Edgar Filing: RECKSON ASSOCIATES REALTY CORP

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

COMMISSION FILE NUMBER: 1-13762

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RECKSON ASSOCIATES REALTY CORP.
(Exact name of registrant as specified in its charter)

MARYLAND 11-3233650
(State or other jurisdiction of incorporation (IRS Employer Identification Number)
or organization)

225 BROADHOLLOW ROAD, MELVILLE, NY 11747
(Address of principal executive office) (zip code)

(631) 694-6900
(Registrant's telephone number including area code)

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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) Yes X No __, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.

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The company has two classes of common stock, par value $.01 par value per
share, with 49,132,033 and 9,915,313 shares of Class A common stock and Class
B common stock outstanding, respectively as of August 12, 2002

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RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED JUNE 30, 2002

TABLE OF CONTENTS

INDEX PAGE
-------- -----

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
December 31, 2001 .................................................................... 2
Consolidated Statements of Income for the three and six months ended June 30, 2002 and
2001 (unaudited) ..................................................................... 3
Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and
2001 (unaudited) ..................................................................... 4
Notes to the Consolidated Financial Statements (unaudited) ........................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................... 29
Item 6. Exhibits and Reports on Form 8-K ..................................................... 33

PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................................................... 34
Item 2. Changes in Securities and Use of Proceeds ............................................ 34
Item 3. Defaults Upon Senior Securities ...................................................... 34
Item 4. Submission of Matters to a Vote of Securities Holders ................................ 34
Item 5. Other Information .................................................................... 34
SIGNATURES .................................................................................. 35

PART I -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

JUNE 30, DECEMBER 31,
2002 2001
--------------- ---------------
(UNAUDITED)

ASSETS:
Commercial real estate properties, at cost:
Land ....................................................................... $ 418,748 $ 408,837
Building and improvements .................................................. 2,405,072 2,328,374
Developments in progress:
Land ....................................................................... 90,229 69,365
Development costs .......................................................... 24,919 74,303
Furniture, fixtures and equipment ........................................... 7,791 7,725
----------- -----------
2,946,759 2,888,604
Less accumulated depreciation ............................................... (408,349) (361,960)
----------- -----------
2,538,410 2,526,644
Investments in real estate joint ventures ................................... 5,697 5,744
Investments in mortgage notes and notes receivable .......................... 55,368 56,234
Investments in service companies and affiliate loans and joint ventures ..... 79,178 79,184
Cash and cash equivalents ................................................... 39,389 121,975
Tenant receivables .......................................................... 11,511 9,633
Deferred rents receivable ................................................... 94,264 81,089
Prepaid expenses and other assets ........................................... 25,271 45,495
Contract and land deposits and pre-acquisition costs ........................ 101 3,782
Deferred leasing and loan costs ............................................. 64,811 64,438
----------- -----------
TOTAL ASSETS ................................................................ $ 2,914,000 $ 2,994,218
=========== ===========
LIABILITIES:
Mortgage notes payable ...................................................... $ 745,983 $ 751,077
Unsecured credit facility ................................................... 176,000 271,600
Senior unsecured notes ...................................................... 499,239 449,463
Accrued expenses and other liabilities ...................................... 77,919 87,683
Dividends and distributions payable ......................................... 33,199 32,988
----------- -----------
TOTAL LIABILITIES ........................................................... 1,532,340 1,592,811
----------- -----------
Minority partners' interests in consolidated partnerships ................... 243,286 242,698
Preferred unit interest in the operating partnership ........................ 19,662 30,965
Limited partners' minority interest in the operating partnership ............ 78,173 81,887
----------- -----------
341,121 355,550
----------- -----------
Commitments and contingencies ............................................... -- --

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 9,192,000 shares issued and outstanding .......... 92 92
Series B preferred stock, 2,000,000 shares issued and outstanding .......... 20 20
Common Stock, $.01 par value, 100,000,000 shares authorized Class A common
stock, 50,988,233 and 49,982,377 shares issued and
outstanding, respectively ................................................ 510 500
Class B common stock, 10,283,513 shares issued and outstanding ............. 103 103
Additional paid in capital ................................................. 1,039,814 1,045,142
----------- -----------
Total Stockholders' Equity ................................................. 1,040,539 1,045,857
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................. $ 2,914,000 $ 2,994,218
=========== ===========

(see accompanying notes to financial statements)

RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ -----------------------------
2002 2001 2002 2001
-------------- -------------- -------------- --------------

REVENUES:
Base rents ............................................. $ 109,528 $ 111,184 $ 216,697 $ 218,678
Tenant escalations and reimbursements .................. 14,099 14,165 29,435 30,110
Equity in earnings of real estate joint ventures and
service companies ..................................... 159 801 494 1,199
Interest income on mortgage notes and notes
receivable ............................................ 1,565 1,559 3,121 3,067
Gain on sales of real estate ........................... -- -- 537 --
Investment and other income ............................ 284 4,678 818 10,219
----------- ----------- ----------- -----------
TOTAL REVENUES ........................................ 125,635 132,387 251,102 263,273
----------- ----------- ----------- -----------
EXPENSES:
Property operating expenses ............................ 41,739 40,874 83,951 81,868
Marketing, general and administrative .................. 7,693 8,411 14,832 15,908
Interest ............................................... 22,124 23,562 43,120 47,193
Depreciation and amortization .......................... 28,031 27,172 54,167 50,693
----------- ----------- ----------- -----------
TOTAL EXPENSES ........................................ 99,587 100,019 196,070 195,662
----------- ----------- ----------- -----------
Income before minority interests and preferred
dividends and distributions ........................... 26,048 32,368 55,032 67,611
Minority partners' interests in consolidated
partnerships .......................................... (4,813) (4,065) (9,933) (9,820)
Distributions to preferred unit holders ................ (280) (461) (741) (1,121)
Limited partners' minority interest in the operating
partnership ........................................... (1,663) (2,616) (3,597) (5,331)
----------- ----------- ----------- -----------
Net Income ............................................. 19,292 25,226 40,761 51,339
Dividends to preferred shareholders .................... (5,487) (5,467) (10,974) (10,892)
----------- ----------- ----------- -----------
Net income available to common shareholders ............ $ 13,805 $ 19,759 $ 29,787 $ 40,447
=========== =========== =========== ===========
Net Income available to:
Class A common ........................................ $ 10,548 $ 15,109 $ 22,707 $ 30,417
Class B common ........................................ 3,257 4,650 7,080 10,030
----------- ----------- ----------- -----------
Total .................................................. $ 13,805 $ 19,759 $ 29,787 $ 40,447
=========== =========== =========== ===========
Basic net income per weighted average common share:
Class A common ........................................ $ .21 $ .32 $ .45 $ .66
=========== =========== =========== ===========
Class B common ........................................ $ .32 $ .45 $ .69 $ .98
=========== =========== =========== ===========
Basic weighted average common shares outstanding:
Class A common ........................................ 50,775,300 47,221,917 50,396,326 46,357,533
Class B common ........................................ 10,283,513 10,283,513 10,283,513 10,283,513
Diluted net income per weighted average common share:
Class A common ........................................ $ .21 $ .32 $ .45 $ .65
=========== =========== =========== ===========
Class B common ........................................ $ .22 $ .34 $ .49 $ .71
=========== =========== =========== ===========
Diluted weighted average common shares outstanding:
Class A common ........................................ 51,164,788 47,600,390 50,759,594 46,779,905
Class B common ........................................ 10,283,513 10,283,513 10,283,513 10,283,513

(see accompanying notes to financial statements)

RECKSON ASSOCIATES REALTY CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED AND IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
-----------------------------
2002 2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................... $ 40,761 $ 51,339
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ........................................... 54,167 50,693
Gain on sales of real estate ............................................ (537) --
Minority partners' interests in consolidated partnerships ............... 9,933 9,820
Limited partners' minority interest in the operating partnership ........ 3,597 5,331
Equity in earnings of real estate joint ventures and service
companies ............................................................. (494) (1,199)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Tenant receivables ...................................................... (1,878) 1,682
Real estate tax escrows ................................................. 288 (1,266)
Prepaid expenses and other assets ....................................... 20,389 (1,765)
Deferred rents receivable ............................................... (13,175) (22,150)
Accrued expenses and other liabilities .................................. (9,077) (437)
---------- ----------
Net cash provided by operating activities ............................... 103,974 92,048
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs ................. -- (1,343)
Additions to developments in progress ................................... (31,809) (5,252)
Proceeds from mortgage note receivable repayments ....................... 8 2,945
Investments in affiliate joint ventures ................................. -- (24,966)
Additions to commercial real estate properties .......................... (20,810) (87,982)
Additions to furniture, fixtures and equipment .......................... (64) (244)
Payment of leasing costs ................................................ (6,169) (5,998)
Proceeds from sales of real estate and marketable securities ............ 2,128 --
---------- ----------
Net cash used in investing activities ................................... (56,716) (122,840)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs ............ 6,014 1,331
Principal payments on secured borrowings ................................ (5,094) (73,801)
Payment of loan and equity issuance costs ............................... (990) (789)
Increase in investments in affiliate loans and service companies ........ -- (4,160)
Proceeds from issuance of senior unsecured notes ........................ 49,432 --
Proceeds from secured borrowings ........................................ -- 75,000
Proceeds from unsecured credit facility ................................. 45,000 118,000
Repayment of unsecured credit facility .................................. (140,600) --
Distributions to minority partners in consolidated partnerships ......... (9,559) (10,727)
Distributions to limited partners in the operating partnership .......... (6,364) (5,935)
Distributions to preferred unit holders ................................. (774) (1,195)
Dividends to common shareholders ........................................ (55,935) (47,530)
Dividends to preferred shareholders ..................................... (10,974) (10,850)
---------- ----------
Net cash (used in) provided by financing activities ..................... (129,844) 39,344
---------- ----------
Net (decrease) increase in cash and cash equivalents .................... (82,586) 8,552
Cash and cash equivalents at beginning of period ........................ 121,975 17,843
---------- ----------
Cash and cash equivalents at end of period .............................. $ 39,389 $ 26,395
========== ==========

(see accompanying notes to financial statements)

RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)

1. ORGANIZATION AND FORMATION OF THE COMPANY

Reckson Associates Realty Corp. (the "Company") is a self-administered and
self managed real estate investment trust ("REIT") engaged in the ownership,
management, operation, leasing and development of commercial real estate
properties, principally office and industrial buildings and also owns land for
future development (collectively, the "Properties") located in the New York
tri-state area (the "Tri-State Area").

The Company was incorporated in Maryland in September 1994. In June 1995,
the Company completed an initial public offering (the "IPO") and commenced
operations.

The Company became the sole general partner of Reckson Operating
Partnership, L.P. (the "Operating Partnership") by contributing substantially
all of the net proceeds of the IPO in exchange for an approximate 73% interest
in the Operating Partnership. All Properties acquired by the Company are held by
or through the Operating Partnership. In conjunction with the IPO, the Operating
Partnership executed various option and purchase agreements whereby it issued
common units of limited partnership interest in the Operating Partnership ("OP
Units") to certain continuing investors in exchange for (i) interests in certain
property partnerships, (ii) fee simple and leasehold interests in properties and
development land, (iii) certain other business assets and (iv) 100% of the
non-voting preferred stock of the management and construction companies. At June
30, 2002, the Company's ownership percentage in the Operating Partnership was
approximately 89.4%.

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at June 30, 2002
and December 31, 2001 and the results of their operations for the three and six
months ended June 30, 2002 and 2001, respectively, and, their cash flows for the
six months ended June 30, 2002 and 2001, respectively. The Operating
Partnership's investments in majority owned and/or controlled real estate joint
ventures are reflected in the accompanying financial statements on a
consolidated basis with a reduction for the minority partners' interest. The
Operating Partnership also invests in real estate joint ventures where it may
own less than a controlling interest. Such investments are reflected in the
accompanying financial statements on the equity method of accounting. The
operating results of the service companies currently conducted by Reckson
Management Group, Inc., RANY Management Group, Inc., Reckson Construction Group
New York, Inc. and Reckson Construction Group, Inc., in which the Operating
Partnership owns a 97% non-controlling interest are reflected in the
accompanying financial statements on the equity method of accounting. All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.

Minority partners' interests in consolidated partnerships represent a 49%
non-affiliated interest in RT Tri-State LLC, owner of an eight property suburban
office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of
a 575,000 square foot suburban office property and beginning December 21, 2001,
a 49% non-affiliated interest in Metropolitan 919 Third Avenue, LLC, owner of
the property located at 919 Third Avenue, New York, NY. Limited partners'
minority interest in the Operating Partnership was approximately 10.6% and 11.3%
at June 30, 2002 and 2001, respectively.

The accompanying interim unaudited financial statements have been prepared
by the Company's management pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosure
normally included in the financial statements prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") may have
been condensed or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the information
presented not misleading. The unaudited

financial statements as of June 30, 2002 and for the three and six month periods
ended June 30, 2002 and 2001 include, in the opinion of management, all
adjustments, consisting of normal recurring adjustments, necessary to present
fairly the financial information set forth herein. The results of operations for
the interim periods are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. These financial statements
should be read in conjunction with the Company's audited financial statements
and the notes thereto included in the Company's Form 10-K for the year ended
December 31, 2001.

The Company intends to qualify as a REIT under Sections 856 through 869 of
the Internal Revenue Code of 1986, as amended (the "Code"). As a REIT, the
Company will not generally be subject to corporate Federal income taxes as long
as it satisfies certain technical requirements of the Code relating to
composition of its income and assets and requirements relating to distributions
of taxable income to shareholders.

In October 2001, the Financial Accounting Standards Board ("FASB") issued
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". Statement No. 144 provides accounting guidance for financial
accounting and reporting for the impairment or disposal of long-lived assets.
Statement No. 144 supersedes Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of. It also
supersedes the accounting and reporting provisions of Accounting Principles
Board Opinion No. 30, Reporting the Results of Operations--Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions related to the disposal of a
segment of a business. The Company adopted Statement No. 144 on January 1,
2002. The adoption of this statement did not have a material effect on the
results of operations or the financial position of the Company.

Effective January 1, 2002 the Company has elected to follow FASB Statement
No. 123, "Accounting for Stock Based Compensation". Statement No.123 requires
the use of option valuation models which determine the fair value of the option
on the date of the grant. All future employee stock option grants will be
expensed over the options' vesting periods based on the fair value at the date
of the grant in accordance with Statement No. 123. The Company expects minimal
financial impact in the current year from the adoption of Statement No. 123. To
determine the fair value of the stock options granted, the Company intends to
use a Black-Scholes option pricing model. Historically, the Company had applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans and reported pro forma disclosures in its
Form 10-K filings by estimating the fair value of options issued and the related
expense in accordance with Statement No. 123. Accordingly, no compensation cost
had been recognized for its stock option plans in the past.

In April 2002, the FASB issued Statement No. 145, which rescinded
Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt".
Statement No. 145 is effective for fiscal years beginning after May 15, 2002.
The Company will adopt Statement No. 145 on January 1, 2003.

Certain prior period amounts have been reclassified to conform to the
current period presentation.

3. MORTGAGE NOTES PAYABLE

As of June 30, 2002, the Company had approximately $746.0 million of fixed
rate mortgage notes which mature at various times between 2004 and 2027. The
notes are secured by 21 properties with a net carrying value of approximately
$1.5 billion and have a weighted average interest rate of approximately 7.3%.

4. SENIOR UNSECURED NOTES

As of June 30, 2002, the Operating Partnership had outstanding
approximately $499.2 million (net of issuance discounts) of senior unsecured
notes (the "Senior Unsecured Notes"). The following table sets forth the
Operating Partnership's Senior Unsecured Notes and other related disclosures by
scheduled maturity date (dollars in thousands):

FACE COUPON
ISSUANCE AMOUNT RATE TERM MATURITY
------------------- ----------- ---------- ---------- ----------------

March 26, 1999 $ 100,000 7.40% 5 years March 15, 2004
June 17, 2002 $ 50,000 6.00% 5 years June 15, 2007
August 27, 1997 $ 150,000 7.20% 10 years August 28, 2007
March 26, 1999 $ 200,000 7.75% 10 years March 15, 2009

Interest on the Senior Unsecured Notes is payable semiannually with
principal and unpaid interest due on the scheduled maturity dates. In addition,
the Senior Unsecured Notes issued on March 26, 1999 and June 17, 2002 were
issued at aggregate discounts of $738,000 and $267,500, respectively. Such
discounts are being amortized over the term of the Senior Unsecured Notes to
which they relate.

On June 17, 2002, the Operating Partnership issued $50 million of 6% (6.13%
effective rate) senior unsecured notes. Net proceeds of approximately $49.4
million received from this issuance were used to repay outstanding borrowings
under the Company's unsecured credit facility.

5. UNSECURED CREDIT FACILITY

As of June 30, 2002, the Company had a three year $575 million unsecured
revolving credit facility (the "Credit Facility") from JPMorgan Chase Bank, as
administrative agent, UBS Warburg LLC as syndication agent and Deutsche Bank as
documentation agent. The Credit Facility matures in September 2003 and
borrowings under the Credit Facility are currently priced off LIBOR plus 105
basis points.

The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At June 30, 2002, the Company had availability under the Credit
Facility to borrow approximately an additional $400 million, subject to
compliance with certain financial covenants.

6. COMMERCIAL REAL ESTATE INVESTMENTS

As of June 30, 2002, the Company owned and operated 77 office properties
(inclusive of eleven office properties owned through joint ventures) comprising
approximately 13.8 million square feet, 102 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area.

542,000 square feet in the same office park in which this land is located. As of
June 30, 2002, the Company had invested approximately $115 million in these
developments in progress. Management has made subjective assessments as to the
value and recoverability of these investments based on current and proposed
development plans. The Company has capitalized approximately $5.4 million for
the six months ended June 30, 2002 related to real estate taxes, interest and
other carrying costs related to these developments in progress.

The Company also owns a 357,000 square foot office building in Orlando,
Florida. Additionally, the Company holds a $17.0 million interest in a note
receivable secured by a partnership interest in Omni Partners, L.P., owner of
the Omni, a 575,000 square foot Class A office property located in Uniondale, NY
and three other notes receivable aggregating $36.5 million which bear interest
at rates ranging from 10.5% to 12% per annum and are secured by a minority
partner's preferred unit interest in the Operating Partnership and certain real
property. As of June 30, 2002, management has made subjective assessments as to
the underlying security value on the Company's note receivable investments.
These assessments indicated an excess of market value over carrying value
related to the Company's note receivable investments.

The Company also owns a 60% non-controlling interest in a 172,000 square
foot office building located at 520 White Plains Road in White Plains, New York
(the "520JV"). As of June 30, 2002, the 520JV had total assets of $21.5 million,
a mortgage note payable of $12.8 million and other liabilities of $.9 million.
The Company's allocable share of the 520JV mortgage note payable is
approximately $7.7 million. In addition, the 520JV had total revenues of
$1,615,000 and total expenses of $1,637,000 for the six months ended June 30,
2002. The Company accounts for the 520JV under the equity method of accounting.
The 520JV contributed approximately $29,000 and $216,000 to the Company's equity
in earnings of real estate joint ventures for the six months ended June 30, 2002
and 2001, respectively.

On December 21, 2001, the Company formed a joint venture with the New York
State Teachers' Retirement System ("NYSTRS") whereby NYSTRS acquired a 49%
indirect interest in the property located at 919 Third Avenue, New York, NY for
$220.5 million which included $122.1 million of its proportionate share of
secured mortgage debt and approximately $98.4 million of cash which was then
distributed to the Company. On January 4, 2002, net proceeds from this sale were
used primarily to repay borrowings under the Credit Facility and for working
capital purposes.

In addition. On August 7, 2002, the Company sold an industrial property on
Long Island aggregating approximately 32,000 square feet for approximately $1.8
million. This property was sold to the sole tenant of the property through an
option contained in the tenant's lease. On August 8, 2002, the Company sold two
Class A office properties located in Westchester County, NY aggregating
approximately 157,000 square feet for approximately $18.5 million. Net proceeds
from the August 8th sale were used to repay borrowings under the Credit
Facility.

7. STOCKHOLDERS' EQUITY

An OP Unit and a share of Class A common stock have essentially the same
economic characteristics as they effectively share equally in the net income or
loss and distributions of the Operating Partnership. Subject to certain holding
periods OP Units may either be redeemed for cash or, at the election of the
Company, exchanged for shares of Class A common stock on a one-for-one basis.

On March 28, 2002, approximately 11,303 Series B preferred units of the
Operating Partnership, with a liquidation preference value of approximately
$11.3 million, were exchanged for 451,934 OP Units at a price of $25.01 per OP
Unit. In addition, during the three months ended June 30, 2002, 666,466 OP Units
were exchanged for an equal number of shares of the Company's Class A common
stock.

During May 2002, the Board of Directors of the Company declared the
following dividends on the Company's securities:

ANNUALIZED
DIVIDEND/ RECORD PAYMENT THREE MONTHS DIVIDEND/
SECURITY DISTRIBUTION DATE DATE ENDED DISTRIBUTION
-------------------------- -------------- --------------- --------------- --------------- -------------

Class A common stock $ .4246 July 5, 2002 July 17, 2002 June 30, 2002 $ 1.6984
Class B common stock $ .6471 July 15, 2002 July 31, 2002 July 31, 2002 $ 2.5884
Series A preferred stock $ .476563 July 15, 2002 July 31, 2002 July 31, 2002 $ 1.9063
Series B preferred stock $ .553125 July 15, 2002 July 31, 2002 July 31, 2002 $ 2.2125

On May 22, 2002, approximately $1.4 million of loans made to certain
executive officers to purchase the Company's common stock matured. The loans
were secured by 61,668 shares of the Company's Class A common stock. The loans
were satisfied by the executive officers with the 61,668 shares of Class A
common stock. The market value of these shares on May 22, 2002 was sufficient to
fully satisfy these loans and as such there was no financial impact to the
Company. The Company has subsequently retired these shares.

As of June 30, 2002, the Company had issued and outstanding 10,283,513
shares of Class B Exchangeable Common Stock, par value $.01 per share (the
"Class B common stock") and were entitled to receive an annual dividend of
$2.5968 per share. The dividend on the shares of Class B common stock is subject
to adjustment annually based on a formula which measures increases or decreases
in the Company's Funds From Operations, as defined, over a base year. On July
31, 2002, the annual dividend on the Class B common stock was decreased to
$2.5884 per share.

The shares of Class B common stock are exchangeable at any time, at the
option of the holder, into an equal number of shares of Class A common stock,
subject to customary antidilution adjustments. The Company, at its option, may
redeem any or all of the Class B common stock in exchange for an equal number of
shares of the Company's Class A common stock at any time following November 23,
2003.

The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class B common stock and/or
its Class A common stock. Transactions conducted on the New York Stock Exchange
will be effected in accordance with the safe harbor provisions of the Securities
Exchange Act of 1934 and may be terminated by the Company at any time.
Subsequent to June 30, 2002, the Company purchased 368,200 shares of Class B
common stock at an average price of $22.90 per Class B share and 1,856,200
shares of Class A common stock at an average price of $21.98 per Class A share
for an aggregate purchase price for both the Class A and Class B common stock of
approximately $49.2 million. Previously, under the Company's prior stock
buy-back program, the Company had purchased and retired 1,410,804 shares of
Class B common stock at an average price of $21.48 per Class B share and 61,704
shares of Class A common stock at an average price of $23.03 per Class A share
for an aggregate purchase price for both the Class A and Class B common stock of
approximately $31.7 million. In addition, the Board of Directors of the Company
has formed a pricing committee to consider purchases of up to $75 million of the
Company's outstanding preferred securities.

The Company currently has issued and outstanding 9,192,000 shares of 7.625%
Series A Convertible Cumulative Preferred Stock (the "Series A preferred
stock"). The Series A preferred stock is redeemable by the Company on or after
April 13, 2003 at a price of approximately $25.95 per share with such price
decreasing, at annual intervals, to $25.00 per share over a five year period. In
addition, the Series A preferred stock, at the option of the holder, is
convertible at any time into the Company's Class A common stock at a price of
$28.51 per share.

The Company currently has issued and outstanding two million shares of
Series B Convertible Cumulative Preferred Stock (the "Series B preferred
stock"). The Series B preferred stock is redeemable by the Company as follows:
(i) on or after March 2, 2002 to and including June 2, 2003, at an amount which
provides an annual rate of return with respect to such shares of 15%, (ii) on or

after June 3, 2003 to and including June 2, 2004, $25.50 per share and (iii) on
or after June 3, 2004 and thereafter, $25.00 per share. In addition, the Series
B preferred stock, at the option of the holder, is convertible at any time into
the Company's Class A common stock at a price of $26.05 per share. The Series B
preferred stock currently accumulates dividends at a rate of 8.85% per annum.

Basic net income per share on the Company's Class A common stock was
calculated using the weighted average number of shares outstanding of 50,775,300
and 47,221,917 for the three months ended June 30, 2002 and 2001, respectively
and 50,396,326 and 46,357,533 for the six months ended June 30, 2002 and 2001,
respectively.

Basic net income per share on the Company's Class B common stock was
calculated using the weighted average number of shares outstanding of 10,283,513
for the three and six month periods ended June 30, 2002 and 2001.

The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted net income per weighted average common
share and the computation of basic and diluted net income per weighted average
share for the Company's Class A common stock (in thousands except for earnings
per share data):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------

Numerator:
Income before dividends to preferred
shareholders and income allocated to Class
B shareholders ............................. $ 19,292 $ 25,226 $ 40,761 $ 51,339
Dividends to preferred shareholders .......... (5,487) (5,467) (10,974) (10,892)
Income allocated to Class B common
shareholders ............................... (3,257) (4,650) (7,080) (10,030)
-------- -------- --------- ---------
Numerator for basic and diluted net income per
Class A common share ......................... $ 10,548 $ 15,109 $ 22,707 $ 30,417
======== ======== ========= =========
Add back:
Denominator:
Denominator for basic net income per share
weighted average Class A common shares ..... 50,775 47,222 50,396 46,358
Effect of dilutive securities:
Common stock equivalents ................... 390 378 363 422
-------- -------- --------- ---------
Denominator for diluted net income per Class
A common share - adjusted weighted average
shares and assumed conversions ............... 51,165 47,600 50,759 46,780
======== ======== ========= =========
Basic net income per Class A common share:
Net income per Class A common share .......... $ .21 $ .32 $ .45 $ .66
======== ======== ========= =========
Diluted net income per Class A common share:
Diluted net income per Class A common
share ...................................... $ .21 $ .32 $ .45 $ .65
======== ======== ========= =========

The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted net income per weighted average common
share and the computation of basic and diluted net income per weighted average
share for the Company's Class B common stock (in thousands except for earnings
per share data):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------

Numerator:
Income before dividends to preferred
shareholders and income allocated to Class
A shareholders ............................. $ 19,292 $ 25,226 $ 40,761 $ 51,339
Dividends to preferred shareholders .......... (5,487) (5,467) (10,974) (10,892)
Income allocated to Class A common
shareholders ............................... (10,548) (15,109) (22,707) (30,417)
--------- --------- --------- ---------
Numerator for basic and diluted net income per
Class B common share ......................... 3,257 4,650 7,080 10,030
Add back:
Income allocated to Class A common
shareholders ............................... 10,548 15,109 22,707 30,417
Limited partner's minority interest in the
operating partnership ...................... 1,663 2,616 3,597 5,331
--------- --------- --------- ---------
Numerator for diluted net income per Class B
common share ................................. $ 15,468 $ 22,375 $ 33,384 $ 45,778
========= ========= ========= =========
Denominator:
Denominator for basic net income per share
weighted average Class B common shares ..... 10,284 10,284 10,284 10,284
Effect of dilutive securities:

Weighted average Class A common shares 46,358
outstanding ............................... 50,775 47,222 50,396
7,728
Weighted average OP Units outstanding ...... 7,500 7,763 7,504
Common stock equivalents ................... 390 378 363 422
--------- --------- --------- ---------
Denominator for diluted net income per Class
B common share - adjusted weighted average
shares and assumed conversions ............... 68,949 65,647 68,547 64,792
========= ========= ========= =========
Basic net income per Class B common share:

Net income per Class B common share .......... $ .32 $ .45 $ .69 $ .98
========= ========= ========= =========
Diluted net income per Class B common share:
Diluted net income per Class B common
share ...................................... $ .22 $ .34 $ .49 $ .71
========= ========= ========= =========

8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (IN THOUSANDS)

SIX MONTHS ENDED
JUNE 30,
-------------------------
2002 2001
----------- -----------

Cash paid during the period for interest ......... $ 45,817 $ 52,766
======== ========
Interest capitalized during the period ........... $ 4,406 $ 5,137
======== ========

9. SEGMENT DISCLOSURE

The Company owns all of the interests in its real estate properties by or
through the Operating Partnership. The Company's portfolio consists of Class A
office properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). The Company's portfolio also includes one
office property located in Orlando, Florida. The Company has Managing Directors
who report directly to the Co-Presidents and Chief Financial Officer who have
been identified as the Chief Operating Decision Makers due to their final
authority over resource allocation, decisions and performance assessment.

The Company does not consider (i) interest incurred on its Credit Facility
and Senior Unsecured Notes and (ii) the operating performance of the office
property located in Orlando, Florida as part of its Core Portfolio's property
operating performance for purposes of its component disclosure set forth below.

The following table sets forth the components of the Company's revenues and
expenses and other related disclosures for the three and six months ended June
30, 2002 and 2001 (in thousands):

THREE MONTHS ENDED
----------------------------------------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
----------------------------------------- ----------------------------------------------
CORE CONSOLIDATED CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
----------- -------------- ------------ ----------- ------------- -------------

REVENUES:
Base rents, tenant escalations and
reimbursements ....................... $ 121,517 $ 2,110 $ 123,627 $ 123,030 $ 2,319 $ 125,349
Equity in earnings of real estate
joint ventures and service
companies ............................ -- 159 159 -- 801 801
Other income .......................... 141 1,708 1,849 1,929 4,308 6,237
---------- ---------- ----------- ----------- --------- -----------
Total Revenues ........................ 121,658 3,977 125,635 124,959 7,428 132,387
---------- ---------- ----------- ----------- --------- -----------
EXPENSES:

Property operating expenses ........... 40,190 1,549 41,739 40,080 794 40,874
Marketing, general and
administrative ....................... 4,671 3,022 7,693 5,446 2,965 8,411
Interest .............................. 12,990 9,134 22,124 12,149 11,413 23,562
Depreciation and amortization ......... 25,831 2,200 28,031 25,096 2,076 27,172
---------- ---------- ----------- ----------- --------- -----------
Total Expenses ........................ 83,682 15,905 99,587 82,771 17,248 100,019
---------- ---------- ----------- ----------- --------- -----------
Income (loss) before minority
interests and preferred dividends
and distributions .................... $ 37,976 $ (11,928) $ 26,048 $ 42,188 $ (9,820) $ 32,368
========== ========== =========== =========== ========= ===========
Total assets .......................... $2,693,174 $ 220,826 $ 2,914,000 $ 2,691,989 $ 420,253 $ 3,112,242
========== ========== =========== =========== ========= ===========

SIX MONTHS ENDED
----------------------------------------------------------------------------------
JUNE 30, 2002 JUNE 30, 2001
----------------------------------------- ----------------------------------------
CORE CONSOLIDATED CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
----------- -------------- -------------- ----------- -------------- -------------

REVENUES:
Base rents, tenant escalations and
reimbursements ....................... $ 241,715 $ 4,417 $ 246,132 $ 243,752 $ 5,036 $ 248,788
Equity in earnings of real estate
joint ventures and service
companies ............................ -- 494 494 -- 1,199 1,199
Other income .......................... 1,093 3,383 4,476 2,478 10,808 13,286
--------- ---------- --------- --------- ---------- ---------
Total Revenues ........................ 242,808 8,294 251,102 246,230 17,043 263,273
--------- ---------- --------- --------- ---------- ---------
EXPENSES:
Property operating expenses ........... 81,610 2,341 83,951 80,434 1,434 81,868
Marketing, general and
administrative ....................... 9,275 5,557 14,832 10,070 5,838 15,908
Interest .............................. 25,954 17,166 43,120 25,055 22,138 47,193
Depreciation and amortization ......... 50,428 3,739 54,167 46,631 4,062 50,693
--------- ---------- --------- --------- ---------- ---------
Total Expenses ........................ 167,267 28,803 196,070 162,190 33,472 195,662
--------- ---------- --------- --------- ---------- ---------
Income (loss) before minority
interests and preferred dividends
and distributions .................... $ 75,541 $ (20,509) $ 55,032 $ 84,040 $ (16,429) $ 67,611
========= ========== ========= ========= ========== =========

10. RELATED PARTY TRANSACTIONS

and Reckson Construction Group, Inc. (collectively, the "Service Companies").
The Operating Partnership owns a 97% non-controlling interest in the Service
Companies. An entity which is substantially owned by certain Rechler family
members who are also executive officers of the Company owns a 3% controlling
interest in the Service Companies. During the six months ended June 30, 2002,
Reckson Construction Group, Inc. billed approximately $77,000 of market rate
services and Reckson Management Group, Inc. billed approximately $156,000 of
market rate management fees to certain properties in which certain Rechler
family members who are also executive officers maintain an equity interest.
These properties consist of five properties in which these officers had acquired
their interests prior to the initial public offering, but were not contributed
to the Company as part of the initial public offering (the "Option Properties").
At the initial public offering the Operating Partnership was granted ten year
options to acquire these interests at a price based upon an agreed upon formula.
In addition, for the six months ended June 30, 2002, Reckson Construction Group,
Inc. performed market rate services, aggregating approximately $200,000 for a
property in which certain executive officers maintain an equity interest.

The Company leases 43,713 square feet of office and storage space at an
Option Property for its corporate offices located in Melville, New York at an
annual base rent of approximately $1.1 million. The Company also leases 10,722
square feet of warehouse space used for equipment, materials and inventory
storage at an Option Property located in Deer Park, New York at an annual base
rent of approximately $72,000.

A company affiliated with an independent director of the Company, leases
15,566 square feet in a property owned by the Company at an annual base rent of
approximately $416,000. In addition, Reckson Strategic Venture Partners, LLC
("RSVP") leases 5,144 square feet in one of the Company's joint venture
properties at an annual base rent of approximately $170,000.

During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). RSVP is a real estate venture capital fund which invests primarily
in real estate and real estate operating companies outside the Company's core
office and industrial focus and whose common equity is held indirectly by
FrontLine. In connection with the formation and spin-off of FrontLine, the
Operating Partnership established an unsecured credit facility with FrontLine
(the "FrontLine Facility") in the amount of $100 million for FrontLine to use in
its investment activities, operations and other general corporate purposes. The
Company has advanced approximately $93.4 million under the FrontLine Facility.
The Operating Partnership also approved the funding of investments of up to $100
million relating to RSVP (the "RSVP Commitment"), through RSVP-controlled joint
ventures (for REIT-qualified investments) or advances made to FrontLine under an
unsecured loan facility (the "RSVP Facility") having terms similar to the
FrontLine Facility (advances made under the RSVP Facility and the FrontLine
Facility hereafter, the "FrontLine Loans"). During March 2001, the Company
increased the RSVP Commitment to $110 million and as of June 30, 2002,
approximately $109.1 million had been funded through the RSVP Commitment, of
which $59.8 million represents investments by the Company in RSVP-controlled
(REIT-qualified) joint ventures and $49.3 million represents loans made to
FrontLine under the RSVP Facility. As of June 30, 2002, interest accrued (net of
reserves) under the FrontLine Facility and the RSVP Facility was approximately
$19.6 million. RSVP retained the services of two managing directors to manage
RSVP's day to day operations. Prior to the spin off of Frontline, the Company
guaranteed certain salary provisions of their employment agreements with RSVP
Holdings, LLC, RSVP's common member. The term of these employment agreements is
seven years commencing March 5, 1998 provided however, the term may be earlier
terminated after five years upon certain circumstances. The salary for each
managing director is $1 million in the first five years and $1.6 million in
years six and seven.

At June 30, 2001, the Company assessed the recoverability of the FrontLine
Loans and reserved approximately $3.5 million of the interest accrued during the
three-month period then ended. In addition, the Company formed a committee of
its Board of Directors, comprised solely of independent directors, to consider
any actions to be taken by the Company in connection with the FrontLine Loans
and its investments in joint ventures with RSVP. During the third quarter of
2001, the Company noted a significant deterioration in FrontLine's operations
and financial condition and, based on its assessment of value and recoverability
and considering the findings and recommendations of the committee and its
financial advisor, the Company recorded a $163 million valuation reserve charge,
inclusive of anticipated costs, in its consolidated statements of operations
relating to its investments in the FrontLine Loans and joint ventures with RSVP.
The Company has discontinued the accrual of interest income with respect to the
FrontLine Loans. The Company has also reserved against its share of GAAP equity
in earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.

At December 31, 2001, the Company, pursuant to Section 166 of the Code
charged off $70 million of the aforementioned reserve directly related to the
FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off an additional $38 million of the reserve directly related to
the FrontLine Facility, including accrued interest and $47 million of the
reserve directly related to the RSVP Facility, including accrued interest.

FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code.

As a result of the foregoing, the net carrying value of the Company's
investments in the FrontLine Loans and joint venture investments with RSVP,
inclusive of the Company's share of previously accrued GAAP equity in earnings
on those investments, is approximately $65 million which was reassessed with no
change by management as of June 30, 2002. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet. The common and preferred members of RSVP
are currently in dispute over certain provisions of the RSVP operating
agreement. The members are currently negotiating to restructure the RSVP
operating agreement to settle the dispute. There can be no assurances that the
members will successfully negotiate a settlement.

Both the FrontLine Facility and the RSVP Facility have terms of five years,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve,

under the terms of the credit facilities, interest accrued on the FrontLine
Loans at a rate equal to the greater of (a) the prime rate plus two percent and
(b) 12% per annum, with the rate on amounts that were outstanding for more than
one year increasing annually at a rate of four percent of the prior year's rate.
In March 2001, the credit facilities were amended to provide that (i) interest
is payable only at maturity and (ii) the Company may transfer all or any portion
of its rights or obligations under the credit facilities to its affiliates. The
Company requested these changes as a result of changes in REIT tax laws. As a
result of FrontLine's default under the FrontLine Loans, interest on borrowings
thereunder accrue at default rates ranging between 13% and 14.5% per annum.

In November 1999, the Company received 176,186 shares of the common stock
of FrontLine as fees in connection with the FrontLine Loans. As a result of
certain tax rule provisions included in the REIT Modernization Act, it was
determined that the Company could no longer maintain any equity position in
FrontLine. As part of a compensation program, the Company distributed these
shares to certain non-executive employees, subject to recourse loans. The loans
were scheduled to be forgiven over time based on continued employment with the
Company. Based on the current value of FrontLine's common stock, the Company has
established a valuation reserve charge relating to the outstanding balance of
these loans in the amount of $2.4 million.

11. COMMITMENTS AND CONTINGENCIES

HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates nine (formerly eleven) executive office centers in the Company's
properties, three of which are held through joint ventures. The leases under
which these office centers operate expire between 2008 and 2011, encompass
approximately 225,000 square feet and have current contractual annual base rents
of approximately $6.7 million. On March 13, 2002, as a result of experiencing
financial difficulties, HQ voluntarily filed a petition for relief under Chapter
11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases with the
Company were in default. Further, effective March 13, 2002, the Bankruptcy Court
granted HQ's petition to reject two of its leases with the Company. The two
rejected leases aggregated approximately 23,900 square feet and provided for
contractual base rents of approximately $548,000 for the 2002 calendar year.
Commencing April 1, 2002 and pursuant to the bankruptcy filing, HQ has been
paying current rental charges under its leases with the Company, other than
under the two rejected leases. The Company is in negotiation to restructure
three of the leases and leave the terms of the remaining six leases unchanged.
All negotations with HQ are conducted by a committee designated by the Board and
chaired by an independent director. There can be no assurance as to whether any
deal will be consummated with HQ or if HQ will affirm or reject any or all of
its remaining leases with the Company. As a result of the foregoing, the Company
has reserved approximately $500,000 (net of minority partners' interests and
including the Company's share of unconsolidated joint venture interest), or 74%,
of the amounts due from HQ as of June 30, 2002.

WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leases as of June 30, 2002 approximately 547,000 square feet in fifteen of
the Company's properties located throughout the Tri-State Area voluntarily filed
a petition for relief under Chapter 11 of the U.S. Bankruptcy Code on July 21,
2002. The total annualized base rental revenue from these leases amounts to
approximately $12.3 million, or 2.8% of the Company's total 2002 annualized
rental revenue, making it the Company's second largest tenant based on base
rental revenue earned on a consolidated basis. All of WorldCom's leases are
current on base rental charges through July 31, 2002 and the Company currently
holds approximately $300,000 in security deposits relating to these leases.
There can be no assurance as to whether WorldCom will affirm or reject any or
all of its leases with the Company. As a result of the foregoing, the Company
has increased its reserve against the deferred rent receivable on its balance
sheet at June 30, 2002 in an amount equal to $1.1 million representing
approximately 51% of the outstanding deferred rent receivable attributable to
WorldCom.

contractual base rent of approximately $25 per square foot amounting to $2.8
million per calendar year and expired in May 2010. In July 2002, the Bankruptcy
Court granted MetroMedia's petition to restructure and reduce space under its
existing lease. As a result, the lease was amended to reduce MetroMedia's space
by 80,357 square feet to 31,718 square feet. Annual base rent on the 31,718
square feet MetroMedia will continue to lease is $25 per square foot amounting
to approximately $793,000 per annum. Further, pursuant to the Bankruptcy Court
order MetroMedia is required to pay to the Company a surrender fee of
approximately $1.8 million. As a result of the foregoing, at June 30, 2002, the
Company has written off approximately $388,000 of deferred rent receivable
relating to this lease and recognized the aforementioned surrender fee.

Arthur Andersen, LLP ("AA") leases approximately 38,000 square feet in one
of the Company's New York City buildings. AA's lease with the Company provides
for base rent of approximately $2 million on an annualized basis and expires in
April 2004. AA is current on all rental charges through July 31, 2002. AA has
experienced significant financial difficulties with its business and there is
uncertainty as to whether it will remain in its space for the duration of its
lease term. As of June 30, 2002, the Company has reserved 100% of the deferred
rent receivable related to this lease which is approximately $140,000.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements of Reckson Associates Realty
Corp. (the "Company") and related notes thereto.

The Company considers certain statements set forth herein to be
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, with respect to the Company's expectations for future periods.
Certain forward-looking statements, including, without limitation, statements
relating to the timing and success of acquisitions and the completion of
development or redevelopment of properties, the financing of the Company's
operations, the ability to lease vacant space and the ability to renew or relet
space under expiring leases, involve risks and uncertainties. Although the
Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Company can give no assurance that its expectation will be achieved. Among those
risks, trends and uncertainties are: the general economic climate, including the
conditions affecting industries in which our principal tenants compete; changes
in the supply of and demand for office and industrial properties in the New York
Tri-State area; changes in interest rate levels; downturns in rental rate levels
in our markets and our ability to lease or release space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; credit to our tenants, changes in operating costs, including
utility, security and insurance costs; repayment of debt owed to the Company by
third parties (including FrontLine Capital Group); risks associated with joint
ventures; and other risks associated with the development and acquisition of
properties, including risks that development may not be completed on schedule,
that the tenants will not take occupancy or pay rent, or that development or
operating costs may be greater than anticipated. Consequently, such
forward-looking statements should be regarded solely as reflections of the
Company's current operating and development plans and estimates. These plans and
estimates are subject to revisions from time to time as additional information
becomes available, and actual results may differ from those indicated in the
referenced statements.

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements of the Company include accounts of the
Company and all majority-owned subsidiaries. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States ("GAAP") requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the Company's consolidated
financial statements and related notes. In preparing these financial statements,
management has utilized information available including its past history,
industry standards and the current economic environment among other factors in
forming its estimates and judgments of certain amounts included in the
consolidated financial statements, giving due consideration to materiality. It
is possible that the ultimate outcome as anticipated by management in
formulating its estimates inherent in these financial statements may not
materialize. However, application of the critical accounting policies below
involves the exercise of judgment and use of assumptions as to future
uncertainties and, as a result, actual results could differ from these
estimates. In addition, other companies may utilize different estimates, which
may impact comparability of the Company's results of operations to those of
companies in similar businesses.

Revenue Recognition and Accounts Receivable

Rental revenue is recognized on a straight line basis, which averages
minimum rents over the terms of the leases. The excess of rents recognized over
amounts contractually due are included in deferred rents receivable on the
Company's balance sheets. The leases also typically provide for tenant
reimbursements of common area maintenance and other operating expenses and real
estate taxes. Ancillary and other property related income is recognized in the
period earned.

The Company makes estimates of the collectibility of its tenant accounts
receivables related to base rents, tenant escalations and reimbursements and
other revenue or income. The Company specifically analyzes tenant receivables
and analyzes historical bad debts, customer credit worthiness, current economic
trends, changes in customer payment terms, publicly available information and to
the extent available, guidance provided by the tenant when evaluating the
adequacy of its allowance for doubtful accounts. In addition, when tenants are
in bankruptcy the Company makes estimates of the expected recovery of
pre-petition administrative and damage claims. In some cases, the ultimate
resolution of those claims can exceed a year. These estimates have a direct
impact on the Company's net income because a higher bad debt reserve results in
less net income.

During the six months ended June 30, 2002, the Company incurred
approximately $3.5 million of bad debt expense related to tenant receivables and
deferred rents receivable which accordingly reduced total revenues and reported
net income during the period.

The Company records interest income on investments in mortgage notes and
notes receivable on an accrual basis of accounting. The Company does not accrue
interest on impaired loans where, in the judgment of management, collection of
interest according to the contractual terms is considered doubtful. Among the
factors the Company considers in making an evaluation of the collectibility of
interest are: (i) the status of the loan, (ii) the value of the underlying
collateral, (iii) the financial condition of the borrower and (iv) anticipated
future events.

Gain on sales of real estate are recorded when title is conveyed to the
buyer, subject to the buyer's financial commitment being sufficient to provide
economic substance to the sale.

Real Estate

Land, buildings and improvements, furniture, fixtures and equipment are
recorded at cost. Tenant improvements, which are included in buildings and
improvements, are also stated at cost. Expenditures for maintenance and repairs
are charged to operations as incurred. Renovations and/or replacements, which
improve or extend the life of the asset are capitalized and depreciated over
their estimated useful lives.

Depreciation is computed utilizing the straight-line method over the
estimated useful lives of ten to thirty years for buildings and improvements and
five to ten years for furniture, fixtures and equipment. Tenant improvements are
amortized on a straight-line basis over the term of the related leases.

The Company is required to make subjective assessments as to the useful
lives of its properties for purposes of determining the amount of depreciation
to reflect on an annual basis with respect to those properties. These
assessments have a direct impact on the Company's net income. Should the Company
lengthen the expected useful life of a particular asset, it would be depreciated
over more years and result in less depreciation expense and higher annual net
income.

Assessment by the Company of certain other lease related costs must be made
when the Company has a reason to believe that the tenant will not be able to
execute under the term of the lease as originally expected.

Long Lived Assets

On a periodic basis, management assesses whether there are any indicators
that the value of the real estate properties may be impaired. A property's value
is impaired only if management's estimate of the aggregate future cash flows
(undiscounted and without interest charges) to be generated by the property are
less than the carrying value of the property. Such cash flows consider factors
such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other factors. To the extent impairment has
occurred, the loss will be measured as the excess of the carrying amount of the
property over the fair value of the property.

The Company is required to make subjective assessments as to whether there
are impairments in the value of its real estate properties and other
investments. These assessments have a direct impact on the Company's net income
because recognizing an impairment results in an immediate negative adjustment to
net income. In determining impairment, if any, the Company has adopted Financial
Accounting Standards Board Statement No. 144, "Accounting for the Impairment or
Disposal of Long Lived Assets."

OVERVIEW AND BACKGROUND

The Company is a self-administered and self-managed real estate investment
trust ("REIT") specializing in the acquisition, leasing, financing, management
and development of office and industrial properties. The Company's growth
strategy is focused on the real estate markets in and around the New York
tri-state area (the "Tri-State Area").

The Company owns all of the interests in its real properties through
Reckson Operating Partnership, L.P. (the "Operating Partnership"). As of June
30, 2002, the Company owned and operated 77 office properties (inclusive of
eleven office properties which are owned through joint ventures) comprising
approximately 13.8 million square feet, 102 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area.

The Company also owns approximately 254 acres of land in 12 separate
parcels of which the Company can develop approximately two million square feet
of office space and approximately 450,000 square feet of industrial space. On
April 1, 2002, the Company paid approximately $23.8 million to acquire an
additional 52.7 acres of land located in Valhalla, NY on which the Company can
develop approximately 875,000 square feet of office space. The Company currently
owns and operates three buildings encompassing approximately 700,000 square feet
in the same office park in which this land is located. The Company financed this
acquisition in part from the sales proceeds of an office property being held by
a qualified intermediary for the purposes of an exchange of real property
pursuant to Section 1031 of the Internal Revenue Code of 1986 and from an
advance under the Company's unsecured credit facility. In addition, the Company
owns a 32 acre land parcel in Rye Brook, NY which is under contract for sale for
approximately $22.3 million. The sale of this land is subject to certain
rezoning and other municipal approvals. At this time it is undetermined whether
these approvals or rezoning will be obtained and the sale closed. The Company
currently owns and operates six buildings encompassing approximately 542,000
square feet in the same office park in which this land is located. As of June
30, 2002, the Company had invested approximately $115 million in these
developments in progress. Management has made subjective assessments as to the
value and recoverability of these investments based on current and proposed
development plans. The Company has capitalized approximately $5.4 million for
the six months ended June 30, 2002 related to real estate taxes, interest and
other carrying costs related to these developments in progress.

The Company also owns a 357,000 square foot office building in Orlando,
Florida. Additionally, the Company holds a $17.0 million interest in a note
receivable secured by a partnership interest in Omni Partners, L.P., owner of
the Omni, a 575,000 square foot Class A office property located in Uniondale, NY
and three other notes receivable aggregating $36.5 which bear interest at rates
ranging from 10.5% to 12% per annum and are secured by a minority partner's
preferred unit interest in the Operating Partnership and certain real property.
As of June 30, 2002, management has made subjective assessments as to the
underlying security value on the Company's note receivable investments. These
assessments indicated an excess of market value over carrying value related to
the Company's note receivable investments.

As part of the Company's REIT structure it is provided management, leasing
and construction related services through taxable REIT subsidiaries as defined
by the Code. These services are currently provided by Reckson Management Group,
Inc., RANY Management Group, Inc., Reckson Construction Group New York, Inc.,
and Reckson Construction Group, Inc. (collectively, the "Service Companies").
The Operating Partnership owns a 97% non-controlling interest in the Service
Companies. An entity which is substantially owned by certain Rechler family
members who are also executive officers of the Company owns a 3% controlling
interest in the Service Companies. During the six months ended June 30, 2002,
Reckson Construction Group, Inc. billed approximately $77,000 of market rate
services and Reckson Management Group, Inc. billed approximately $156,000 of
market rate management fees to certain properties in which certain Rechler
family members who are also executive officers maintain an equity interest.
These properties consist of five properties in which these officers had acquired
their interests prior to the initial public offering, but were not contributed
to the Company as part of the initial public offering (the "Option Properties").
At the initial public offering the Operating Partnership was granted ten year
options to acquire these interests at a price based upon an agreed upon formula.
In addition, for the six months ended June 30, 2002, Reckson Construction Group,
Inc. performed market rate services, aggregating approximately $200,000 for a
property in which certain executive officers maintain an equity interest.

The Company leases 43,713 square feet of office and storage space at an Option
Property for its corporate offices located in Melville, New York at an annual
base rent of approximately $1.1 million. The Company also leases 10,722 square
feet of warehouse space used for equipment, materials and inventory storage at
an Option Property located in Deer Park, New York at an annual base rent of
approximately $72,000.

A company affiliated with an independent director of the Company, leases 15,566
square feet in a property owned by the Company at an annual base rent of
approximately $416,000. In addition, Reckson Strategic Venture Partners, LLC
("RSVP") leases 5,144 square feet in one of the Company's joint venture
properties at an annual base rent of approximately $170,000.

During July 1998, the Company formed Metropolitan Partners, LLC
("Metropolitan") for the purpose of acquiring Class A office properties in New
York City. Currently the Company owns, through Metropolitan, five Class A office
properties aggregating approximately 3.5 million square feet.

During September 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
eight Class A suburban office properties aggregating approximately 1.5 million
square feet to the Tri-State JV for a 51% majority ownership interest. TIAA
contributed approximately $136 million for a 49% interest in the Tri-State JV
which was then distributed to the Company. For purposes of its financial
statements the Company consolidates this joint venture.

On December 21, 2001, the Company formed a joint venture with the New York
State Teachers' Retirement Systems ("NYSTRS") whereby NYSTRS acquired a 49%
indirect interest in the property located at 919 Third Avenue, New York, NY for
$220.5 million which included $122.1 million of its proportionate share of
secured mortgage debt and approximately $98.4 million of cash which was then
distributed to the Company. For purposes of its financial statements the Company
consolidates this joint venture.

The total market capitalization of the Company at June 30, 2002 was
approximately $3.3 billion. The Company's total market capitalization is based
on the sum of (i) the market value of the Company's Class A common stock and
common units of limited partnership interest in the Operating Partnership ("OP
Units") (assuming conversion) of $24.90 per share/unit (based on the closing
price of the Company's Class A common stock on June 28, 2002), (ii) the market
value of the Company's Class B common stock of $25.50 per share (based on the
closing price of the Company's Class B common stock on June 28, 2002), (iii) the
liquidation preference value of the Company's Series A preferred stock and
Series B preferred stock of $25 per share, (iv) the liquidation preference value
of the Operating Partnership's preferred units of $1,000 per unit and (v) the
approximately $1.3 billion (including its share of joint venture debt and net of
minority partners' interests share of joint venture debt) of debt outstanding at
June 30, 2002. As a result, the Company's total debt to total market
capitalization ratio at June 30, 2002 equaled approximately 39.0%.

the Company noted a significant deterioration in FrontLine's operations and
financial condition and, based on its assessment of value and recoverability and
considering the findings and recommendations of the committee and its financial
advisor, the Company recorded a $163 million valuation reserve charge, inclusive
of anticipated costs, in its consolidated statements of operations relating to
its investments in the FrontLine Loans and joint ventures with RSVP. The Company
has discontinued the accrual of interest income with respect to the FrontLine
Loans. The Company has also reserved against its share of GAAP equity in
earnings from the RSVP controlled joint ventures funded through the RSVP
Commitment until such income is realized through cash distributions.

FrontLine is in default under the FrontLine Loans from the Operating
Partnership and on June 12, 2002, filed a voluntary petition for relief under
Chapter 11 of the United States Bankruptcy Code.

Both the FrontLine Facility and the RSVP Facility have terms of five years,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrued on the FrontLine Loans at a rate equal to the greater of (a)
the prime rate plus two percent and (b) 12% per annum, with the rate on amounts
that were outstanding for more than one year increasing annually at a rate of
four percent of the prior year's rate. In March 2001, the credit facilities were
amended to provide that (i) interest is payable only at maturity and (ii) the
Company may transfer all or any portion of its rights or obligations under the
credit facilities to its affiliates. The Company requested these changes as a
result of changes in REIT tax laws. As a result of FrontLine's default under the
FrontLine Loans, interest on borrowings thereunder accrue at default rates
ranging between 13% and 14.5% per annum.

RESULTS OF OPERATIONS

Three months ended June 30, 2002 as compared to the three months ended June 30,
2001.

The Company's total revenues decreased by $6.8 million or 5.1% for the
three months ended June 30, 2002 as compared to the 2001 period. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") decreased by $1.7 million or 1.4%
for the three months ended June 30, 2002 as compared to the 2001 period. The
change in Property Operating Revenues is attributable to increases in rental
rates in our "same store" properties amounting to $9.1 million. In addition,
Property Operating Revenues increased by $0.8 million attributable to lease up
of newly developed and redeveloped properties. These increases in Property
Operating Revenues were offset by $4.4 million of operating revenue attributable
to six properties that were sold in 2001. The Company's Property Operating
Revenues was further effected by the impact of the straightline rent adjustment
of $4.4 million for the three months ended June 30,

2002 as compared to $10.9 million for the 2001 period. Straightline rent for the
three months ended June 30, 2002 was decreased by $1.8 million for bad debt
reserves. This decrease of $6.5 million is primarily attributable to the
property located at 919 Third Avenue for the free rent period, which was
effective through February 28, 2002, contained in the lease of the largest
tenant in the building. Other revenues (excluding Property Operating Revenues)
decreased by $5.0 million or 71.5% for the three months ended June 30, 2002 as
compared to the 2001 period. This decrease is primarily attributable to $4.6
million of interest income accrued on the FrontLine Loans during the 2001 period
with no such comparable interest earned for the 2002 period.

Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $0.9 million or 2.1% for the three months ended June 30,
2002 as compared to the 2001 period. This increase includes a $1.5 million
increase in property operating expenses and a $1.1 million increase in real
estate taxes related to our "same-store" properties. Included in the $1.5
million of property operations expense increase is $500,000 and $350,000
attributable to increases in security and insurance costs respectively. These
increases result primarily from implications of September 11th and security cost
increases primarily relate to our New York City properties. These increases in
Property Expenses were offset by $1.7 million of expenses attributable to six
properties that were sold in 2001.

Gross Operating Margins (defined as Property Operating Revenues less
Property Expenses, taken as a percentage of Property Operating Revenues) for the
three months ended June 30, 2002 and 2001 were 66.2% and 67.4%, respectively.
The decrease in Gross Operating Margins is primarily attributable to decreases
in average occupancy of the portfolio and also as a result of an increase in
reserves on deferred rents receivable which reduced property operating revenues
for the three months ended June 30, 2002.

Marketing, general and administrative expenses decreased by approximately
$718,000 or 8.5% for the three months ended June 30, 2002 as compared to the
2001 period. The decrease in marketing, general and administrative expenses is
primarily due to staff reduction, cost containment and reduction in legal and
professional fees incurred during the 2001 period in connection with certain
cancelled acquisition transactions. Marketing, general and administrative
expenses, as a percentage of total revenues, were 6.1% for the three months
ended June 30, 2002 as compared to 6.4% for the 2001 period. The Company
capitalized approximately $1.3 million of marketing, general and administrative
expenses for the three months ended June 30, 2002 as compared to $1.2 million
for the 2001 period. These costs relate to leasing, construction and development
activities, which are performed by the Company.

Interest expense decreased by approximately $1.4 million for the three
months ended June 30, 2002 as compared to the 2001 period. The decrease was
primarily attributable to a decrease in interest expense on the Company's
variable rate debt due to lower interest rates and a lower average balance
outstanding on the Company's unsecured credit facility. The weighted average
balance outstanding was $218.1 million for the three months ended June 30, 2002
as compared to $323.2 million for the three months ended June 30, 2001.

Six months ended June 30, 2002 as compared to the six months ended June 30,
2001.

The Company's total revenues decreased by $12.2 million or 4.6% for the six
months ended June 30, 2002 as compared to the 2001 period. Property Operating
Revenues decreased by $2.6 million or 1.1% for the six months ended June 30,
2002 as compared to the 2001 period. The change in Property Operating Revenues
is attributable to increases in rental rates in our "same store" properties
amounting to $13.9 million. In addition, Property Operating Revenues increased
by $3.0 million attributable to lease up of newly developed and redeveloped
properties. These increases in Property Operating Revenues were offset by $9.3
million of revenue attributable to six properties that were sold in 2001. The
Company's property operating revenues was further effected by the impact of the
straightline rent adjustment of $13.0 million for the six months ended June 30,
2002 as compared to $22.0 million for the 2001 period. This decrease of $9.0
million is primarily attributable to the property located at 919 Third Avenue
for the free rent period, which was effective through February 28, 2002,
contained in the lease of the largest tenant in the building. Straightline rent
for the six

months ended June 30, 2002 was decreased by $2.5 million for bad debt reserves.
Other revenues (excluding Property Operating Revenues) decreased by $9.5 million
or 65.7% for the six months ended June 30, 2002 as compared to the 2001 period.
This decrease is primarily attributable to $6.1 million of interest income
accrued on the FrontLine Loans during the 2001 period with no such comparable
interest accrual for the 2002 period.

Property Expenses increased by $2.1 million or 2.5% for the six months
ended June 30, 2002 as compared to the 2001 period. This increase is primarily
due to a $2.0 million increase in property operating expenses and a $2.2 million
increase in real estate taxes related to our "same store" properties. Included
in the $2.0 million increase in property operating expenses is $850,000 and
$470,000 attributable to increases in security and insurance costs,
respectively. The increases result primarily from implications of September 11th
and security cost increases primarily relate to our New York City properties. In
addition, Property Expenses increased by $0.8 million attributable to the lease
up of newly developed and redeveloped properties. These increases in Property
Expenses were offset by $3.3 million of expenses attributable to six properties
that were sold in 2001.

Gross Operating Margins for the six months ended June 30, 2002 and 2001
were 65.9% and 67.1%, respectively. The decrease in Gross Operating Margins is
primarily attributable to decreases in average occupancy of the portfolio and
also as a result of an increase in reserves on deferred rents receivable.

Marketing, general and administrative expenses decreased by approximately
$1.1 million or 6.8% for the six months ended June 30, 2002 as compared to the
2001 period. The decrease in marketing, general and administrative expenses is
primarily due to staff reduction, cost containment and reduction in legal and
professional fess incurred during the 2001 period in connection with certain
cancelled acquisition transactions. Marketing, general and administrative
expenses, as a percentage of total revenues, were 5.9% for the six months ended
June 30, 2002 as compared to 6.0% for the 2001 period. The Company capitalized
approximately $2.6 million of marketing, general and administrative expenses for
the six months ended June 30, 2002 as compared to $2.4 million for the 2001
period. These costs relate to leasing, construction and development activities,
which are performed by the Company.

Interest expense decreased by approximately $4.1 million for the six months
ended June 30, 2002 as compared to the 2001 period. The decrease was primarily
attributable to a decrease in interest expense on the Company's variable rate
debt due to lower interest rates and a lower average balance outstanding on the
Company's unsecured credit facility. The weighted average balance outstanding
was $211.8 million for the six months ended June 30, 2002 as compared to $289.0
million for the six months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

On March 28, 2002, approximately 11,303 Series B preferred units of limited
partnership interest in the Operating Partnership, with a liquidation preference
value of approximately $11.3 million, were exchanged for 451,934 OP Units at a
price of $25.01 per OP Unit. In addition, during the three months ended June 30,
2002, 666,466 OP Units were exchanged for an equal number of shares of the
Company's Class A common stock.

On June 17, 2002, the Operating Partnership issued $50 million of 6% (6.13%
effective rate) senior unsecured notes due June 15, 2007. Net proceeds of
approximately $49.4 million were used to repay outstanding borrowings under the
Credit Facility.

On August 7, 2002, the Company sold an industrial property on Long Island
aggregating approximately 32,000 square feet for approximately $1.8 million.
This property was sold to the sole tenant of the property through an option
contained in the tenant's lease. On August 8, 2002, the Company sold two Class A
office properties located in Westchester County, NY aggregating approximately
157,000 square feet for approximately $18.5 million. Net proceeds from the
August 8th sale were used to repay borrowings under the Credit Facility.

The following table sets forth the Company's invested capital (before
valuation reserves) in RSVP controlled (REIT-qualified) joint ventures and
amounts which were advanced under the RSVP Commitment to FrontLine, for its
investment in RSVP controlled investments (in thousands):

RSVP CONTROLLED
JOINT VENTURES AMOUNTS ADVANCED TOTAL
---------------- ------------------ ----------

Privatization $21,480 $ 3,520 $ 25,000
Student Housing 18,086 3,935 22,021
Medical Offices 20,185 -- 20,185
Parking -- 9,091 9,091
Resorts -- 8,057 8,057
Net leased retail -- 3,180 3,180
Other assets and overhead -- 21,598 21,598
------- ------- --------
$59,751 $49,381 $109,132
======= ======= ========

Included in these investments is approximately $17.5 million of cash that
has been contributed to the respective RSVP controlled joint ventures or
advanced under the RSVP Commitment to FrontLine and is being held, along with
cash from the preferred investors.

As of June 30, 2002, the Company has issued and outstanding 10,283,513
shares of Class B Exchangeable Common Stock, par value $.01 per share (the
"Class B common stock") and were entitled to receive an annual dividend of
$2.5968 per share. The dividend on the shares of Class B common stock is subject
to adjustment annually based on a formula which measures increases or decreases
in the Company's Funds From Operations ("FFO"), as defined, over a base year. On
July 31, 2002, the annual dividend on the Class B common stock was decreased to
$2.5884 per share.

The Board of Directors of the Company has authorized the purchase of up to
an additional five million shares of the Company's Class B common stock and/or
its Class A common stock. Transactions conducted on the New York Stock Exchange
will be effected in accordance with the safe harbor provisions of the Securities
Exchange Act of 1934 and may be terminated by the Company at any time.
Subsequent to June 30, 2002, the Company purchased 368,200 shares of Class B
common stock at an average price of $22.90 per Class B share and 1,856,200
shares of Class A common stock at an average price of $21.98 per Class A share
for an aggregate purchase price for both Class A and Class B common stock of
approximately $49.2 million. Previously, under the Company's prior stock
buy-back program, the Company purchased and retired 1,410,804 shares of Class B
common stock at an average price of $21.48 per Class B share and 61,704 shares
of Class A common stock at an average price of $23.03 per Class A share for an
aggregate purchase price for both the Class A and Class B common stock of
approximately $31.7 million. In addition, the Board of Directors of the Company
has formed a pricing committee to consider purchases of up to $75 million of the
Company's outstanding preferred securities.

shares of Class A common stock. The market value of these shares on May 22, 2002
was sufficient to fully satisfy these loans and as such there was no financial
impact to the Company. The Company has subsequently retired these shares.

The Company also owns a 60% non-controlling interest in a 172,000 square
foot office building located at 520 White Plains Road in White Plains, New York
(the "520JV"). As of June 30, 2002, the 520JV had total assets of $21.5 million,
a mortgage note payable of $12.8 million and other liabilities of $.9 million.
The Company's allocable share of the 520JV mortgage note payable is
approximately $7.7 million. In addition the 520JV had total revenues of
$1,615,000 and total expenses of $1,637,000 for the six months ended June 30,
2002. The Company accounts for the 520JV under the equity method of accounting,
The 520JV contributed approximately $29,000 and $216,000 to the Company's equity
in earnings of real estate joint ventures for the six months ended June 30, 2002
and 2001, respectively.

Effective January 1, 2002 the Company has elected to follow FASB Statement
No. 123, "Accounting for Stock Based Compensation." Statement No. 123 requires
the use of option valuation models which determine the fair value of the option
on the date of the grant. All future employee stock option grants will be
expensed over the options' vesting periods based on the fair value at the date
of the grant in accordance with Statement No. 123. The Company expects minimal
financial impact in the current year from the adoption of Statement No. 123. To
determine the fair value of the stock options granted, the Company intends to
use a Black-Scholes option pricing model. Historically, the Company had applied
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans and had reported pro forma disclosures in
its Form 10-K filings by estimating the fair value of options issued and the
related expense in accordance with Statement No. 123. Accordingly, no
compensation cost had been recognized for its stock option plans in the past.

The Company's indebtedness at June 30, 2002 totaled approximately $1.3
billion (including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) and was comprised of $176 million
outstanding under the Credit Facility, approximately $499.2 million of senior
unsecured notes and approximately $610.4 million of mortgage indebtedness. Based
on the Company's total market capitalization of approximately $3.3 billion at
June 30, 2002 (calculated based on the sum of (i) the market value of the
Company's Class A common stock and OP Units, assuming conversion, (ii) the
market value of the Company's Class B common stock, (iii) the liquidation
preference value of the Company's preferred stock, (iv) the liquidation
preference value of the Operating Partnership's preferred units and (v) the $1.3
billion of debt), the Company's debt represented approximately 39.0% of its
total market capitalization.

HQ Global Workplaces, Inc. ("HQ"), one of the largest providers of flexible
officing solutions in the world and which is controlled by FrontLine, currently
operates nine (formerly eleven) executive office centers in the Company's
properties, three of which are held through joint ventures. The leases under
which these office centers operate expire between 2008 and 2011, encompass
approximately 225,000 square feet and have current contractual annual base rents
of approximately $6.7 million. On March 13, 2002, as a result of experiencing
financial difficulties, HQ voluntarily filed a petition for relief under Chapter
11 of the U.S. Bankruptcy Code. As of June 30, 2002, HQ's leases with the
Company were in default. Further, effective March 13, 2002, the Bankruptcy Court
granted HQ's petition to reject two of its leases with the Company. The two
rejected leases aggregated approximately 23,900 square feet and provided for
contractual base rents of approximately $548,000 for the 2002 calendar year.
Commencing April 1, 2002 and pursuant to the bankruptcy filing, HQ has been
paying current rental charges under its leases with the Company, other than
under the two rejected leases. The Company is in negotiations to restructure
three of the leases and leave the terms of the remaining six leases unchanged.
All negotiations with HQ are conducted by a committee designated by the Board
and chaired by an independent director. There can be no assurance as to whether
any deal will be consummated with HQ or if HQ will affirm or reject any or all
of its remaining leases with the Company. As a result of the foregoing, the
Company has reserved approximately $500,000 (net of minority partners' interests
and including the Company's share of unconsolidated joint venture interest), or
74%, of the amounts due from HQ as of June 30, 2002.

MetroMedia Fiber Network Services, Inc. ("MetroMedia"), which leases
approximately 112,000 square feet in one property from the Company, voluntarily
filed a petition for relief under Chapter 11 of the U.S. Bankruptcy Code in May
2002. MetroMedia's lease with the Company provided for contractual base rent of
approximately $25 per square foot amounting to $2.8 million per calendar year
and expired in May 2010. In July 2002, the Bankruptcy Court granted MetroMedia's
petition to restructure and reduce space under its existing lease. As a result,
the lease was amended to reduce MetroMedia's space by 80,357 square feet to
31,718 square feet. Annual base rent on the 31,718 square feet MetroMedia will
continue to lease is $25 per square foot amounting to approximately $793,000 per
annum. Further, pursuant to the Bankruptcy Court order MetroMedia is required to
pay to the Company a surrender fee of approximately $1.8 million. As a result of
the foregoing, at June 30, 2002, the Company has written off approximately
$388,000 of deferred rent receivable relating to this lease and recognized the
aforementioned surrender fee.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table sets forth the Company's significant debt obligations
by scheduled principal cash flow payments and maturity date and its commercial
commitments by scheduled maturity at June 30, 2002 (in thousands):

MATURITY DATE
-------------------------------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ---------- ------------ --------------

Mortgage notes payable (1) $ 5,965 $ 12,300 $ 13,169 $14,167 $ 13,785 $128,700 $ 188,086
Mortgage notes payable (2) -- -- 2,616 18,553 129,920 406,808 557,897
Senior unsecured notes -- -- 100,000 -- -- 400,000 500,000
Unsecured credit facility -- 176,000 -- -- -- -- 176,000
Land lease obligations 1,331 2,687 2,811 2,814 2,795 49,921 62,359
Air rights lease obligations 187 369 379 379 379 4,659 6,352
------- -------- -------- ------- -------- -------- -----------
$ 7,483 $191,356 $118,975 $35,913 $146,879 $990,088 $ 1,490,694
======= ======== ======== ======= ======== ======== ===========

----------------
(1) Scheduled principal amortization payments
(2) Principal payments due at maturity

Certain of the mortgage notes payable are guaranteed by certain limited
partners in the Operating Partnership and/or the Company. In addition,
consistent with customary practices in non-recourse lending, certain
non-recourse mortgages may be recourse to the Company under certain limited
circumstances including environmental issues and breaches of material
representations.

In addition, at June 30, 2002, the Company had approximately $1.0 million
in outstanding undrawn standby letters of credit issued under the Credit
Facility which expire in 2003.

Thirteen of the Company's office properties and two of the Company's
industrial properties which were acquired by the issuance of OP Units are
subject to agreements limiting the Company's ability to transfer them prior to
agreed upon dates without the consent of the limited partner who transferred the
respective property to the Company. In the event the Company transfers any of
these properties prior to the expiration of these limitations, the Company may
be required to make a payment relating to taxes incurred by the limited partner.
The limitations on nine of the properties expire prior to June 30, 2003. The
limitations on the remaining properties expire between 2007 and 2013.

Eleven of the Company's office properties are held in joint ventures which
contain certain limitations on transfer. These limitations include requiring the
consent of the joint venture partner to transfer a property prior to various
specified dates ranging from 2003 to 2005, rights of first offer, and buy/sell
provisions.

Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and capital expenditures, excluding
non-recurring capital expenditures of the Company. The Company expects to meet
its short-term liquidity requirements generally through its net cash provided by
operating activities along with the Credit Facility previously discussed. The
Credit Facility contains several financial covenants with which the Company must
be in compliance in order to borrow funds thereunder. The Company expects to
meet certain of its financing requirements through long-term secured and
unsecured borrowings and the issuance of debt and equity securities of the
Company. There can be no assurance that there will be adequate demand for the
Company's equity at the time or at the price in which the Company desires to
raise capital through the sale of additional equity. In addition, the Company
also believes that it will, from time to time, generate funds from the
disposition of certain of its real estate properties or interests therein. The
Company will refinance existing mortgage indebtedness or indebtedness under the
Credit Facility at maturity or retire such debt through the issuance of
additional debt securities or additional equity securities. The Company
anticipates that the current balance of cash and cash equivalents and cash flows
from operating activities, together with cash available from borrowings and
equity offerings, will be adequate to meet the capital and liquidity
requirements of the Company in both the short and long-term.

The Company is subject to federal, state and local laws and regulations
relating to the protection of the environment, which may require a current or
previous owner or operator of real estate to investigate and clean up hazardous
or toxic substances or petroleum product releases at a property. An owner of
real estate is liable for the costs of removal or remediation of certain
hazardous or toxic substances on or in the property. These laws often impose
such liability without regard to whether the owner knew of, or caused, the
presence of the contaminants. Clean-up costs and the owner's liability generally
are not limited under the enactments and could exceed the value of the property
and/or the aggregate assets of the owner. The presence of, or the failure to
properly remediate, the substances may adversely affect the owner's ability to
sell or rent the property or to borrow using the property as collateral.

As a result of current economic conditions, certain tenants have either not
renewed their leases upon expiration or have paid the Company to terminate their
leases. In addition, a number of U.S. companies have filed for protection under
federal bankruptcy laws. Certain of these companies are tenants of the Company.
The Company is subject to the risk that other companies that are tenants of the
Company may file for bankruptcy protection. This may have an adverse impact on
the financial results and condition of the Company. In addition, vacancy rates
in our markets have been trending higher and in some instances our asking rents
in our markets have been trending lower and landlords are being required to
grant greater concessions such as free rent and tenant improvements.
Additionally, the Company carries comprehensive liability, fire, extended
coverage and rental loss insurance on all of its properties. Five of the
Company's properties are located in New York City. As a result of the events of
September 11, 2001, insurance companies are limiting and/or excluding coverage
for acts of terrorism in all risk policies. The Company's current insurance
coverage provides for full replacement cost of its properties, except that the
coverage for acts of terrorism on its properties covers losses in an amount up
to $100 million per occurrence (except for one property which has an additional
aggregate $150 million of coverage). As a result, the Company may suffer losses
from acts of terrorism that are not covered by insurance. In addition, the
mortgage loans which are secured by certain of the Company's properties contain
customary covenants, including covenants that require the Company to maintain
property insurance in an amount equal to replacement cost of the properties.
There can be no assurance that the lenders under these mortgage loans will not
take the position that exclusions from the Company's coverage for losses due to
terrorist acts is a breach of a covenant which, if uncured, could allow the
lenders to declare an event of default and accelerate repayment of the mortgage
loans. Other outstanding debt instruments contain standard cross default
provisions that would be triggered in the event of an acceleration of the
mortgage loans. This matter could adversely affect the Company's financial
results, its ability to finance and/or refinance its properties or to buy or
sell properties.

In order to qualify as a REIT for federal income tax purposes, the Company
is required to make distributions to its stockholders of at least 90% of REIT
taxable income. The Company expects to use its cash flow from operating
activities for distributions to stockholders and for payment of recurring,
non-incremental revenue-generating expenditures. The Company intends to invest
amounts accumulated for distribution in short-term investments.

INFLATION

The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses and electric costs over a
base amount. The industrial leases generally provide for fixed base rent
increases, direct pass through of certain operating expenses and separate real
estate tax escalations over a base amount. The Company believes that
inflationary increases in expenses will be offset by contractual rent increases
and expense escalations described above. To the extent the Company's properties
contain vacant space, the Company will bear such inflationary increases in
expenses.

The Credit Facility bears interest at a variable rate, which will be
influenced by changes in short-term interest rates, and is sensitive to
inflation.

FUNDS FROM OPERATIONS

Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss,
excluding gains or losses from debt restructuring and sales of properties plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with accounting principles generally accepted
in the United States and is not indicative of cash available to fund cash needs.
FFO should not be considered as an alternative to net income, as an indicator of
the Company's operating performance or as an alternative to cash flow as a
measure of liquidity.

Since all companies and analysts do not calculate FFO in a similar fashion,
the Company's calculation of FFO presented herein may not be comparable to
similarly titled measures as reported by other companies.

The following table presents the Company's FFO calculation (unaudited and
in thousands, except per share/unit data):

THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------

Net income available to common shareholders .............................. $ 13,805 $ 19,759 $ 29,787 $ 40,447
Adjustments for basic funds from operations:
Add:
Limited partners' minority interest in the operating partnership ...... 1,663 2,616 3,597 5,331
Real estate depreciation and amortization ............................. 27,041 26,727 52,362 49,715
Minority partners' interests in consolidated partnerships ............. 4,813 4,065 9,933 9,820
Less:
Gain on sales of real estate partnerships ............................. -- -- 537 --
Amounts distributable to minority partners in consolidated
partnerships ......................................................... 6,329 5,104 12,893 10,805
-------- -------- -------- ---------
Basic Funds From Operations ("FFO") ...................................... 40,993 48,063 82,249 94,508
Add:
Dividends and distributions on dilutive shares and units .............. 5,767 6,958 11,715 14,637
-------- -------- -------- ---------
Diluted FFO ............................................................. $ 46,760 $ 55,021 $ 93,964 $ 109,145
======== ======== ======== =========
Weighted average common shares outstanding ............................... 61,059 57,505 60,680 56,641
Weighted average units of limited partnership interest outstanding ....... 7,500 7,763 7,504 7,728
-------- -------- -------- ---------
Basic weighted average common shares and units outstanding ............... 68,559 65,268 68,184 64,369
Adjustments for dilutive FFO weighted average shares and units
outstanding:
Add:
Weighted average common stock equivalents ............................. 390 378 363 422
Weighted average shares of Series A Preferred Stock ................... 8,060 8,060 8,060 8,060
Weighted average shares of Series B Preferred Stock ................... 1,919 1,919 1,919 1,919
Weighted average shares of minority partners preferred interest ....... -- 2,277 -- 2,862
Weighted average shares of preferred limited partnership interest ..... 661 1,127 834 1,246
-------- -------- -------- ---------
Dilutive FFO weighted average shares and units outstanding ............... 79,589 79,029 79,360 78,878
======== ======== ======== =========

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The primary market risk facing the Company is interest rate risk on its
long term debt, mortgage notes and notes receivable. The Company will, when
advantageous, hedge its interest rate risk using financial instruments. The
Company is not subject to foreign currency risk.

The Company manages its exposure to interest rate risk on its variable rate
indebtedness by borrowing on a short-term basis under its Credit Facility until
such time as it is able to retire the short-term variable rate debt with either
a long-term fixed rate debt offering, long term mortgage debt, equity offerings
or through sales or partial sales of assets.

The Company will recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges will be adjusted to fair value through
income. If a derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of the derivative will either be offset against the
change in fair value of the hedged asset, liability, or firm commitment through
earnings, or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings. As of June 30, 2002, the
Company had no derivatives outstanding.

The fair market value ("FMV") of the Company's long term debt, mortgage
notes and notes receivable is estimated based on discounting future cash flows
at interest rates that management believes reflect the risks associated with
long term debt, mortgage notes and notes receivable of similar risk and
duration.

The following table sets forth the Company's long term debt obligations by
scheduled principal cash flow payments and maturity date, weighted average
interest rates and estimated FMV at June 30, 2002 (dollars in thousands):

FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2002 2003 2004 2005 2006
------------ ------------- -------------- ------------- --------------

Long term debt:
Fixed rate ......................... $ 5,965 $ 12,300 $ 115,785 $ 32,720 $ 143,705
Weighted average interest rate ..... 7.49% 7.51% 7.47% 6.92% 7.38%
Variable rate ...................... $ -- $ 176,000 $ -- $ -- $ --
Weighted average interest rate ..... -- 2.97% -- -- --

THEREAFTER TOTAL(1) FMV
-------------- ---------------- --------------

Long term debt:
Fixed rate ......................... $ 935,508 $ 1,245,983 $ 1,265,746
Weighted average interest rate ..... 7.27% 7.30%
Variable rate ...................... $ -- $ 176,000 $ 176,000
Weighted average interest rate ..... -- 2.97%

----------------
(1) Includes aggregate unamortized issuance discounts of approximately $761 on
the senior unsecured notes issued during March 1999 and June 2002, which are
due at maturity.

In addition, a one percent increase in the LIBOR rate would have an
approximate $1.8 million annual increase in interest expense based on $176
million of variable rate debt outstanding at June 30, 2002.

The following table sets forth the Company's mortgage notes and note
receivables by scheduled maturity date, weighted average interest rates and
estimated FMV at June 30, 2002 (dollars in thousands):

FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
2002 2003 2004 2005 2006 THEREAFTER TOTAL(1) FMV
------------ ------ ------------- ------ ------ ------------ ------------- -----------

Mortgage notes and notes
receivable:
Fixed rate .......................... $ 1,157 $ -- $ 36,500 $ -- $ -- $ 16,990 $ 54,647 $ 55,867
Weighted average interest rate ..... 9.0% -- 10.23% -- -- 11.92% 10.73%

----------------
(1) Excludes interest receivables aggregating approximately $721.

NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES,
TENANT IMPROVEMENT COSTS AND LEASING COMMISSIONS

The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Company's office and industrial properties
for the years 1998 through 2001 and the six months ended June 30, 2002.

NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES

AVERAGE
1998 1999 2000 2001 1998-2001 2002
--------------- --------------- --------------- --------------- --------------- ---------------

SUBURBAN OFFICE PROPERTIES
Total ................... $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 4,606,069 $ 3,049,765 $ 2,325,404
Per Square Foot ......... 0.23 0.23 0.33 0.45 0.31 $ 0.23
NYC OFFICE PROPERTIES
Total ................... N/A N/A $ 946,718 $ 1,584,501 $ 1,265,610 $ 828,596
Per Square Foot ......... N/A N/A 0.38 0.45 0.42 $ 0.24
INDUSTRIAL PROPERTIES
Total ................... $ 1,205,266 $ 1,048,688 $ 813,431 $ 711,666 $ 944,763 $ 437,208
Per Square Foot ......... 0.12 0.11 0.11 0.11 0.11 $ 0.07

NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS

1998 1999 2000
--------------- --------------- ---------------

LONG ISLAND OFFICE PROPERTIES
Tenant Improvements .............. $1,140,251 $1,009,357 $2,853,706
Per Square Foot Improved ......... 3.98 4.73 6.99
Leasing Commissions .............. $ 418,191 $ 551,762 $2,208,604
Per Square Foot Leased ........... 1.46 2.59 4.96
---------- ---------- -----------
Total Per Square Foot ............ $ 5.44 $ 7.32 $ 11.95
========== ========== ===========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements .............. $ 711,160 $1,316,611 $1,860,027
Per Square Foot Improved ......... 4.45 5.62 5.72
Leasing Commissions .............. $ 286,150 $ 457,730 $ 412,226
Per Square Foot Leased ........... 1.79 1.96 3.00
---------- ---------- -----------
Total Per Square Foot ............ $ 6.24 $ 7.58 $ 8.72
========== ========== ===========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements .............. $ 202,880 $ 179,043 $ 385,531
Per Square Foot Improved ......... 5.92 4.88 4.19
Leasing Commissions .............. $ 151,063 $ 110,252 $ 453,435
Per Square Foot Leased ........... 4.41 3.00 4.92
---------- ---------- -----------
Total Per Square Foot ............ $ 10.33 $ 7.88 $ 9.11
========== ========== ===========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements .............. $ 654,877 $ 454,054 $1,580,323
Per Square Foot Improved ......... 3.78 2.29 6.71
Leasing Commissions .............. $ 396,127 $ 787,065 $1,031,950
Per Square Foot Leased ........... 2.08 3.96 4.44
---------- ---------- -----------
Total Per Square Foot ............ $ 5.86 $ 6.25 $ 11.15
========== ========== ===========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements .............. N/A N/A $ 65,267
Per Square Foot Improved ......... N/A N/A 1.79
Leasing Commissions .............. N/A N/A $ 418,185
Per Square Foot Leased ........... N/A N/A 11.50
---------- ---------- -----------
Total Per Square Foot ............ N/A N/A $ 13.29
========== ========== ===========
INDUSTRIAL PROPERTIES
Tenant Improvements .............. $ 283,842 $ 375,646 $ 650,216
Per Square Foot Improved ......... 0.76 0.25 0.95
Leasing Commissions .............. $ 200,154 $ 835,108 $ 436,506
Per Square Foot Leased ........... 0.44 0.56 0.64
---------- ---------- -----------
Total Per Square Foot ............ $ 1.20 $ 0.81 $ 1.59
========== ========== ===========

AVERAGE
2001 1998-2001 2002 NEW RENEWAL
--------------- --------------- -------------- -------------- -------------

LONG ISLAND OFFICE PROPERTIES
Tenant Improvements .............. $2,722,457 $1,931,443 $ 817,925 $ 470,774 $347,151
Per Square Foot Improved ......... 8.47 6.04 5.33 10.51 3.20
Leasing Commissions .............. $1,444,412 $1,155,742 $ 661,559 $ 253,957 $407,602
Per Square Foot Leased ........... 4.49 3.38 4.31 5.67 3.75
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 12.96 $ 9.42 9.63 $ 16.18 $ 6.95
=========== =========== =========== ========== =========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements .............. $2,584,728 $1,618,132 $1,200,380 $ 967,886 $232,494
Per Square Foot Improved ......... 5.91 5.43 7.59 11.53 3.13
Leasing Commissions .............. $1,263,012 $ 604,780 $ 513,884 $ 357,295 $156,589
Per Square Foot Leased ........... 2.89 2.41 3.25 4.26 2.11
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 8.80 $ 7.84 $ 10.84 $ 15.79 $ 5.24
=========== =========== =========== ========== =========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements .............. $ 213,909 $ 245,341 $ 385,999 $ 384,279 $ 1,720
Per Square Foot Improved ......... 1.46 4.11 8.86 9.34 0.71
Leasing Commissions .............. $ 209,322 $ 231,018 $ 101,574 $ 101,574 $ 0
Per Square Foot Leased ........... 1.43 3.44 2.33 2.47 --
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 2.89 $ 7.55 $ 11.19 $ 11.81 0.71
=========== =========== =========== ========== =========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements .............. $1,146,385 $ 958,910 $ 624,731 $ 336,076 $288,655
Per Square Foot Improved ......... 2.92 3.93 10.22 19.80 6.54
Leasing Commissions .............. $1,602,962 $ 954,526 $ 330,520 $ 127,681 $202,839
Per Square Foot Leased ........... 4.08 3.64 5.13 6.30 4.60
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 7.00 $ 7.57 $ 15.35 $ 26.10 $ 11.14
=========== =========== =========== ========== =========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements .............. $ 788,930 $ 427,099 $2,074,924 $1,348,436 $726,488
Per Square Foot Improved ......... 15.69 8.74 20.23 20.47 19.82
Leasing Commissions .............. $1,098,829 $ 758,507 $ 816,045 $ 389,781 $426,264
Per Square Foot Leased ........... 21.86 16.68 7.96 5.92 11.63
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 37.55 $ 25.42 $ 28.19 26.39 $ 31.44
=========== =========== =========== ========== =========
INDUSTRIAL PROPERTIES
Tenant Improvements .............. $1,366,488 $ 669,048 $ 743,640 $ 672,728 $ 70,912
Per Square Foot Improved ......... 1.65 0.90 1.56 3.71 --
Leasing Commissions .............. $ 354,572 $ 456,585 $ 330,391 $ 289,591 $ 40,800
Per Square Foot Leased ........... 0.43 0.52 0.69 1.60 0.14
----------- ----------- ----------- ---------- ---------
Total Per Square Foot ............ $ 2.08 $ 1.42 $ 2.25 5.32 $ 0.14
=========== =========== =========== ========== =========

LEASE EXPIRATION SCHEDULE

The following table sets forth scheduled lease expirations for executed
leases as of June 30, 2002:

LONG ISLAND OFFICE (EXCLUDING OMNI)

NUMBER OF SQUARE % OF TOTAL CUMULATIVE EXPIRING EXPIRING
YEAR OF LEASES FEET LEASED % OF TOTAL GAAP CASH
EXPIRATION EXPIRING EXPIRING SQ FT LEASED SQ FT RENT (1) RENT (2)
---------------------------- ----------- ------------ ------------ -------------- ---------- -----------

2002 ....................... 17 66,399 2.1% 2.1% $ 23.83 $ 26.06
2003 ....................... 50 319,071 10.0% 12.1% $ 24.48 $ 26.72
2004 ....................... 49 301,455 9.5% 21.6% $ 21.75 $ 24.38
2005 ....................... 71 396,191 12.5% 34.0% $ 24.95 $ 27.66
2006 ....................... 44 169,206 5.3% 39.4% $ 25.18 $ 28.45
2007 ....................... 36 423,707 13.3% 52.7% $ 24.60 $ 30.25
2008 AND THEREAFTER ........ 81 1,505,191 47.3% 100.0% -- --
-- --------- -----
TOTAL/WEIGHTED AVERAGE ..... 348 3,181,220 100.0% -- -- --
=== ========= =====

OMNI

NUMBER OF SQUARE % OF TOTAL CUMULATIVE EXPIRING EXPIRING
YEAR OF LEASES FEET LEASED % OF TOTAL GAAP CASH
EXPIRATION EXPIRING EXPIRING SQ FT LEASED SQ FT RENT (1) RENT (2)
---------------------------- ----------- ---------- ------------ -------------- ---------- -----------

2002 ....................... 2 34,975 6.3% 6.3% $ 28.02 $ 33.80
2003 ....................... 3 49,793 9.0% 15.4% $ 29.54 $ 35.16
2004 ....................... 5 113,793 20.6% 36.0% $ 27.29 $ 34.79
2005 ....................... 4 43,780 7.9% 43.9% $ 28.24 $ 35.42
2006 ....................... 0 -- 0.0% 43.9% -- --
2007 ....................... 2 59,722 10.8% 54.7% $ 26.78 $ 34.41
2008 AND THEREAFTER ........ 12 250,112 45.3% 100.0% -- --
-- ------- -----
TOTAL/WEIGHTED AVERAGE ..... 28 552,175 100.0% -- -- --
== ======= =====

WESTCHESTER OFFICE

2002 ....................... 24 172,220 5.7% 5.7% $ 21.16 $ 22.28
2003 ....................... 46 242,271 8.0% 13.7% $ 22.17 $ 23.82
2004 ....................... 38 177,296 5.9% 19.6% $ 21.50 $ 22.52
2005 ....................... 51 465,316 15.4% 35.0% $ 22.62 $ 23.91
2006 ....................... 40 720,326 23.8% 58.8% $ 22.69 $ 24.55
2007 ....................... 33 425,732 14.1% 72.9% $ 25.36 $ 27.15
2008 AND THEREAFTER ........ 35 819,145 27.1% 100.0% -- --
-- ------- -----
TOTAL/WEIGHTED AVERAGE ..... 267 3,022,306 100.0% -- -- --
=== ========= =====

LEASE EXPIRATION SCHEDULE - (CONTINUED )

STAMFORD OFFICE

2002 ....................... 13 32,118 3.0% 3.0% $ 24.53 $ 25.96
2003 ....................... 20 145,085 13.6% 16.6% $ 30.97 $ 31.81
2004 ....................... 28 236,570 22.2% 38.9% $ 22.02 $ 23.08
2005 ....................... 24 123,864 11.6% 50.5% $ 26.41 $ 28.18
2006 ....................... 24 291,313 27.4% 77.9% $ 24.22 $ 25.11
2007 ....................... 10 94,890 8.9% 86.8% $ 32.04 $ 34.41
2008 AND THEREAFTER ........ 9 140,729 13.2% 100.0% -- --
-- ------- -----
TOTAL/WEIGHTED AVERAGE ..... 128 1,064,569 100.0% -- -- --
=== ========= =====

NEW JERSEY OFFICE

2002 ....................... 8 81,618 4.4% 4.4% $ 21.13 $ 21.64
2003 ....................... 20 319,328 17.2% 21.5% $ 27.16 $ 28.22
2004 ....................... 28 206,608 11.1% 32.6% $ 23.08 $ 23.91
2005 ....................... 27 272,784 14.7% 47.3% $ 23.83 $ 24.84
2006 ....................... 16 181,060 9.7% 57.0% $ 24.48 $ 26.12
2007 ....................... 5 57,237 3.1% 60.1% $ 21.25 $ 23.18
2008 AND THEREAFTER ........ 20 743,082 39.9% 100.0% -- --
-- ------- -----
TOTAL/WEIGHTED AVERAGE ..... 124 1,861,717 100.0% -- -- --
=== ========= =====

NEW YORK CITY OFFICE

2002 ....................... 10 122,367 3.6% 3.6% $ 43.61 $ 40.26
2003 ....................... 7 114,987 3.4% 6.9% $ 32.10 $ 33.65
2004 ....................... 20 223,677 6.5% 13.5% $ 36.54 $ 39.89
2005 ....................... 34 451,470 13.2% 26.7% $ 36.30 $ 38.34
2006 ....................... 54 346,402 10.1% 36.8% $ 30.29 $ 31.95
2007 ....................... 12 126,083 3.7% 40.5% $ 34.66 $ 37.35
2008 AND THEREAFTER ........ 88 2,034,773 59.5% 100.0% -- --
-- --------- -----
TOTAL/WEIGHTED AVERAGE ..... 225 3,419,759 100.0% -- -- --
=== ========= =====

LEASE EXPIRATION SCHEDULE - (CONTINUED)

INDUSTRIAL

2002 ....................... 8 91,878 1.8% 1.8% $ 7.15 $ 7.95
2003 ....................... 19 499,273 9.8% 11.6% $ 5.67 $ 6.86
2004 ....................... 35 562,235 11.0% 22.6% $ 6.55 $ 7.60
2005 ....................... 26 476,541 9.4% 32.0% $ 5.85 $ 7.30
2006 ....................... 39 865,820 17.0% 49.0% $ 6.65 $ 7.91
2007 ....................... 22 229,316 4.5% 53.5% $ 7.70 $ 9.16
2008 AND THEREAFTER ........ 50 2,371,109 46.5% 100.0% -- --
-- --------- -----
TOTAL/WEIGHTED AVERAGE ..... 199 5,096,172 100.0% -- -- --
=== ========= =====

RESEARCH & DEVELOPMENT

2002 ....................... 1 4,620 0.4% 0.4% $ 12.85 $ 12.85
2003 ....................... 4 91,938 8.2% 8.6% $ 10.59 $ 10.97
2004 ....................... 9 99,218 8.9% 17.5% $ 13.86 $ 15.07
2005 ....................... 11 457,440 40.9% 58.3% $ 9.95 $ 11.45
2006 ....................... 7 83,061 7.4% 65.8% $ 17.49 $ 20.08
2007 ....................... 4 85,444 7.6% 73.4% $ 12.60 $ 13.95
2008 AND THEREAFTER ........ 15 298,015 26.6% 100.0% -- --
-- ------- -----
TOTAL/WEIGHTED AVERAGE ..... 51 1,119,736 100.0% -- -- --
== ========= =====

The following table sets forth the Company's schedule of its top 25 tenants
based on base rental revenue as of June 30, 2002:

Percent of Consolidated
Total Annualized Base
Tenant Name (1) Tenant Type Square Feet Rental Revenue
-----------------------------------------------------------------------------------------------------------------

* Debevoise & Plimpton Office 465,420 5.5%
* WorldCom/MCI Office 547,018 2.8%
* American Express Office 238,261 1.7%
Bell Atlantic Office 208,661 1.3%
* Shulte Roth & Zabel Office 230,621 2.2%
* HQ Global Office/Industrial 201,900 1.5%
United Distillers Office 137,918 0.9%
Waterhouse Securities Office 127,143 0.9%
* Prudential Office 219,416 0.9%
* Banque Nationale De Paris Office 144,334 1.5%
D.E. Shaw Office 89,526 0.7%
Vytra Healthcare Office 105,612 0.7%
Metromedia Fiber Network Svcs. Office 112,075 0.7%
* Kramer Levin Nessen Kamin, Office 140,892 1.3%
Hoffman-La Roche Inc. Office 120,736 0.6%
Heller Ehrman White Office 54,815 0.6%
Lab Corp Office 108,000 0.6%
* Novartis Office 150,747 0.9%
* Draft Worldwide, Inc. Office 124,008 1.1%
Practicing Law Institute Office 62,000 0.6%
Lockheed Martin Corporation Office 123,554 0.5%
* State Farm Office/Industrial 162,650 1.0%
Estee Lauder Industrial 370,000 0.5%
* JP Morgan Chase Bank Office 69,527 0.6%
Radianz U.S. No. 2 Inc. Office 130,009 0.5%
-----------------------------------------------------------------------------------------------------------------

(1) Ranked by pro rata share of annualized base rental revenue
(2) Based on annualized base rental revenue adjusted for pro rata share of
joint venture interests.
* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.
-------------------------------------------------------------------------------

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings

The Company is not presently subject to any material litigation nor, to the
Company's knowledge, is any litigation threatened against the Company, other
than routine actions for negligence or other claims and administrative
proceedings arising in the ordinary course of business, some of which are
expected to be covered by liability insurance and all of which collectively are
not expected to have a material adverse effect on the liquidity, results of
operations or business or financial condition of the Company.

On or about October 3, 2001, Burgess Services, LLC ("Burgess Services"),
Dominion Venture Group, LLC ("Dominion Venture Group") and certain affiliated
parties commenced an action in Oklahoma State Court against Reckson Strategic
Venture Partners, LLC ("RSVP"), the Company, and RAP-Dominion LLC
("RAP-Dominion"), a joint venture through which the Company invested with RSVP
in a venture with certain of the plaintiffs. On April 10, 2002, the litigation
was settled without liability on the part of the Company or the defendant. In
connection with the settlement, the joint venture will be terminated.

Item 2. Changes in Securities and Use of Proceeds

During the three months ended June 30, 2002, the Registrant issued 666,466
shares of its Class A common stock, par value $0.01 per share, in exchange for
an equal number of units of general partnership interest of the Operating
Partnership. These transactions were exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

Item 3. Defaults Upon Senior Securities -- None

Item 4. Submission of Matters to a Vote of Securities Holders

On May 23, 2002, the Company held its annual meeting of stockholders. The
matters on which the stockholders voted, in person or by proxy, were (1) the
election of four nominees as Class I directors to serve until the 2005 annual
meeting of stockholders and until their respective successors are duly elected
and qualified, (2) to ratify the selection of the independent auditors of the
Company and (3) to approve the Company's 2002 stock option plan. The four
nominees were elected, the auditors were ratified and the stock option plan was
approved. The results of the voting are set for below:

ELECTION OF DIRECTORS VOTES CAST FOR VOTES CAST AGAINST WITHHELD ABSTAIN
------------------------------------ ---------------- -------------------- ----------- --------

Scott Rechler 44,377,244 N/A 7,374,349 N/A
Herve Kevenides 50,816,380 N/A 935,193 N/A
Conrad Stephenson 50,816,380 N/A 935,193 N/A
Lewis Ranieri 50,310,080 N/A 1,479,493 N/A
Ratification of Auditors 50,310,816 1,184,235 N/A 256,521
Approval of 2002 Stock Option Plan 48,464,064 3,186,898 N/A 100,609

Item 5. Other Information

The Company has received approval of the Audit Committee of the Board
permitting Ernst & Young, LLP, the Company's auditors to perform the following
non-audit related services (i) the preparation and review of tax filings; (ii)
analysis related to compliance with law including, but not limited to the REIT
qualification; (iii) review of Company disclosure related issues; and (iv)
analysis relating to alternative structures of potential joint ventures,
acquisitions and financings.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

10.1 2002 Stock Option Plan
99.1 Certification of Donald Rechler, Co-CEO pursuant to Section 1350 of
Chapter 63 of Title 18 of the United State Code
99.2 Certification of Scott H. Rechler, Co-CEO pursuant to Section 1350 of
Chapter 63 of Title 18 of the United State Code

99.3 Certification of Michael Maturo, CFO pursuant to Section 1350 of
Chapter 63 of Title 18 of the United State Code

(b) During the three months ended June 30, 2002, the Registrant filed the
following reports on Form 8-K:

On May 2, 2002, the Registrant submitted a report on Form 8-K under Item
9 thereof in order to submit its first quarter presentation in satisfaction
of the requirements of Regulation FD.

On May 2, 2002, the Registrant submitted a report on Form 8-K under Item
9 thereof in order to submit supplemental operating and financial data for
the quarter ended March 31, 2002 in satisfaction of the requirements of
Regulation FD.

On May 23, 2002, the Registrant submitted a report on Form 8-K under Item
9 thereof in order to submit an annual shareholders' meeting presentation in
satisfaction of the requirements of Regulation FD.

On June 18, 2002, the Registrant submitted a report on Form 8-K under
Item 5 thereof relating to the public offering by the Operating Partnership
of $50,000,000 aggregate principal amount of its 6.00% senior unsecured notes
due 2007.

On June 28, 2002, the Registrant submitted a report on Form 8-K under
Item 9 thereof in order to submit a press release concerning certain data on
the Registrant's leases with WorldCom/MCI in satisfaction of the requirements
of Regulation FD.

SIGNATURES

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

RECKSON ASSOCIATES REALTY CORP.

By: /s/ Scott H. Rechler /s/ Michael Maturo
------------------------------------ ------------------------------------
Scott H. Rechler, Co-Chief Michael Maturo, Executive
Executive Officer Vice President, Treasurer and
By /s/ Donald Rechler Chief Financial Officer
-----------------------------------
Donald Rechler, Co-Chief
Executive Officer

DATE: August 12, 2002