Rubenstein Associates

Robert Solomon: (212) 843-8050

Capital Trust Reports Third Quarter 2005 Results

NEW YORK, NY – October 31, 2005 - Capital Trust, Inc. (NYSE: CT) today reported third quarter 2005 net income of 64 cents per share (diluted), an increase of 28% compared to 50 cents per share for the comparable period of the prior year.

“We are pleased to report another quarter of solid operating results, driven by strong growth in our balance sheet business,” said John Klopp, Capital Trust’s CEO. “Originations hit a new record, and we completed our third CDO, continuing to drive down our cost of capital and better match fund our balance sheet.”

The Company will conduct a conference call at 10:00 a.m. Eastern Time on November 1, 2005 to discuss third quarter 2005 results. Interested parties can access the call toll free by dialing (800) 795-1259. The conference ID is “CAPITAL.” A recorded replay will be available from 12:00 p.m. on November 1, 2005 through midnight on November 15, 2005. The replay call number is (800) 753-0348.

Selected financial highlights are outlined below:

Balance Sheet

Total assets were $1.3 billion at September 30, 2005, reflecting a $300 million (29%) increase from June 30, 2005 and a $455 million (52%) increase from $878 million at December 31, 2004. The primary drivers of asset growth were new originations of both new loans and CMBS that totaled $339 million for the quarter and $751 million year to date. For the three months ended September 30, 2005, the Company originated 7 new B notes and property mezzanine loans totaling $149 million and 16 new CMBS investments totaling $190 million. For the nine months ended September 30, 2005, the Company has originated 32 new B notes and property mezzanine loans totaling $545 million and 18 new CMBS investments totaling $205 million. Net of repayments, loans receivable jumped to $815 million as of September 30, 2005, a $102 million (14%) increase from June 30, 2005 and a $259 million (47%) increase from December 31, 2004. Similarly, CMBS investments rose to $454 million, a $197 million (76%) increase from June 30, 2005 and a $207 million (83%) increase from December 31, 2004.

Total liabilities as of September 30, 2005 were $1.0 billion, comprised primarily of collateralized debt obligations (“CDOs”) and repurchase obligations. At quarter end, $824 million (84%) of the Company’s interest bearing liabilities were in the form of CDOs, which provide non recourse, non mark-to-market, term matched financing for the Company’s assets. During the quarter, the Company issued its third CDO, (“CDO 3”) in

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which the Company sold $270 million (face value) of investment grade rated fixed rate notes collateralized by a pool of $341 million (face value) of fixed rate CMBS. The weighted average cost of debt to the Company is 5.17% on a cash basis and 5.25% on an all in effective basis. Collateral for CDO 3 was comprised of $159 million (face value) of CMBS from the Company’s existing portfolio and a pool of $182 million (face value) of fixed rate CMBS acquired in conjunction with the issuance of the CDO. Unlike the Company’s first two floating rate CDOs, CDO 3 is a static pool financing collateralized by long term, fixed rate CMBS and does not include a reinvestment period. Capital Trust’s wholly owned asset management subsidiary, CT Investment Management Co., LLC (“CTIMCO”), is the collateral manager for all three CDOs.

At quarter end, the Company’s debt-to-equity ratio was 3.0-to-1 compared to 1.7-to-1 at December 31, 2004. At September 30, 2005, the Company had $17 million of restricted and unrestricted cash, $124 million of available borrowings and $369 million of additional capacity under its repurchase agreements.

Based on GAAP shareholders’ equity, book value per share was $21.70 at September 30, 2005, compared to $21.03 at December 31, 2004. Included in these calculations are 166,303 and 173,549 shares representing in-the-money options at September 30, 2005 and December 31, 2004, respectively, in addition to the shares outstanding.

Investment Management

The Company currently acts as investment manager for two private equity funds, CT Mezzanine Partners II LP (“Fund II”) and CT Mezzanine Partners III, Inc. (“Fund III”).

Fund II commenced its investment activities in April of 2001 and concluded its investment period in April of 2003, originating $1.2 billion of investments in 40 separate transactions. At September 30, 2005, Fund II had $67.8 million of outstanding loans and investments remaining. The Company earns co-investment income from a 5.9% direct investment in Fund II and CTIMCO earns base management fees and incentive management fees from Fund II. During 2005, CTIMCO has received $7.8 million of incentive management fees from Fund II, including $428,000 in the third quarter. The Company accounts for its investment in Fund II using the equity method and, at quarter end, the Company recorded a $1.8 million investment in Fund II.

Fund III commenced its investment activities in June of 2003 and concluded its investment period in June of 2005, originating $1.2 billion of investments in 35 separate transactions. At September 30, 2005, Fund III had $536.9 million of outstanding loans and investments remaining. The Company earns co-investment income from a 4.7% direct investment in Fund III and CTIMCO earns base management fees (calculated on the basis of invested capital) and incentive management fees (subject to a 100% return of capital and a preferred return to investors) from Fund III. The Company accounts for its investment in Fund III using the equity method and, at quarter end, the Company recorded a $9.9 million investment in Fund III.

Capital Trust

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Operating Results

For the quarter ended September 30, 2005, the Company reported total revenues of $24.9 million and net income of $9.8 million, representing basic earnings per share of 65 cents and diluted earnings per share of 64 cents. When compared to the prior quarter, total revenues increased by $2.9 million (13%), net income by $1.0 million (11%) and earnings per share by 6 cents (10%) on a diluted basis. For the same period in 2004, the Company reported total revenues of $15.2 million and net income of $5.9 million (diluted earnings per share of 50 cents).

Interest and related income from loans and other investments totaled $22.8 million for the quarter ended September 30, 2005, an increase of $9.8 million (75%) from the $13.0 million for the three months ended September 30, 2004. During the three months ended September 30, 2005, the Company recognized $501,000 in additional income on the early repayment of loans. Average interest-earning assets increased from $638.6 million for the quarter ended September 30, 2004 to $1.12 billion for the three months ended September 30, 2005. The average interest rate earned on these assets decreased from 8.1% for the three months ended September 30, 2004 to 7.9% for the quarter ended September 30, 2005. The decrease in rates was due primarily to a change in the mix of the Company’s investment portfolio to include a greater proportion of B Notes and a general decrease in spreads obtained on newly originated investments, partially offset by a higher average LIBOR rate, which increased by 2.0% from 1.6% for the three months ended September 30, 2004 to 3.6% for the quarter ended September 30, 2005.

Interest and related expenses on interest-bearing debt amounted to $10.3 million for the quarter ended September 30, 2005, an increase of $6.6 million from the $3.8 million for the three months ended September 30, 2004. The increase in expense was due to an increase in the amount of average interest-bearing liabilities outstanding (from $412.2 million for the three months ended September 30, 2004 to $847.1 million for the quarter ended September 30, 2005), and an increase in the average rate paid on interest-bearing liabilities from 3.6% to 4.7% for the same periods. The increase in the average rate was substantially due to the increase in average LIBOR during the period, partially offset by the use of CDOs to finance a large portion of the portfolio at lower rates than those obtained under other sources.

Other revenues decreased $109,000 from $2.2 million for the three months ended September 30, 2004 to $2.1 million for the quarter ended September 30, 2005. The decrease was due to lower levels of base management fees and investment income from Fund II and Fund III, partially offset by the receipt of incentive management fees from Fund II of $428,000 during the three months ended September 30, 2005.

General and administrative expenses increased $1.3 million to $5.3 million for the three months ended September 30, 2005 from $4.0 million for the prior period. The increase in general and administrative expenses was primarily due to increases in employee compensation expense from the issuance of additional restricted stock, the timing of the

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annual bonus accrual and the allocation of Fund II incentive management fees for payment to employees.

Dividends

On September 15, 2005, the Company’s Board of Directors declared a third quarter 2005 cash dividend of 55 cents per share of class A common stock. The cash dividend was paid on October 15, 2005 to stockholders of record on September 30, 2005.

Forward-Looking Statements

The forward-looking statements contained in this news release are subject to certain risks and uncertainties including, but not limited to, new origination volume, the continued credit performance of the Company’s loan and CMBS investments, the asset/liability mix, the effectiveness of the Company’s hedging strategy and the rate of repayment of the Company’s portfolio assets, as well as other risks indicated from time to time in the Company’s Form 10-K and Form 10-Q filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

About Capital Trust

Capital Trust, Inc. is a finance and investment management company that specializes in credit-sensitive structured financial products. To date, the Company’s investment activities have focused primarily on the U.S. commercial real estate subordinate debt markets. Capital Trust executes its business both as a balance sheet investor and as an investment manager through its CT Mezzanine Partners family of funds. Capital Trust is a real estate investment trust traded on the New York Stock Exchange under the symbol “CT.” The Company is headquartered in New York City.

Tables to follow

Capital Trust, Inc. and Subsidiaries

Consolidated Balance Sheets

September 30, 2005 and December 31, 2004

(in thousands)

	September 30,	December 31,
	2005	2004
	(unaudited)	(audited)
Assets
Cash and cash equivalents	$             14,412	$             24,583
Restricted cash	2,089	611
Commercial mortgage-backed securities	454,260	247,765
Loans receivable	815,225	556,164
Total return swap	4,000	—
Equity investment in CT Mezzanine Partners II LP (“Fund II”), CT MP II LLC (“Fund II GP”) and CT Mezzanine Partners III, Inc. (“Fund III”) (together “Funds”)	16,503	21,376
Deposits and other receivables	3	10,282
Accrued interest receivable	7,983	4,029
Interest rate hedge assets	1,070	194
Deferred income taxes	3,734	5,623
Prepaid and other assets	13,476	7,139
Total assets	$        1,332,755	$           877,766
Liabilities and Shareholders’ Equity
Liabilities:
Accounts payable and accrued expenses	$             17,818	$             17,388
Credit facility	—	65,176
Repurchase obligations	157,774	225,091
Collateralized debt obligations (“CDOs”)	823,817	252,778
Deferred origination fees and other revenue	739	836
Total liabilities	1,000,148	561,269
Shareholders’ equity:
Class A common stock, $0.01 par value, 100,000 shares authorized, 14,844 and 14,769 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively (“class A common stock”)	148	148
Restricted class A common stock, $0.01 par value, 314 and 283 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively (“restricted class A common stock” and together with class A common stock, “common stock”)	3	3
Additional paid-in capital	324,937	321,937
Accumulated other comprehensive gain	14,095	3,815
Accumulated deficit	(6,576)	(9,406)
Total shareholders’ equity	332,607	316,497
Total liabilities and shareholders’ equity	$        1,332,755	$           877,766

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Capital Trust, Inc. and Subsidiaries

Consolidated Statements of Income

Three and Nine Months Ended September 30, 2005 and 2004

(in thousands, except per share data)

(unaudited)

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2005	2004	2005	2004
Income from loans and other investments:
Interest and related income	$       22,751	$       12,979	$       57,359	$       31,169
Less: Interest and related expenses on secured debt	10,325	3,758	23,709	8,848
Less: Interest and related expenses on step up convertible junior subordinated debentures	—	1,552	—	6,417
Income from loans and other investments, net	12,426	7,669	33,650	15,904
Other revenues:
Management and advisory fees from Funds	1,517	1,910	12,144	6,025
Income/(loss) from equity investments in Funds	467	301	(835)	1,126
Gain on sales of investments	—	—	—	300
Other interest income	137	19	374	35
Total other revenues	2,121	2,230	11,683	7,486
Other expenses:
General and administrative	5,316	3,996	16,384	10,127
Depreciation and amortization	278	274	837	822
Total other expenses	5,594	4,270	17,221	10,949
Income before income taxes	8,953	5,629	28,112	12,441
Provision for income taxes	(846)	(229)	315	—
Net income	$         9,799	$         5,858	$       27,797	$       12,441
Per share information:
Net earnings per share of common stock:
Basic	$          0.65	$          0.51	$          1.84	$          1.46
Diluted	$          0.64	$          0.50	$          1.81	$          1.43
Weighted average shares of common stock outstanding:
Basic	15,125,443	11,448,503	15,110,227	8,492,967
Diluted	15,358,943	11,659,193	15,339,533	8,686,079
Dividends declared per share of common stock	$          0.55	$          0.45	$          1.65	$          1.35

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EX-99

Exhibit 99.2

Capital Trust Q3 2005 Earnings Call

November 1, 2005

Conference Coordinator:

Hello and welcome to the Capital Trust third quarter 2005 results conference call. Before we begin, please be advised that the forward-looking statements expressed in today’s call are subject to certain risks and uncertainties including, but not limited to, the continued performance, new origination volume and the rate of repayment of the Company’s and its Funds’ loan and investment portfolios; the continued maturity and satisfaction of the Company’s portfolio assets; as well as other risks contained in the Company’s latest Form 10K and Form 10Q filings with the Securities and Exchange Commission. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

There will be a Q&A session following the conclusion of this presentation. At that time, I will provide instructions for submitting a question to management. I will now turn the call over to John Klopp, CEO of Capital Trust.

John Klopp:

Good morning everyone. Thank you for joining us once again and for your continued interest in Capital Trust.

Last night we reported our results for the third quarter and filed our 10-Q. All good news, no surprises and the numbers, in fact, are remarkably straightforward. As a result, my comments will be brief. Net income per share totaled 64 cents, up 28% versus the comparable period last year and 10% higher than the second quarter of ‘05. Year to date, GAAP net income totaled almost $28 million, compared to $12.5 million in 2004.

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On a per share basis, earnings and dividends for the nine months were up 27% and 22% year over year.

The story of Q3 was strong growth in our balance sheet business, with total assets increasing by almost $300 million net during the quarter, from $1 billion to $1.3 billion. New originations totaled a record $454 million, with $339 million funded on the balance sheet and $115 million on behalf of CT Mezzanine Partners III. As we expected, repayments moderated in the quarter, totaling only $42 million and contributing to our net growth. Year to date, total gross originations for both CT and Fund III now stand at approximately $1.2 billion, well ahead of last year’s record volume.

As you may recall, Fund III’s investment period expired in June, but allowed for committed transactions to be closed, so this quarter represents the last investment that Fund III will make. In addition, we have decided to put the capital raise for CT Mezzanine Partners IV on hold at this time. In an environment where good deals are increasingly hard to find, much of the business that would be done in Fund IV can simply be done more accretively on CT’s balance sheet. As a result, for at least the rest of ‘05, all of our origination efforts for mezzanine loans, B notes and CMBS will be for our own account. In the short term, we give up some fee income but believe that net interest margin from higher investment volumes will more than offset. Going forward, we still intend to grow our investment management business and are currently working with our stable of fund investors to create new products that utilize our core skills and are additive to our core business.

Over 50% of our 3rd quarter originations took the form of longer term, fixed rate investments, primarily CMBS that we acquired and simultaneously financed with our 3rd

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CDO issuance in early August. These linked transactions demonstrate several of our strategies in today’s environment: expand our targets to include more fixed rate investments and more CMBS; lengthen the duration of our asset base to insulate against prepays; and utilize the CDO market to provide cost effective match funding. Expect more of the same in coming months.

The market remains competitive, but we are confident that Capital Trust’s business model, platform and people create a sustainable advantage that will allow us to succeed. The stock market seems to be worried about just about everything these days, and credit quality, interest rates and growth are near the top of the list. On all three fronts, CT is in great shape. The credit quality of our portfolios remains as strong as anyone in our business. Our balance sheet is well matched, our cost of debt is competitive and our earnings stand to increase as interest rates rise further. And we continue to find good opportunities to invest our capital, earn solid risk-adjusted returns and grow our earnings and dividends which is our primary mission.

Thank you for your confidence in us. I will now turn it over to Geoff Jervis, our CFO, to run through the numbers and then we will come back to Q&A.

Geoffrey Jervis:

Thank you, John.

Good morning everyone.

Capital Trust’s third quarter was marked by solid growth on both the right and left hand side of the balance sheet that translated into strong operating results.

Let’s start with the balance sheet, total assets were $1.33 billion at September 30^th, reflecting a $300 million (or 29%) increase from June 30th, and a $455 million (or

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52%) increase from the beginning of the year. Looking inside the numbers, the primary driver of total asset growth was an increase in interest earning assets, most notably CMBS and loans receivable. Interest earning assets increased by $470 million from $804 million at year end 2004 to $1.27 billion at September 30th, an increase of 58%. As John mentioned, the major drivers of changes in interest earning assets are originations and repayments. During the first nine months of the year, originations totaled $754 million and satisfactions plus partial repayments were $263 million. $339 million of year to date originations were made in the third quarter.

At quarter end, our CMBS portfolio consisted of 36 investments in 25 different securitizations for a total book balance of $454 million. That represents an increase of $207 million in terms of book value from year end 2004. The bulk of the increase was due to our acquisition of $157 million of vintage fixed rate subordinate CMBS in connection with the issuance of our third CDO. In addition to those fixed rate bonds, we originated one additional fixed rate investment and four new floating rate CMBS investments during the first nine months of the year totaling $48 million with repayments of less than $2.0 million. On an accounting note, on August 4, 2005, as discussed in detail in our 10Q, we elected to change the accounting classification of our CMBS investments from available for sale to held to maturity in order to more accurately reflect our investment thesis on these bonds.

The loan portfolio at quarter end consisted of one $8 million first mortgage loan, 59 B Notes totaling $552 million, and 14 mezzanine loans totaling $260 million. Other than the $8 million first mortgage investment, the loan in Mexico we have discussed in the past and we carry at $3 million, the portfolio is 100% performing.

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Our sole Total Return Swap, which we originated last quarter, is performing as expected and is carried at $4 million.

With respect to our co-investment in our private equity funds, the $16.5 million on the balance sheet is comprised of our remaining $1.8 million co-investment in Fund II, our $9.9 million co-investment in Fund III and $4.8 million of capitalized costs associated with the investment management business. At September 30th, Fund II and Fund III had $68 million and $537 million of assets remaining respectively, and both portfolios remain 100% performing. As to incentive management fees, CT has received $7.8 million of payments from Fund II to date and if we liquidated the portfolio on October 1, 2005 at book value, we would receive an additional $2.1 million in incentive management fee payments. Now that Fund III is through its investment period, we have a better sense of what incentive management fees might be for this Fund. Using the same methodology as Fund II, liquidation of assets and liabilities at book value on October 1, 2005, we would receive $5.4 million of incentive management fees. As is the case with Fund II the timing of these payments is difficult to predict and the ultimate amount is based upon - among other things - continued performance of the Funds’ investments.

On the liability side, as John mentioned, we executed our third CDO early in the quarter. Our third CDO is different from the first two in that (1) it is comprised of 100% CMBS, (2) the assets and liabilities are 100% fixed rate and (3) given the long term nature of these assets, the CDO is static – without a reinvestment feature. CDO III allowed us to finance a $303 million market value (or $341 million face value) portfolio of fixed rate CMBS, with $272 million of term and index matched, non market to market, non recourse fixed rate liabilities. CDOs continue to play a significant role in our

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business model. At quarter end, 84% of our interest bearing liabilities were in the form of CDOs. The all–in cost of our $552 million of reinvesting CDOs is Libor plus 94 bps and for CDO III, our static fixed rate CDO is 5.25%, equivalent to swaps plus 58 bps at the time of issuance. For all of our CDOs, the combined weighted average all-in cost of debt is Libor or swaps plus 82 basis points.

In addition to CDOs, we continue to realize improvements in the terms and pricing of our repurchase agreements. During the third quarter, we executed three new agreements for a total of $225 million with two lenders bringing total commitments to $650 million at quarter end. While the terms are not at the level of our CDOs, we continue to narrow the gap with spreads ranging from 35 basis points to 200 basis points over LIBOR and advance rates ranging from 70% to 92% -- depending upon the collateral characteristics. As we go forward, these facilities will remain an integral part of our capital structure.

To finish the balance sheet, there was no new equity capital raised during in the period and book value per share was $21.70 at September 30th, compared to $20.79 at year end 2004 representing an increase of $0.91 per share.

As a result of the new investment activity, our debt to equity ratio increased to 3 to 1 at quarter end as compared to 1.7 to 1 at year end 2004. While we do not have a target debt to equity ratio, we have the ability and tolerance for increased leverage assuming it is appropriate given the risk level of our assets and the structure of our liabilities.

With respect to liquidity, our position remains strong, with $17 million of restricted and unrestricted cash, $124 million of immediately available borrowings and

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$369 million of additional capacity under our credit arrangements. Included in the $17 million of cash is restricted cash of $2 million, which represents the total cash balance in our two reinvesting CDOs. Cash is generated in the CDOs from underlying collateral amortization and repayments that have not yet been reinvested. Keeping our reinvesting CDOs full is key to their performance and we are more than pleased with our 99.5% utilization of these vehicles.

Turning to the income statement, we reported net income of $9.8 million for the quarter or 64 cents per share on a diluted basis. This compares to $5.9 million or 50 cents per share for the same period one year ago. The $3.9 million increase to net income (67%) is primarily due to the growth in net interest income – driven by increased interest earning assets and partially offset by lower spreads on new assets. Average interest earning assets for the quarter were $1.1 billion, compared to $639 million a year ago. During the period we earned 7.9% on these assets as compared to 8.1% for the year ago period. The reduction in rates is attributable to the continued shift in our investment focus to include more lower LTV B notes and CMBS and a generally more competitive marketplace, offset by a 2.0% rise in LIBOR between the periods. At the same time, average interest bearing liabilities increased from $412 million to $847 million for the quarter. The average rate paid on interest-bearing liabilities increased to 4.77% from 3.60% primarily due to the aforementioned increase in average offset by the reduced cost of our CDOs. Net interest margin, the difference between the spread on our assets and liabilities equated to 3.13%. Given our debt to equity ratio of 3:1, this equates to gross returns on equity in excess of 17%.

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In light of the current interest rate and economic news, we reiterate our commitment to maintaining an appropriate asset/liability mix that manages the impact of changes in interest rates. As has been our policy, we are positively correlated to changes in interest rates and, as of September 30th, our book is comprised of $205 million of net floating rate exposure. As such, a 100 basis point increase in interest rates would equate to an increase of $2.0 million to net interest income – roughly 13 cents per diluted share on an annual basis.

In the quarter, other revenues decreased $109,000 to $2.1 million from $2.2 million during the same period last year. The decrease was due to lower levels of base management fees and investment income from Fund II and Fund III, which was partially offset by the receipt of incentive management fees from Fund II of $428,000.

On the expense side, G&A increased $1.3 million to $5.3 million for the three months ended September 30, 2005 from $4.0 million for the comparable period a year ago. The increase in general and administrative expenses was primarily due to increases in employee compensation expense from the issuance of additional restricted stock, the timing of the annual bonus accrual and the allocation of Fund II incentive management fees for payment to employees.

With respect to taxes, we reversed our provision for income taxes by $846 thousand reflecting our revised expectation for taxable income at our taxable REIT subsidiary, CTIMCO.

In September, we declared our quarterly dividend of 55 cents per share and paid the dividend on October 15 to shareholders of record on September 30th.

That wraps it up from my end, and at this point I will turn it back to John.

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John Klopp:

Thanks, Geoff. At this point, we will open it up for any of your questions.

Conference Coordinator:

If you would like to ask a question, please press star and one on your touchtone phone. To withdraw your question, press the pound sign. Again, if you would like to ask a question, please press star and one on your touchtone phone at this time.

Our first question comes from Daniel Welden with Jefferies. Please go ahead.

Daniel Welden:

This is a big quarter for CMBS. Was this the result of a good market environment or continued interest on your part in that business? And could you talk a little bit about the outlook for the Q4 ‘05 and ‘06, the overall CMBS market and your expected involvement there?

John Klopp:

It obviously has been a very big quarter in terms of market volume. Not just this quarter but year-to-date, CMBS volumes have gone through the roof and are certainly well on pace to hit records almost unheard of in prior years. There has been an enormous amount of volume. The primary focus given where interest rates are and where yield curves are, has been on the fixed rate side. And as we have said in prior quarters, we expect our involvement will continue to increase on the longer-term fixed rate side of the aisle.

We have traditionally been focused on floating rate mezzanine lending in the years past of Capital Trust but today and going forward we have a much broader investment palate. It is necessary in this competitive environment to be able to look at

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different opportunities across the entire spectrum -- loans, securities, floating and fixed, short and long term. We do not see any signs that the volume is backing off which has created a fair amount of opportunity. There are a lot of things to look at and we intend to be involved going forward.

Daniel Welden:

One follow-up question. In terms of leverage, based on your current balance sheet mix, how far would you be willing to go in terms of your debt-to-equity ratio?

Geoffrey Jervis:

That is dependent upon what we are financing. As I mentioned earlier, we are certainly comfortable at the current levels given our asset mix and given our excess liquidity now of over $120 million we have the capacity to continue to put assets on our books and increase the debt-to-equity ratio.

We really do not have a target and again, it is dependent upon what we are doing. If we continue to do more lower LTV B notes and very high below investment-grade or low investment-grade investing, the BB to BBB range, our tolerance will be greater than 3:1 on a weighted average basis.

John Klopp:

That has been part of the plan all year. We’ve talked about it. We wanted to lever out our balance sheet and create more efficiency. With the success we have had in the CDO marketplace, we have been able to do that and do that on a very efficient cost-effective basis.

Daniel Welden:

Great, thanks.

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Conference Coordinator:

Our next question comes from Donald Fandetti with Citigroup. Please go ahead.

Donald Fandetti:

Hi, good morning everyone. John, a quick question about your plans for Fund IV. It sounds like most or all of your lending activities will be done on balance sheet. Should we presume that you might do some type of net lease real estate in a fund? And also, what are the implications to the $4 million of capitalized costs on the balance sheet? When would you have to expense that if you don’t do another fund?

John Klopp:

We intend to continue to be in the investment management business. We have put ourselves on hold at the moment notwithstanding a very good expected response from our investors in our conversations about raising a subsequent Mezzanine fund. As I have discussed, the analysis on our part was pretty straightforward. At the moment we believe that our shareholders are better served for this core business to go on CT’s balance sheet.

But we also believe that this platform has the capacity to do a lot of different things, and we are currently working and talking to our investors about additional fund management products that we can bring to that audience. We believe that over time we will create additional fund products that can be marketed and sold to those existing investors of ours that are additive to CT’s core business. Therefore, we are not going out of the investment management business. We think we’ve created that franchise over a number of years and that is a transferable and transformable franchise that we could make into other products.

Donald Fandetti:

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Okay. And we’ve been hearing from some folks that there has been a moderation in terms of the asset yield compression in the debt market. But that seems counterintuitive to the amount of capital that continues to be raised on the private side. Any comments there? Are things sort of bouncing along the bottom? Any positive signs? Are you still cautious?

John Klopp:

I’m going to give that to Steve Plavin.

Steve Plavin:

We have seen a slowing of spread compression in the market particularly on the floating-rate side. I think that the CDOs all have similar cost of capital although slightly differing appetites. At this stage, the decline of spreads relates, in large part, to lowering ROE requirements on the part of the CDOs trying to deploy money in this ever-competitive environment. As spreads have come closer and closer to zero, the absolute level of spread compression has to moderate. So we anticipate that there will be less spread compression but given the degree of competition in our market, I do not think this spread compression is gone yet.

Donald Fandetti:

Okay. And one last question on the total return swap you put on last quarter. Can you talk about the risks that we should consider for that asset versus a direct loan? And also, why not do more? It seems like the levered return is up in the 20% range. How should we view that from a risk-reward perspective?

Steve Plavin:

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The total return swap enables us to buy an asset that we otherwise would have purchased with the leverage built in. It is essentially a $20 million loan that we purchased as a synthetic for $4 million. If we had purchased the loan in the conventional way for $20 million and borrowed $16 million against it and we could have achieved the same ROE, we probably would have executed the transaction that way. But the reality is that that synthetic gave us more efficient leverage than what we would have been able to achieve by borrowing 80% against the asset. That is why we executed the trade in that fashion.

We are seeing other opportunities to buy assets in that same fashion. It is not a big part of the market and the accounting treatment for us in terms of the quarterly mark-to-market is slightly more potentially disruptive to the financial statements than buying the assets in the traditional way.

Donald Fandetti:

Great, thank you.

Conference Coordinator:

We will move to the next question from James Shanahan with Wachovia Securities.

James Shanahan:

Thank you for taking my question. I’d like to follow up here on Don’s question from earlier. I’m not sure you answered it; maybe you did. But he asked about your interest in net lease real estate assets and he also asked about the $4 million in capitalized cost. Could you go into more detail there?

John Klopp:

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We have discussed net lease products in the past and we have had those questions in the past. It is certainly a related area of investment to what we do having real estate and credit intermixed. We have looked at these types of net lease opportunities in the past but there is no current pending plan to launch a net lease fund. To the extent that we think that the opportunity is there and it meets the objective of our investors and it makes sense for us, then we would consider that. But there is certainly nothing immediately imminent at this point in time.

In terms of the capitalized cost, Geoff, do you want to follow up?

Geoffrey Jervis:

Sure. The vast majority of the capitalized costs that were mentioned are associated with Fund II and Fund III. And as you have been following the income statement over the last few quarters, you can see that with respect to Fund II, we have a normal amortization schedule that we amortize these costs over, but we accelerate the expensing of some of those capitalized costs every time we recognize some promote income. You should expect to see the $4.8 million of capitalized costs come down with the continued recognition of promote at Fund II and then subsequently, as we recognize promote with Fund III. But the bulk of it will be matched against incentive management fee payments assuming that investments perform as we expect.

John Klopp:

Having said that, the costs were incurred to build the franchise and build the investment management business and we have no intention of going out of that business.

James Shanahan:

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And with regard to Fund III, could you estimate what percentage of the current portfolio could be run off by year-end ‘05 and year-end ‘06?

John Klopp:

No. These are mostly floating-rate assets and as a result they do not have a lot of call protection. That’s basically what this business is -- it’s selling to the borrower a fairly high degree of flexibility. As a result projecting precise timing of repayments is very difficult. We have a sense of how that will roll but in terms of producing predictions at this point in time, we just do not think that makes a lot of sense.

James Shanahan:

What are the scheduled repayments in the portfolio by year-end ‘06? What percentage of the current portfolio is scheduled to repay?

John Klopp:

In terms of contractual maturity?

James Shanahan:

Yes.

Steve Plavin:

Most of those loans were five-year loans including extension provisions that were originated between the spring of ‘03 and the summer of ‘05. So those loans, in general, have a lot of remaining available term. In most cases, the call protection has been eliminated so the borrower basically has the option to prepay the loan anytime between now and its final maturity. Again, there are no real significant final maturities in that portfolio for another 18 months to 2 years.

James Shanahan:

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And you’ve been very patient. But I would like to ask one more question here. It looks like in the fund management business, historically; you’ve allocated about 85% or so of your G&A to that business. How does that allocation methodology change as you de-emphasize that business?

Geoffrey Jervis:

We allocate a portion of our expenses into our taxable REIT subsidiary. Our taxable REIT subsidiary not only manages our investment management vehicles but also manages our balance sheet. So we do not view any change in the allocation of expenses into CTIMCO, our taxable REIT subsidiary.

James Shanahan:

Thank you gentlemen.

Conference Coordinator:

Again, if you have a question, please press the star and 1 on your touchtone phone. There are no more questions at this time. That concludes the Capital Trust Third Quarter 2005 Conference Call.

A recorded replay of this call will be available from noon on - today through midnight, November 15. The Replay Call Number is 1-800-753-0348 or 402-220-2672 for international callers.

John Klopp:

Thank you all.

END