RECKSON ASSOCIATES REALTY CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

COMMISSION FILE NUMBER: 1-13762

RECKSON ASSOCIATES REALTY CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

MARYLAND 11-3233650
- -------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

225 BROADHOLLOW ROAD, MELVILLE, NY 11747
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(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 .

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT). YES X NO__.

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THE COMPANY HAS TWO CLASSES OF COMMON STOCK, PAR VALUE $.01 PAR VALUE PER
SHARE, WITH 48,000,995 AND 9,915,313 SHARES OF CLASS A COMMON STOCK
AND CLASS B COMMON STOCK OUTSTANDING,
RESPECTIVELY AS OF MAY 9, 2003

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RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2003
TABLE OF CONTENTS

INDEX PAGE
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002............... 2

Consolidated Statements of Income for the three months ended March 31, 2003
and 2002 (unaudited)........................................................................... 3

Consolidated Statements of Cash Flows for the three months ended March 31, 2003
and 2002 (unaudited)........................................................................... 4

Notes to the Consolidated Financial Statements (unaudited)....................................... 5

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........ 19

Item 3. Quantitative and Qualitative Disclosures about Market Risk ...................................... 33

Item 4. Controls and Procedures.......................................................................... 34
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PART II. OTHER INFORMATION
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Item 1. Legal Proceedings................................................................................ 38
Item 2. Changes in Securities and Use of Proceeds........................................................ 38
Item 3. Defaults Upon Senior Securities.................................................................. 38
Item 4. Submission of Matters to a Vote of Securities Holders............................................ 38
Item 5. Other Information................................................................................ 38
Item 6. Exhibits and Reports on Form 8-K................................................................. 38
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SIGNATURES ................................................................................................. 39
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

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

MARCH 31, DECEMBER 31,
2003 2002
------------- -------------
(Unaudited)

ASSETS:
Commercial real estate properties, at cost:
Land ........................................................................ $ 417,996 $ 418,040
Building and improvements ................................................... 2,426,832 2,415,252
Developments in progress:
Land ........................................................................ 84,851 92,924
Development costs ........................................................... 30,563 28,311
Furniture, fixtures and equipment ............................................... 12,569 13,595
----------- -----------
2,972,811 2,968,122
Less accumulated depreciation ................................................... (476,368) (454,018)
----------- -----------
2,496,443 2,514,104
Investments in real estate joint ventures ....................................... 6,106 6,116
Investments in mortgage notes and notes receivable .............................. 54,727 54,547
Investments in service companies and affiliate loans and joint ventures ......... 72,770 73,332
Cash and cash equivalents ....................................................... 31,129 30,827
Tenant receivables .............................................................. 11,579 14,050
Deferred rents receivable ....................................................... 111,467 107,366
Prepaid expenses and other assets ............................................... 52,489 37,235
Contract and land deposits and pre-acquisition costs ............................ 227 240
Deferred leasing and loan costs ................................................. 65,248 70,103
----------- -----------
TOTAL ASSETS .................................................................... $ 2,902,185 $ 2,907,920
=========== ===========
LIABILITIES:
Mortgage notes payable .......................................................... $ 737,131 $ 740,012
Unsecured credit facility ....................................................... 302,000 267,000
Senior unsecured notes .......................................................... 499,339 499,305
Accrued expenses and other liabilities .......................................... 78,372 93,783
Dividends and distributions payable ............................................. 31,472 31,575
----------- -----------
TOTAL LIABILITIES ............................................................... 1,648,314 1,631,675
----------- -----------

Minority partners' interests in consolidated partnerships ....................... 241,932 242,934
Preferred unit interest in the operating partnership ............................ 19,662 19,662
Limited partners' minority interest in the operating partnership ................ 68,385 71,420
----------- -----------
329,979 334,016
----------- -----------
Commitments and contingencies ................................................... -- --

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 8,834,500 shares issued and outstanding ........... 88 88
Series B preferred stock, 2,000,000 shares issued and outstanding ........... 20 20
Common Stock, $.01 par value, 100,000,000 shares authorized ..................... 480 482
Class A common stock, 48,000,995 and 48,246,083 shares issued
and outstanding, respectively
Class B common stock, 9,915,313 shares issued and outstanding ............... 99 99
Additional paid in capital ...................................................... 991,698 1,005,494
Treasury stock - Class A common, 2,950,400 and 2,698,400 shares, respectively
and Class B common, 368,200 shares ......................................... (68,493) (63,954)
----------- -----------
Total Stockholders' Equity ...................................................... 923,892 942,229
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $ 2,902,185 $ 2,907,920
=========== ===========

(see accompanying notes to financial statements)

2

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

THREE MONTHS ENDED
MARCH 31,
-----------------------------
2003 2002
------------ ------------

REVENUES:
Property operating revenues:
Base rents ......................................................... $ 107,478 $ 106,383
Tenant escalations and reimbursements .............................. 15,963 15,321
------------ ------------
Total property operating revenues ....................................... 123,441 121,704
Interest income on mortgage notes and notes receivable (including $1,033
and $1,059, respectively from related parties) ........................ 1,531 1,556
Investment and other income ............................................. 5,788 534
------------ ------------
TOTAL REVENUES ...................................................... 130,760 123,794
------------ ------------
EXPENSES:
Property operating expenses ............................................. 47,834 41,895
Marketing, general and administrative ................................... 8,259 7,095
Interest ................................................................ 22,850 20,996
Depreciation and amortization ........................................... 31,984 25,930
------------ ------------
TOTAL EXPENSES ..................................................... 110,927 95,916
------------ ------------
Income before minority interests, preferred dividends and distributions,
equity in earnings of real estate joint ventures and service companies,
gain on sales of depreciable real estate assets and discontinued
operations ............................................................ 19,833 27,878
Minority partners' interests in consolidated partnerships ............... (4,690) (5,120)
Distributions to preferred unit holders ................................. (273) (461)
Limited partners' minority interest in the operating partnership ........ (996) (1,904)
Equity in earnings of real estate joint ventures and service companies
(including $0 and $407, respectively from related parties) ............ 106 335
Gain on sales of depreciable real estate assets ......................... -- 537
------------ ------------
Income before discontinued operations and preferred dividends ........... 13,980 21,265
Discontinued operations (net of limited partners' minority interest):
Income from discontinued operations ................................. -- 204
------------ ------------
Net Income .............................................................. 13,980 21,469
Dividends to preferred shareholders ..................................... (5,317) (5,487)
------------ ------------
Net income allocable to common shareholders ............................. $ 8,663 $ 15,982
============ ============
Net income allocable to:
Class A common ...................................................... $ 6,595 $ 12,159
Class B common ...................................................... 2,068 3,823
------------ ------------
Total ................................................................... $ 8,663 $ 15,982
============ ============
Basic net income per weighted average common share:
Class A common ...................................................... $ .14 $ .23
Gain on sales of depreciable real estate assets ..................... -- .01
Discontinued operations ............................................. -- --
------------ ------------
Basic net income per Class A common ................................. $ .14 $ .24
============ ============
Class B common ...................................................... $ .21 $ .36
Gain on sales of depreciable real estate assets ..................... -- .01
Discontinued operations ............................................. -- --
------------ ------------
Basic net income per Class B common ................................. $ .21 $ .37
============ ============
Basic weighted average common shares outstanding:
Class A common ...................................................... 48,200,946 50,013,140
Class B common ...................................................... 9,915,313 10,283,513
Diluted net income per weighted average common share:
Class A common ...................................................... $ .14 $ .24
============ ============
Class B common ...................................................... $ .15 $ .26
============ ============
Diluted weighted average common shares outstanding:
Class A common ...................................................... 48,320,129 50,350,189
Class B common ...................................................... 9,915,313 10,283,513

(see accompanying notes to financial statements)

3

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

THREE MONTHS ENDED
MARCH 31,
-----------------------
2003 2002
--------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ...................................................................... $ 13,980 $ 21,469
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ............................................. 31,984 26,136
Gain on sales of depreciable real estate assets ........................... -- (537)
Minority partners' interests in consolidated partnerships ................. 4,690 5,120
Limited partners' minority interest in the operating partnership .......... 996 1,904
Equity in earnings of real estate joint ventures and service companies .... (106) (335)
Changes in operating assets and liabilities:
Tenant receivables ........................................................ 2,471 (984)
Prepaid expenses and other assets ......................................... 1,394 11,539
Deferred rents receivable ................................................. (4,101) (8,749)
Accrued expenses and other liabilities .................................... (11,722) (22,964)
--------- ---------
Net cash provided by operating activities ................................. 39,586 32,599
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs ................... -- (9,134)
Additions to developments in progress ..................................... (5,888) (3,621)
Proceeds from mortgage note receivable repayments ......................... -- 4
Additions to commercial real estate properties ............................ (14,916) (4,931)
Additions to furniture, fixtures and equipment ............................ (89) (6)
Payment of leasing costs .................................................. (4,787) (2,987)
Distributions from investments in real estate joint ventures .............. 117 --
Proceeds from sales of real estate ........................................ -- 600
--------- ---------
Net cash used in investing activities ..................................... (25,563) (20,075)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs .............. -- 4,492
Repurchases of common stock ............................................... (4,538) --
Principal payments on secured borrowings .................................. (2,881) (2,486)
Payment of loan and equity issuance costs ................................. (29) (322)
Proceeds from unsecured credit facility ................................... 35,000 30,000
Repayment of unsecured credit facility .................................... -- (84,600)
Distributions to minority partners in consolidated partnerships ........... (5,693) (4,096)
Distributions to limited partners in the operating partnership ............ (3,089) (3,178)
Distributions to preferred unit holders ................................... (273) (481)
Dividends to common shareholders .......................................... (26,901) (27,899)
Dividends to preferred shareholders ....................................... (5,317) (5,487)
--------- ---------
Net cash used in financing activities ..................................... (13,721) (94,057)
--------- ---------
Net (decrease) increase in cash and cash equivalents ...................... 302 (81,533)
Cash and cash equivalents at beginning of period .......................... 30,827 121,975
--------- ---------
Cash and cash equivalents at end of period ................................ $ 31,129 $ 40,442
========= =========

(see accompanying notes to financial statements)

4

RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2003
(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 / R&D 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
March 31, 2003, the Company's ownership percentage in the Operating Partnership
was approximately 89.5%.

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at March 31,
2003 and December 31, 2002 and the results of their operations and their cash
flows for the three months ended March 31, 2003 and 2002, respectively. The
Operating Partnership's investments in majority owned and 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. For the
periods presented prior to October 1, 2002, the operating results of Reckson
Management Group, Inc., RANY Management Group, Inc., Reckson Construction Group
New York, Inc. and Reckson Construction Group, Inc. (the "Service Companies"),
in which the Operating Partnership owned a 97% non-controlling interest were
reflected in the accompanying financial statements on the equity method of
accounting. On October 1, 2002, the Operating Partnership acquired the remaining
3% interests in the Service Companies for an aggregate purchase price of
approximately $122,000. As a result, the Operating Partnership commenced
consolidating the operations of the Service Companies (see Note 10). All
significant intercompany balances and transactions have been eliminated in the
consolidated financial statements.

Reckson Construction Group, Inc. and Reckson Construction Group New York, Inc.
use the percentage-of-completion method for recording amounts earned on its
contracts. This method records amounts earned as revenue in the proportion that
actual costs incurred to date bear to the estimate of total costs at contract
completion.

Minority partners' interests in consolidated partnerships represent a 49%
non-affiliated interest in RT Tri-State LLC, owner of a nine property suburban
office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of
a 579,000 square foot suburban office property and 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 10.5% and 11.6% at March 31, 2003 and 2002,
respectively.

The Company follows the guidance provided for under the Financing Accounting
Standards Board ("FASB") Statement No. 66 "Accounting for Sales of Real Estate"
("Statement No. 66"), which provides guidance on sales contracts that are
accompanied by agreements which require the seller to develop the property in
the future. Under Statement No. 66 profit is recognized and allocated to the
sale of the land and the later development or construction work on the basis of
estimated costs of each activity; the same rate of profit is attributed to each
activity. As a result, profits are recognized and reflected over the improvement
period on the basis of costs incurred (including land) as a percentage of total
costs estimated to be incurred. The Company uses the percentage of completion
method, as the future costs of development and profit were reliably estimated
(see Note 6).

5

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 March 31, 2003 and for the
three month periods ended March 31, 2003 and 2002 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, 2003. 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, 2002.

The Company intends to qualify as a REIT under Sections 856 through 860 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.

Recent Accounting Pronouncements

In October 2001, the 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. The adoption of Statement No. 144 does not have an impact on net
income allocable to common shareholders. Statement No. 144 only impacts the
presentation of the results of operations and gain on sales of depreciable real
estate assets for those properties sold during the period within the
consolidated statements of income.

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 from the adoption of Statement No. 123. To determine the fair
value of the stock options granted, the Company uses 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.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation--Transition and Disclosure" ("Statement No. 148"). Statement No.
148 amends Statement No. 123 to provide alternative methods of transition for an
entity that voluntarily adopts the fair value recognition method of recording
stock option expense. Statement No. 148 also amends the disclosure provisions of
Statement 123 and APB Opinion No. 28. "Interim Financial Reporting" to require
disclosure in the summary of significant accounting policies of the effects of
an entity's accounting policy with respect to stock options on reported net
income and earnings per share in annual and interim financial statements.

6

The following table sets forth the Company's pro forma information for its Class
A common stockholders for the three months ended March 31, 2003 and 2002 (in
thousands except earnings per share data):

THREE MONTHS ENDED
MARCH 31,
----------------------------
2003 2002
--------- ---------

Net income as reported...................................................... $ 6,595 $ 12,159
Add: Stock option expense included in net income .......................... 1 --
Less: Stock option expense determined under fair value
recognition method for all awards................................... 90 117
--------- ---------
Pro forma net income ....................................................... $ 6,506 $ 12,042
========= =========
Net income per share as reported:

Basic.................................................................. $ .14 $ .24
========= =========
Diluted................................................................ $ .14 $ .24
========= =========
Pro forma net income per share:
Basic.................................................................. $ .13 $ .24
========= =========
Diluted................................................................ $ .13 $ .24
========= =========

The fair value for those options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the three month periods ended March 31, 2003 and 2002,
respectively: risk-free interest rate of 3%; dividend yields of 7.38% and 7.46%;
volatility factors of the expected market price of the Company's Class A common
stock of .197 and a weighted-average expected life of the option of five years.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 significantly changes the current
practice in the accounting for, and disclosure of, guarantees. Guarantees and
indemnification agreements meeting the characteristics described in FIN 45 are
required to be initially recorded as a liability at fair value. FIN 45 also
requires a guarantor to make significant new disclosures for virtually all
guarantees even if the likelihood of the guarantor having to make payment under
the guarantee is remote. The disclosure requirements within FIN 45 are effective
for financial statements for annual or interim periods ending after December 15,
2002. The initial recognition and initial measurement provisions are applicable
on a prospective basis to guarantees issued or modified after December 31, 2002.
The Company adopted FIN 45 on January 1, 2003. The adoption of this
interpretation did not have a material effect on the results of operations or
the financial position of the Company.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"), which explains how to identify variable
interest entities ("VIE") and how to assess whether to consolidate such
entities. The provisions of this interpretation are immediately effective for
VIE's formed after January 31, 2003. For VIE's formed prior to January 31, 2003,
the provisions of this interpretation apply to the first fiscal year or interim
period beginning after June 15, 2003. Management has not yet determined whether
any of its consolidated or unconsolidated subsidiaries represent VIE's pursuant
to such interpretation. Such determination could result in a change in the
Company's consolidation policy related to such entities.

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

7

3. MORTGAGE NOTES PAYABLE

As of March 31, 2003, the Company had approximately $737.1 million of fixed rate
mortgage notes which mature at various times between 2004 and 2027. The notes
are secured by 21 properties with an aggregate carrying value of approximately
$1.5 billion which are pledged as collateral against the mortgage notes payable.
In addition, approximately $44.8 million of the $737.1 million is recourse to
the Company and certain of the mortgage notes payable are guaranteed by certain
limited partners in the Operating Partnership and / or the Company.

The following table sets forth the Company's mortgage notes payable as of March
31, 2003, by scheduled maturity date (dollars in thousands):

Principal Interest Maturity Amortization
Property Outstanding Rate Date Term (Years)
- ----------------------------------------------- -------------- ----------- --------------- --------------

80 Orville Dr, Islip, NY 2,616 10.10% February, 2004 Interest only
395 North Service Road, Melville, NY 19,607 6.45% October, 2005 $34 per month
200 Summit Lake Drive, Valhalla, NY 19,268 9.25% January, 2006 25
1350 Avenue of the Americas, NY, NY 74,421 6.52% June, 2006 30
Landmark Square, Stamford, CT (a) 44,832 8.02% October, 2006 25
100 Summit Lake Drive, Valhalla, NY 18,766 8.50% April, 2007 15
333 Earle Ovington Blvd, Mitchel Field, NY (b) 53,622 7.72% August, 2007 25
810 Seventh Avenue, NY, NY 82,480 7.73% August, 2009 25
100 Wall Street, NY, NY 35,742 7.73% August, 2009 25
6900 Jericho Turnpike, Syosset, NY 7,319 8.07% July, 2010 25
6800 Jericho Turnpike, Syosset, NY 13,867 8.07% July, 2010 25
580 White Plains Road, Tarrytown, NY 12,635 7.86% September, 2010 25
919 Third Ave, NY, NY (c) 246,144 6.867% August, 2011 30
110 Bi-County Blvd., Farmingdale, NY 3,579 9.125% November, 2012 20
One Orlando Center, Orlando, FL (d) 38,218 6.82% November, 2027 28
120 West 45th Street, NY, NY (d) 64,015 6.82% November, 2027 28
-----------
Total/Weighted Average $ 737,131 7.26%
===========

- ------------------------
(a) Encompasses six Class A office properties

(b) The Company has a 60% general partnership interest in this property and
its proportionate share of the aggregate principal amount is
approximately $32.2 million

(c) The Company has a 51% membership interest in this property and its
proportionate share of the aggregate principal amount is approximately
$125.5 million

(d) Subject to interest rate adjustment on November 1, 2004 to the greater
of 8.82% per annum or the yield on non-callable U.S. treasury
obligations with a term of fifteen years plus 2% per annum.

In addition, the Company has a 60% interest in an unconsolidated joint venture
property. The Company's pro rata share of the mortgage debt at March 31, 2003 is
approximately $7.5 million. This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005.

8

4. SENIOR UNSECURED NOTES

As of March 31, 2003, the Operating Partnership had outstanding approximately
$499.3 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
ISSUANCE AMOUNT COUPON 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 semi-annually 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.

5. UNSECURED CREDIT FACILITY

The Company currently has a three year $500 million unsecured revolving credit
facility (the "Credit Facility") from JPMorgan Chase Bank, as administrative
agent, Wells Fargo Bank, National Association, as syndication agent, and
Citicorp North America, Inc. and Wachovia Bank, National Association, as
co-documentation agents. The Credit Facility matures in December 2005, contains
options for a one-year extension subject to a fee of 25 basis points and, upon
receiving additional lender commitments, increasing the maximum revolving credit
amount to $750 million. In addition, borrowings under the Credit Facility are
currently priced off LIBOR plus 90 basis points and the Credit Facility carries
a facility fee of 20 basis points per annum. In the event of a change in the
Operating Partnership's unsecured credit rating the interest rates and facility
fee are subject to change. The outstanding borrowings under the Credit Facility
were $302.0 million at March 31, 2003.

The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At March 31, 2003, the Company had availability under the Credit
Facility to borrow approximately an additional $198.0 million, subject to
compliance with certain financial covenants.

6. COMMERCIAL REAL ESTATE INVESTMENTS

As of March 31, 2003, the Company owned and operated 75 office properties
(inclusive of eleven office properties owned through joint ventures) comprising
approximately 13.6 million square feet, 101 industrial / R&D properties
comprising approximately 6.7 million square feet and two retail properties
comprising approximately 20,000 square feet located in the Tri-State Area.

The Company also owns approximately 313 acres of land in 12 separate parcels of
which the Company can develop approximately 3.0 million square feet of office
space and approximately 400,000 square feet of industrial / R&D space. In
addition, during the three months ended March 31, 2003, the Company completed
the development of a 71,000 square foot industrial / R&D property on Long
Island. At March 31, 2003, the Company had incurred approximately $5.6 million
of investment costs related to this project, anticipates incurring an additional
$1.7 million of investment costs and projects to place this project into service
during the second quarter of 2003. The Company is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of March 31, 2003,
the Company had invested approximately $115.4 million in these development
projects. Management has made subjective assessments as to the value and
recoverability of these investments based on current and proposed development
plans, market comparable land values and alternative use values. The Company has
capitalized approximately $2.3 million and $3.3 million for the three months
ended March 31, 2003 and 2002, respectively related to real estate taxes,
interest and other carrying costs related to these development projects.

During February 2003, the Company, through Reckson Construction Group, Inc.,
entered into a contract with an affiliate of First Data Corp. to sell a
19.3-acre parcel of land located in Melville, New York and has been retained by
the purchaser to develop a build-to-suit 195,000 square foot office building for
aggregate consideration of approximately $47 million. This transaction closed on
March 11, 2003 and development of the aforementioned office building has
commenced. Net proceeds from the land sale of approximately $18.3 million were
used to establish an escrow account with a qualified intermediary for a future
exchange of real property pursuant to Section 1031 of the Code and is included
in prepaid expenses and other assets on the accompanying balance sheet. The Code
allows for the deferral of taxes related to the gain attributable to the sale of
property if such qualified identified replacement property is identified within
45 days and acquired within 180 days from the initial sale. The Company has
identified certain properties and interests in properties for purposes of this
exchange. In accordance with Statement No. 66, the Company has estimated its
pre-tax gain on this land sale and build-to-suit transaction to be approximately
$16.6 million of which $5.8 million has been recognized in the

9

current period and is included in investment and other income on the
accompanying statement of income. Approximately $10.8 million has been deferred
to future periods which will be recognized as the development progresses.

The Company holds a $17.0 million interest in a note receivable which bears
interest at 12% per annum and is secured by a minority partnership interest in
Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office
property located in Uniondale, NY (the "Omni Note"). The Company currently owns
a 60% majority partnership interest in Omni Partnership, L.P. and on March 14,
2007 may exercise an option to acquire the remaining 40% interest for a price
based on 90% of the fair market value of the property. The Company also holds
three other notes receivable aggregating $36.5 million which bear interest at
rates ranging from 10.5% to 12% per annum and are secured in part by a minority
partner's preferred unit interest in the Operating Partnership, certain interest
in real property and a personal guarantee (the "Other Notes" and collectively
with the Omni Note, the "Note Receivable Investments"). As of March 31, 2003,
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. Based on these assessments, the Company's management
believes there is no impairment to the carrying value related to the Company's
Note Receivable Investments. The Company also owns a 355,000 square foot office
building in Orlando, Florida. This non-core real estate holding was acquired in
May 1999 in connection with the Company's initial New York City portfolio
acquisition. This property is cross collateralized under a $102 million mortgage
note along with one of the Company's New York City buildings.

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"), which it manages. The remaining 40% interest is owned by JAH Realties,
L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces, is a partner
in JAH Realties, L.P. As of March 31, 2003, the 520JV had total assets of $20.7
million, a mortgage note payable of $12.4 million and other liabilities of
$217,000. The Company's allocable share of the 520JV mortgage note payable is
approximately $7.5 million. This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005. In addition, the 520JV had total
revenues of $979,000 and total expenses of $844,000 for the three months ended
March 31, 2003. The operating agreement of the 520JV requires joint decisions
from all members on all significant operating and capital decisions including
sale of the property, refinancing of the property's mortgage debt, development
and approval of leasing strategy and leasing of rentable space. As a result of
the decision-making participation relative to the operations of the property,
the Company accounts for the 520JV under the equity method of accounting. The
520JV contributed approximately $106,000 to the Company's equity in earnings of
real estate joint ventures for the three months ended March 31, 2003. For the
three months ended March 31, 2002, the Company recorded its allocable share of a
loss from the 520JV of approximately $72,000.

During September 2000, the Company formed a joint venture (the "Tri-State JV")
with Teachers Insurance and Annuity Association ("TIAA") and contributed nine
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. The Company is responsible for managing the
day-to-day operations and business affairs of the Tri-State JV and has
substantial rights in making decisions affecting the properties such as leasing,
marketing and financing. The minority member has certain rights primarily
intended to protect its investment. For purposes of its financial statements the
Company consolidates the Tri-State JV.

On December 21, 2001, the Company formed a joint venture with the New York State
Teachers' Retirement Systems ("NYSTRS") (the "919JV") 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. The Company is responsible for managing the
day-to-day operations and business affairs of the 919JV and has substantial
rights in making decisions affecting the property such as developing a budget,
leasing and marketing. The minority member has certain rights primarily intended
to protect its investment. For purposes of its financial statements the Company
consolidates the 919JV.

10

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.

During March 2003, 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 April 4, 2003 April 17, 2003 March 31, 2003 $1.6984
Class B common stock $ .6471 April 14, 2003 April 30, 2003 April 30, 2003 $2.5884
Series A preferred stock $.476563 April 14, 2003 April 30, 2003 April 30, 2003 $1.9063
Series B preferred stock $.553125 April 14, 2003 April 30, 2003 April 30, 2003 $2.2125

On March 31, 2003, the Company had issued and outstanding 9,915,313 shares of
Class B Exchangeable Common Stock, par value $.01 per share (the "Class B common
stock"). 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.

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 at
which time the Company anticipates that it will exercise its option to redeem
all of its Class B common stock outstanding.

The Board of Directors of the Company has authorized the purchase of up to five
million shares of the Company's Class A common stock and / or its Class B 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. During the three months
ended March 31, 2003, under this buy-back program, the Company purchased 252,000
shares of Class A common stock at an average price of $18.01 per Class A share
for an aggregate purchase price of approximately $4.5 million.

The following table sets forth the Company's activity under its current common
stock buy-back program (dollars in thousands except per share data):

SHARES AVERAGE AGGREGATE
PURCHASED PRICE PER SHARE PURCHASE PRICE
-------------------- ---------------------- --------------------

Current program:
Class A common 2,950,400 $ 21.30 $ 62,830
Class B Common 368,200 $ 22.90 8,432
--------- ---------
3,318,600 $ 71,262
========= =========

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.

On March 31, 2003, the Company had issued and outstanding 8,834,500 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. During the fourth quarter of 2002, the Company purchased and
retired 357,500 shares of the Series A Preferred stock at $22.29 per share for
approximately $8.0 million. As a result of this purchase, annual preferred
dividends will decrease by approximately $682,000.

11

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, at $25.50 per share and (iii) on or
after June 3, 2004 and thereafter, at $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.

The Company had historically structured long term incentive programs ("LTIP")
using restricted stock and stock loans. In July 2002, as a result of certain
provisions of the Sarbanes Oxley legislation, the Company discontinued the use
of stock loans in its LTIP. In connection with LTIP grants made prior to the
enactment of the Sarbanes Oxley legislation the Company made stock loans to
certain executive and senior officers to purchase 1,372,393 shares of its Class
A common stock at market prices ranging from $18.44 per share to $27.13 per
share. The stock loans were set to bear interest at the mid-term Applicable
Federal Rate and were secured by the shares purchased. Such stock loans
(including accrued interest) vest and are ratably forgiven each year on the
anniversary of the grant date based upon vesting periods ranging from four to
ten years based on continued service and in part on attaining certain annual
performance measures. These stock loans had an initial aggregate weighted
average vesting period of approximately nine years. Approximately $1.1 million
of compensation expense was recorded for the three month periods ended March 31,
2003 and 2002 related to these LTIP. Such amount has been included in marketing,
general and administrative expenses on the accompanying consolidated statements
of income.

The outstanding stock loan balances due from executive and senior officers
aggregated approximately $14.5 million and $17.0 million at March 31, 2003 and
December 31, 2002, respectively, and have been included as a reduction of
additional paid in capital on the accompanying consolidated balance sheets.
Other outstanding loans to executive and senior officers amounting to
approximately $1.0 million at March 31, 2003 and December 31, 2002, related to
life insurance contracts and approximately $2.1 million and $1.0 million at
March 31, 2003 and December 31, 2002, respectively, primarily related to tax
payment advances on a stock compensation awards made to non-executive officers.

In November 2002 and March 2003 an award of rights was granted to certain
executive officers of the Company (the "2002 Rights" and "2003 Rights",
respectively and collectively, the "Rights"). Each Right represents the right to
receive, upon vesting, one share of Class A common stock if shares are then
available for grant under one of the Company's stock option plans or, if shares
are not so available, an amount of cash equivalent to the value of such stock on
the vesting date. The 2002 Rights will vest in four equal annual installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual installments beginning on March 13, 2005 (and shall be fully vested on
March 13, 2007). Dividends on the shares will be held by the Company until such
shares become vested, and will be distributed thereafter to the applicable
officer. The 2002 Rights also entitle the holder thereof to cash payments in
respect of taxes payable by the holder resulting from the Rights. The 2002
Rights aggregate 190,524 shares of the Company's Class A common stock and the
2003 Rights aggregate 60,760 shares of Class A common stock. In addition, during
the three months ended March 31, 2003, the Company recorded approximately
$216,000 of compensation expense related to the Rights. Such amount has been
included in marketing, general and administrative expenses on the accompanying
consolidated statement of income.

In March 2003, the Company established a new LTIP for its executive and senior
officers. The four-year plan has a core award which provides for annual stock
based compensation based upon continued service and in part based on attaining
certain annual performance measures. The plan also has a special outperformance
award which provides for compensation to be earned at the end of a four year
period if the Company attains certain four year cumulative performance measures.
Amounts earned under the special outperformance award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board. Performance
measures are based on total shareholder returns on a relative and absolute
basis. On March 13, 2003, the Company made available 1,384,102 shares of its
Class A common stock under its existing stock option plans in connection with
the core award of this LTIP for twelve of its executive and senior officers. In
addition, with respect to the core award of this LTIP, the Company recorded
approximately $268,000 of compensation expense for the period March 13, 2003
through March 31, 2003. Such amount is included in marketing, general and
administrative expenses on the accompanying consolidated statement of income.
Further, no provision will be made for the special outperformance award of this
LTIP until such time as achieving the requisite performance measures is
determined to be probable.

Basic net income per share on the Company's Class A common stock was calculated
using the weighted average number of shares outstanding of 48,200,946 and
50,013,140 for the three months ended March 31, 2003 and 2002, 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 9,915,313 and
10,283,513 for the three months ended March 31, 2003 and 2002, respectively.

12

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
March 31,
-------------------------------
2003 2002
------------ ------------

Numerator:
Income before discontinued operations, dividends to preferred shareholders
and (income) allocated to Class B shareholders ....................... $ 13,980 $ 21,265
Discontinued operations (net of share applicable to limited partners and
Class B shareholders) ................................................ -- 155
Dividends to preferred shareholders ...................................... (5,317) (5,487)
(Income) allocated to Class B common shareholders ........................ (2,068) (3,774)
-------- --------
Numerator for basic and diluted earnings per Class A common share ............. $ 6,595 $ 12,159
======== ========
Denominator:
Denominator for basic earnings per share - weighted average
Class A common shares ................................................ 48,201 50,013
Effect of dilutive securities:
Common stock equivalents ............................................. 119 337
-------- --------
Denominator for diluted earnings per Class A common share - adjusted weighted
average shares and assumed conversions ............................... 48,320 50,350
======== ========
Basic earnings per weighted average common share:
Class A common ........................................................... $ .14 $ .23
Gain on sales of depreciable real estate assets .......................... -- .01
Discontinued operations .................................................. -- --
-------- --------
Net income per Class A common share ...................................... $ .14 $ .24
======== ========
Diluted earnings per weighted average common share:
Class A common ........................................................... $ .14 $ .23
Gain on sales of depreciable real estate assets .......................... -- .01
Discontinued operations .................................................. -- --
-------- --------
Diluted net income per Class A common share .............................. $ .14 $ .24
======== ========

13

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
March 31,
---------------------------
2003 2002
------------ ------------

Numerator:
Income before discontinued operations, dividends to preferred shareholders
and (income) allocated to Class A shareholders ...................... $ 13,980 $ 21,265
Discontinued operations (net of share applicable to limited partners and
Class A shareholders) ................................................ -- 49
Dividends to preferred shareholders ...................................... (5,317) (5,487)
(Income) allocated to Class A common shareholders ........................ (6,595) (12,004)
-------- --------
Numerator for basic earnings per Class B common share ......................... 2,068 3,823
Add back:
Income allocated to Class A common shareholders .......................... 6,595 12,159
Limited partner's minority interest in the operating partnership ......... 996 1,934
-------- --------
Numerator for diluted earnings per Class B common share ....................... $ 9,659 $ 17,916
======== ========
Denominator:
Denominator for basic earnings per share-weighted average
Class B common shares ................................................ 9,915 10,284
Effect of dilutive securities:
Weighted average Class A common shares outstanding ..................... 48,201 50,013
Weighted average OP Units outstanding .................................. 7,276 7,507
Common stock equivalents ............................................... 119 337
-------- --------
Denominator for diluted earnings per Class B common share - adjusted weighted
average shares and assumed conversions ............................... 65,511 68,141
======== ========
Basic earnings per weighted average common share:
Class B common ........................................................... $ .21 $ .36
Gain on sales of depreciable real estate assets .......................... -- .01
Discontinued operations .................................................. -- --
-------- --------
Net income per Class B common share ...................................... $ .21 $ .37
======== ========
Diluted earnings per weighted average common share:
Class B common ........................................................... $ .15 $ .26
Gain on sales of depreciable real estate assets .......................... -- --
Discontinued operations .................................................. -- --
-------- --------
Diluted net income per Class B common share .............................. $ .15 $ .26
======== ========

14

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

THREE MONTHS ENDED
MARCH 31,
------------------------
2003 2002
-------- ---------

Cash paid during the period for interest....................... $ 30,076 $ 31,219
-------- ---------
Interest capitalized during the period ........................ $ 1,854 $ 2,607
-------- ---------

9. SEGMENT DISCLOSURE

The Company owns all of the interests in its real estate properties directly or
indirectly 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 / R&D 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 (ii) the operating performance of the office property
located in Orlando, Florida (iii) the operating performance of those properties
reflected as discontinued operations in the Company's consolidated statements of
income and (iv) the operating results of the Service Companies 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 months ended March 31, 2003
and 2002 (in thousands):

Three months ended
-----------------------------------------------------------------------------------
March 31, 2003 March 31, 2002
---------------------------------------- ----------------------------------------
Core CONSOLIDATED Core CONSOLIDATED
Portfolio Other TOTALS Portfolio Other TOTALS
---------- ---------- ------------ ---------- ---------- ------------

REVENUES:
Base rents, tenant escalations and
reimbursements ........................ $ 121,640 $ 1,801 $ 123,441 $ 119,397 $ 2,307 $ 121,704
Other income (loss) ..................... 761 6,558 7,319 415 1,675 2,090
---------- ---------- ---------- ---------- ---------- ----------
Total Revenues .......................... 122,401 8,359 130,760 119,812 3,982 123,794
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES:
Property operating expenses ............. 46,990 844 47,834 41,103 792 41,895
Marketing, general and administrative ... 4,666 3,593 8,259 4,560 2,535 7,095
Interest ................................ 12,760 10,090 22,850 12,964 8,032 20,996
Depreciation and amortization ........... 30,384 1,600 31,984 24,391 1,539 25,930
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses .......................... 94,800 16,127 110,927 83,018 12,898 95,916
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before minority
interests, preferred dividends and
distributions, equity in earnings of
real estate joint ventures and service
companies, gain on sales of depreciable
real estate assets and discontinued
operations ............................ $ 27,601 $ (7,768) $ 19,833 $ 36,794 $ (8,916) $ 27,878
---------- ---------- ---------- ---------- ---------- ----------
Total Assets ............................ $2,665,982 $ 236,203 $2,902,185 $2,660,419 $ 254,127 $2,914,546
========== ========== ========== ========== ========== ==========

15

10. RELATED PARTY TRANSACTIONS

In connection with the IPO, the Company was granted ten year options to acquire
ten properties (the "Option Properties") which are either owned by certain
Rechler family members who are also executive officers of the Company, or in
which the Rechler family members own a non-controlling minority interest at a
price based upon an agreed upon formula. In years prior to 2001, one Option
Property was sold by the Rechler family members to a third party and four of the
Option Properties were acquired by the Company for an aggregate purchase price
of approximately $35 million, which included the issuance of approximately
475,000 OP Units valued at approximately $8.8 million. Currently, certain
Rechler family members retain their equity interests in the five remaining
Option Properties (the "Remaining Option Properties") which were not contributed
to the Company as part of the IPO. Such options provide the Company the right to
acquire fee interest in two of the Remaining Option Properties and the Rechler's
minority interests in three Remaining Option Properties. During May 2003, the
Independent Directors approved the exercise by the Company of its option to
acquire the Rechler's fee interest in two of the Remaining Option Properties
(225 Broad Hollow Road and 593 Acorn Street) and to provide customary tax
protection from the sale or disposition of these properties by the Company for a
five-year period. In addition, the Rechler family members agreed to extend the
term of the three remaining unexercised options for an additional two years.
Both of these properties are located on Long Island and aggregate approximately
228,000 square feet. Aggregate consideration to acquire the two Remaining Option
Properties is approximately $22.1 million which includes the assumption of
approximately $19.0 million of mortgage notes payable and the issuance of
approximately 145,000 OP Units. The Company anticipates that it will acquire
these two Remaining Option Properties in July 2003 and prepay or retire
approximately $6.1 million of the assumed debt.

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 the Service Companies in
which, as of September 30, 2002, the Operating Partnership owned a 97%
non-controlling interest. An entity which is substantially owned by certain
Rechler family members who are also executive officers of the Company owned a 3%
controlling interest in the Service Companies. In order to minimize the
potential for corporate conflicts of interests which became possible as a result
of changes to the Code that permit REITs to own 100% of taxable REIT
subsidiaries, the Independent Directors of the Company approved the purchase by
the Operating Partnership of the remaining 3% interests in the Service
Companies. On October 1, 2002, the Operating Partnership acquired such 3%
interests in the Service Companies for an aggregate purchase price of
approximately $122,000. Such amount was less than the total amount of capital
contributed by the Rechler family members. As a result of the acquisition of the
remaining interests in the Service Companies, the Operating Partnership
commenced consolidating the operations of the Service Companies. During the
three months ended March 31, 2003, Reckson Construction Group, Inc. billed
approximately $125,100 of market rate services and Reckson Management Group,
Inc. billed approximately $71,000 of market rate management fees to the
Remaining Option Properties. In addition, for the three months ended March 31,
2003, Reckson Construction Group, Inc. performed market rate services,
aggregating approximately $20,000, for a property in which certain executive
officers of the Company maintain an equity interest.

Reckson Management Group, Inc. leases 43,713 square feet of office and storage
space at a Remaining Option Property located at 225 Broad Hollow Road, Melville,
New York for its corporate offices at an annual base rent of approximately $1.2
million. Reckson Management Group, Inc. also leases 10,722 square feet of
warehouse space used for equipment, materials and inventory storage at a
Remaining Option Property located at 593 Acorn Street, 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 $431,500. 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 $176,000.

During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and 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 / R&D 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 March 31, 2003 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 March 31, 2003
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.

16

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 for tax purposes $70 million of the aforementioned reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off for tax purposes 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 March 31, 2003. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet.

On or about April 29, 2003, RSVP entered into agreements regarding the
restructuring of its capital structure and arrangements with its management. In
connection with such restructuring, RSVP transferred $41 million in cash, and
the assets that comprised its parking investments valued at approximately $28.5
million to the preferred equity holders in RSVP. In addition, RSVP agreed to
redeem the preferred equity holders' interests for an additional $95.8 million
in cash, subject to a financing contingency. RSVP also agreed to restructure its
relationship with its current managing directors, conditioned upon the
redemption of the preferred equity interests, whereby a management company
formed by the managing directors will be retained to manage RSVP. RSVP will
enter into a management agreement that will provide for an annual base
management fee, and disposition fees equal to 2% of the net proceeds received by
RSVP on asset sales. (The base fee and disposition fees together being subject
to a maximum amount over the term of the agreement, of $7.5 million.) In
addition, the managing directors will retain a subordinate residual interest in
RSVP's assets. The management agreement will have a three-year term, subject to
early termination in the event of the disposition of all of the assets of RSVP.
As a result of this new arrangement, the employment contracts of the managing
directors will be terminated. There can be no assurance that any of the
foregoing pending transactions will be completed. In the event that the
redemption of the preferred does not close, all parties rights shall remain
unaffected, including the rights relating to a dispute between common and
preferred members over certain provisions of the RSVP operating agreement.

Both the FrontLine Facility and the RSVP Facility terminate on June 15, 2003,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues 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 are 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.

Scott H. Rechler, who serves as Co-Chief Executive Officer and a director of the
Company, serves as CEO and Chairman of the Board of Directors of FrontLine and
is its sole board member. Scott H. Rechler also serves as a member of the
management committee of RSVP.

17

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 eight (formerly eleven) executive office centers in the Company's
properties, two of which are held through joint ventures. The leases under which
these office centers operate expire between 2008 and 2011, encompass
approximately 171,000 square feet and have current contractual annual base rents
of approximately $4.2 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, the Bankruptcy Court has granted HQ's petition
to reject three of its leases with the Company, one of which is held through the
919JV. The two rejected leases, held through wholly owned entities, aggregated
approximately 23,700 square feet and were to provide for contractual base rents
of approximately $600,000 for the 2003 calendar year. The third rejected lease
held through the 919JV aggregated approximately 31,000 square feet and provided
for contractual base rents of approximately $1.9 million for the 2003 calendar
year. Pursuant to the bankruptcy filing, HQ has been paying current rental
charges under its leases with the Company, other than under the three rejected
leases. The Company is in negotiation to restructure three of the leases and
leave the terms of the remaining five 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 currently
established reserves of approximately $360,000 (net of minority partners'
interests and including the Company's share of unconsolidated joint venture
interest), or 50%, of the amounts due from HQ as of March 31, 2003. Scott H.
Rechler serves as the non-Executive Chairman of the Board and Jon Halpern is the
Chief Executive Officer and a director of HQ.

WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leased approximately 527,000 square feet in thirteen 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. During
February 2003, the Bankruptcy Court granted WorldCom's petition to reject three
of its leases with the Company. The three rejected leases aggregated
approximately 192,000 square feet and provided for contractual base rents of
approximately $4.8 million for the 2003 calendar year. All of WorldCom's leases
are current on base rental charges through May 31, 2003, other than under the
three rejected leases and the Company currently holds approximately $300,000 in
security deposits relating to the non-rejected leases. The Company is currently
in negotiations to restructure the remaining WorldCom leases. There can be no
assurance as to whether any deal will be consummated with WorldCom or if
WorldCom will affirm or reject any or all of its remaining leases with the
Company.

As of March 31, 2003, WorldCom occupied approximately 335,000 square feet of
office space with aggregate annual base rental revenues of approximately $6.7
million, or 1.8% of the Company's total 2003 annualized rental revenue, making
it the Company's third largest tenant based on base rental revenue earned on a
consolidated basis.

18

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. Many of the forward-looking
statements can be identified by the use of words such as "believes", "may",
"expects", "anticipates", "intends" or similar expressions. 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 / R&D 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 re-lease space in a timely manner at
current or anticipated rental rate levels; the availability of financing to us
or our tenants; financial condition of 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; liability for uninsured losses or environmental matters;
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 three months ended March 31, 2003, the Company incurred approximately
$2.0 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.

19

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.

Reckson Construction Group, Inc. and Reckson Construction Group New York, Inc.
use the percentage-of-completion method for recording amounts earned on its
contracts. This method records amounts earned as revenue in the proportion that
actual costs incurred to date bear to the estimate of total costs at contract
completion.

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 and the Company having no substantial continuing
involvement with the buyer.

The Company follows the guidance provided for under the Financing Accounting
Standards Board ("FASB") Statement No. 66 "Accounting for Sales of Real Estate"
("Statement No. 66"), which provides guidance on sales contracts that are
accompanied by agreements which require the seller to develop the property in
the future. Under Statement No. 66 profit is recognized and allocated to the
sale of the land and the later development or construction work on the basis of
estimated costs of each activity; the same rate of profit is attributed to each
activity. As a result, profits are recognized and reflected over the improvement
period on the basis of costs incurred (including land) as a percentage of total
costs estimated to be incurred. The Company uses the percentage of completion
method, as the future costs of development and profit were reliably estimated.

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 ordinary maintenance and repairs are
expensed 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 FASB
Statement No. 144, "Accounting for the Impairment or Disposal of Long Lived
Assets."

20

OVERVIEW AND BACKGROUND

The Company is a self-administered and self-managed real estate investment trust
("REIT") specializing in the ownership, operation, acquisition, leasing,
financing, management and development of office and industrial / R&D 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").

As of March 31, 2003, the Company owned and operated 75 office properties
(inclusive of eleven office properties owned through joint ventures) comprising
approximately 13.6 million square feet, 101 industrial / R&D properties
comprising approximately 6.7 million square feet and two retail properties
comprising approximately 20,000 square feet located in the Tri-State Area.

The Company also owns approximately 313 acres of land in 12 separate parcels of
which the Company can develop approximately 3.0 million square feet of office
space and approximately 400,000 square feet of industrial / R&D space. In
addition, during the three months ended March 31, 2003, the Company completed
the development of a 71,000 square foot industrial / R&D property on Long
Island. At March 31, 2003, the Company had incurred approximately $5.6 million
of investment costs related to this project, anticipates incurring an additional
$1.7 million of investment costs and projects to place this project into service
during the second quarter of 2003. The Company is currently evaluating
alternative land uses for certain of the land holdings to realize the highest
economic value. These alternatives may include rezoning certain land parcels
from commercial to residential for potential disposition. As of March 31, 2003,
the Company had invested approximately $115.4 million in these development
projects. Management has made subjective assessments as to the value and
recoverability of these investments based on current and proposed development
plans, market comparable land values and alternative use values. The Company has
capitalized approximately $2.3 million and $3.3 million for the three months
ended March 31, 2003 and 2002, respectively related to real estate taxes,
interest and other carrying costs related to these development projects.

During February 2003, the Company, through Reckson Construction Group, Inc.,
entered into a contract with an affiliate of First Data Corp. to sell a
19.3-acre parcel of land located in Melville, New York and has been retained by
the purchaser to develop a build-to-suit 195,000 square foot office building for
aggregate consideration of approximately $47 million. This transaction closed on
March 11, 2003 and development of the aforementioned office building has
commenced. Net proceeds from the land sale of approximately $18.3 million were
used to establish an escrow account with a qualified intermediary for a future
exchange of real property pursuant to Section 1031 of the Internal Revenue Code
of 1986, as amended (the "Code") and is included in prepaid expenses and other
assets on the Company's balance sheet. The Code allows for the deferral of taxes
related to the gain attributable to the sale of property if such qualified
identified replacement property is identified within 45 days and acquired within
180 days from the initial sale. The Company has identified certain properties
and interests in properties for purposes of this exchange. In accordance with
Statement No. 66, the Company has estimated its pre-tax gain on this land sale
and build-to-suit transaction to be approximately $16.6 million of which $5.8
million has been recognized in the current period and is included in investment
and other income on the Company's statement of income. Approximately $10.8
million has been deferred to future periods which will be recognized as the
development progresses.

The Company holds a $17.0 million interest in a note receivable, which bears
interest at 12% per annum and is secured by a minority partnership interest in
Omni Partners, L.P., owner of the Omni, a 579,000 square foot Class A office
property located in Uniondale, NY (the "Omni Note"). The Company currently owns
a 60% majority partnership interest in Omni Partnership, L.P. and on March 14,
2007 may exercise an option to acquire the remaining 40% interest for a price
based on 90% of the fair market value of the property. The Company also holds
three other notes receivable aggregating $36.5 million which bear interest at
rates ranging from 10.5% to 12% per annum and are secured in part by a minority
partner's preferred unit interest in the Operating Partnership, certain interest
in real property and a personal guarantee (the "Other Notes" and collectively
with the Omni Note, the "Note Receivable Investments"). As of March 31, 2003,
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. Based on these assessments, the Company's management
believes there is no impairment to the carrying value related to the Company's
Note Receivable Investments. The Company also owns a 355,000 square foot office
building in Orlando, Florida. This non-core real estate holding was acquired in
May 1999 in connection with the Company's initial New York City portfolio
acquisition. This property is cross collateralized under a $102 million mortgage
note along with one of the Company's New York City buildings.

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"), which it manages. The remaining 40% interest is owned by JAH Realties
L.P. Jon Halpern, the CEO and a director of HQ Global Workplaces, is a partner
in JAH Realties, L.P. As of March 31, 2003, the 520JV had total assets of $20.7
million, a mortgage note payable of $12.4 million and other liabilities of
$217,000. The Company's allocable share of the 520JV mortgage note payable is
approximately $7.5 million. This mortgage note payable bears interest at 8.85%
per annum and matures on September 1, 2005. In addition, the 520JV had total
revenues of $979,000 and total expenses of $844,000 for the three months ended
March 31, 2003. The operating agreement of the 520JV requires joint decisions
from all members on all significant operating and capital decisions including
sale of the property, refinancing of the property's mortgage debt, development
and approval of leasing strategy and leasing of rentable space. As a result of
the decision-making participation relative to the operations of the property,
the Company accounts for the 520JV under the equity method of accounting. The
520JV contributed approximately $106,000 to the Company's equity in earnings of
real estate joint ventures for the three months ended March 31, 2003. For the
three months ended March 31, 2002, the Company recorded its allocable share of a
loss from the 520JV of approximately $72,000.

21

In connection with the IPO, the Company was granted ten year options to acquire
ten properties (the "Option Properties") which are either owned by certain
Rechler family members who are also executive officers of the Company, or in
which the Rechler family members own a non-controlling minority interest at a
price based upon an agreed upon formula. In years prior to 2001, one Option
Property was sold by the Rechler family members to a third party and four of the
Option Properties were acquired by the Company for an aggregate purchase price
of approximately $35 million, which included the issuance of approximately
475,000 OP Units valued at approximately $8.8 million. Currently, certain
Rechler family members retain their equity interests in the five remaining
Option Properties (the "Remaining Option Properties") which were not contributed
to the Company as part of the IPO. Such options provide the Company the right to
acquire fee interest in two of the Remaining Option Properties and the Rechler's
minority interests in three Remaining Option Properties. During May 2003, the
Independent Directors approved the exercise by the Company of its option to
acquire the Rechler's fee interest in two of the Remaining Option Properties
(225 Broad Hollow Road and 593 Acorn Street) and to provide customary tax
protection from the sale or disposition of these properties by the Company for a
five-year period. In addition, the Rechler family members agreed to extend the
term of the three remaining unexercised options for an additional two years.
Both of these properties are located on Long Island and aggregate approximately
228,000 square feet. Aggregate consideration to acquire the two Remaining Option
Properties is approximately $22.1 million which includes the assumption of
approximately $19.0 million of mortgage notes payable and the issuance of
approximately 145,000 OP Units. The Company anticipates that it will acquire
these two Remaining Option Properties in July 2003 and prepay or retire
approximately $6.1 million of the assumed debt.

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 the Service Companies in
which, as of September 30, 2002 the Operating Partnership owned a 97%
non-controlling interest. An entity which is substantially owned by certain
Rechler family members who are also executive officers of the Company owned a 3%
controlling interest in the Service Companies. In order to minimize the
potential for corporate conflicts of interests which became possible as a result
of changes to the Code that permit REITs to own 100% of taxable REIT
subsidiaries, the Independent Directors of the Company approved the purchase by
the Operating Partnership of the remaining 3% interests in the Service
Companies. On October 1, 2002, the Operating Partnership acquired such 3%
interests in the Service Companies for an aggregate purchase price of
approximately $122,000. Such amount was less than the total amount of capital
contributed by the Rechler family members. As a result of the acquisition of the
remaining interests in the Service Companies, the Operating Partnership
commenced consolidating the operations of the Service Companies. During the
three months ended March 31, 2003, Reckson Construction Group, Inc. billed
approximately $125,100 of market rate services and Reckson Management Group,
Inc. billed approximately $71,000 of market rate management fees to the
Remaining Option Properties. In addition, for the three months ended March 31,
2003, Reckson Construction Group, Inc. performed market rate services,
aggregating approximately $20,000, for a property in which certain executive
officers of the Company maintain an equity interest.

Reckson Management Group, Inc. leases 43,713 square feet of office and storage
space at a Remaining Option Property located at 225 Broad Hollow Road, Melville,
New York for its corporate offices at an annual base rent of approximately $1.2
million. Reckson Management Group, Inc. also leases 10,722 square feet of
warehouse space used for equipment, materials and inventory storage at a
Remaining Option Property located at 593 Acorn Street, 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 $431,500. 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 $176,000.

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 nine
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. The Company is responsible for managing the
day-to-day operations and business affairs of the Tri-State JV and has
substantial rights in making decisions affecting the properties such as leasing,
marketing and financing. The minority member has certain rights primarily
intended to protect its investment. For purposes of its financial statements the
Company consolidates the Tri-State JV.

On December 21, 2001, the Company formed a joint venture with the New York State
Teachers' Retirement Systems ("NYSTRS") (the "919JV") 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. The Company is responsible for managing the
day-to-day operations and business affairs of the 919JV and has substantial
rights in making decisions affecting the property such as developing a budget,
leasing and marketing. The minority member has certain rights primarily intended
to protect its investment. For purposes of its financial statements the Company
consolidates the 919JV.

22

The total market capitalization of the Company at March 31, 2003 was
approximately $2.9 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 $18.80 per share/unit (based on the closing
price of the Company's Class A common stock on March 31, 2003), (ii) the market
value of the Company's Class B common stock of $19.35 per share (based on the
closing price of the Company's Class B common stock on March 31, 2003), (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 $1.4 billion (including its share of joint venture debt and net of
minority partners' interests share of joint venture debt) of debt outstanding at
March 31, 2003. As a result, the Company's total debt to total market
capitalization ratio at March 31, 2003 equaled approximately 48.0%.

During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc. ("FrontLine") and 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 / R&D 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 March 31, 2003, 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 March 31,
2003, 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.

23

At December 31, 2001, the Company, pursuant to Section 166 of the Code charged
off for tax purposes $70 million of the aforementioned reserve directly related
to the FrontLine Facility, including accrued interest. On February 14, 2002, the
Company charged off for tax purposes 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 March 31, 2003. Such amount has been reflected in
investments in service companies and affiliate loans and joint ventures on the
Company's consolidated balance sheet.

On or about April 29, 2003, RSVP entered into agreements regarding the
restructuring of its capital structure and arrangements with its management. In
connection with such restructuring, RSVP transferred $41 million in cash, and
the assets that comprised its parking investments valued at approximately $28.5
million to the preferred equity holders in RSVP. In addition, RSVP agreed to
redeem the preferred equity holders' interests for an additional $95.8 million
in cash, subject to a financing contingency. RSVP also agreed to restructure its
relationship with its current managing directors, conditioned upon the
redemption of the preferred equity interests, whereby a management company
formed by the managing directors will be retained to manage RSVP. RSVP will
enter into a management agreement that will provide for an annual base
management fee, and disposition fees equal to 2% of the net proceeds received by
RSVP on asset sales. (The base fee and disposition fees together being subject
to a maximum amount over the term of the agreement, of $7.5 million.) In
addition, the managing directors will retain a subordinate residual interest in
RSVP's assets. The management agreement will have a three-year term, subject to
early termination in the event of the disposition of all of the assets of RSVP.
As a result of this new arrangement, the employment contracts of the managing
directors will be terminated. There can be no assurance that any of the
foregoing pending transactions will be completed. In the event that the
redemption of the preferred does not close, all parties rights shall remain
unaffected, including the rights relating to a dispute between common and
preferred members over certain provisions of the RSVP operating agreement.

Both the FrontLine Facility and the RSVP Facility terminate on June 15, 2003,
are unsecured and advances thereunder are recourse obligations of FrontLine.
Notwithstanding the valuation reserve, under the terms of the credit facilities,
interest accrues 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 are 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.

Scott H. Rechler, who serves as Co-Chief Executive Officer and a director of the
Company, serves as CEO and Chairman of the Board of Directors of FrontLine and
is its sole board member. Scott H. Rechler also serves as a member of the
management committee of RSVP.

24

RESULTS OF OPERATIONS

Three months ended March 31, 2003 as compared to the three months ended March
31, 2002.

Property operating revenues which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by approximately $1.7
million for the three months ended March 31, 2003 as compared to the 2002
period. The change in Property Operating Revenues is attributable to increases
in rental rates in our "same store" properties amounting to approximately
$700,000 and $2.2 million attributable to lease up of newly developed and
redeveloped properties. These increases were offset by an increase of
approximately $1.2 million in bad debt expense related to tenant receivables and
deferred rents receivable.

Investment and other income increased by $5.3 million. This increase is
primarily attributable to the gain recognized on the First Data land sale and
build-to-suit transaction of approximately $5.8 million. This increase in
investment and other income was offset by a loss of approximately $817,000 from
the operations of Reckson Construction Group, Inc.

Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $5.9 million or 14.2% for the three months ended March
31, 2003 as compared to the 2002 period. This increase includes a $4.3 million
increase in property operating expenses and a $1.6 million increase in real
estate taxes and are primarily attributable to our "same-store" properties. The
increase in property operating expenses includes a $2.2 million increase in
utilities and snow removal costs which is attributable to the severe winter
weather conditions encountered in the Northeast. Also included in the $4.3
million of property operating expense increase is $1.3 million attributable to
increases in insurance costs. The insurance cost increase is primarily
attributable to the added cost of terrorism insurance for our properties and a
significant increase in our liability insurance costs. The increase in insurance
costs were caused by implications of the events which occurred on September 11,
2001. The increase in real estate taxes are attributable to the significant
increase levied by certain municipalities, particularly in New York City and
Nassau County, New York which are experiencing severe fiscal budget issues.

Gross Operating Margins (defined as Property Operating Revenues less Property
Expenses, taken as a percentage of Property Operating Revenues) for the three
months ended March 31, 2003 and 2002 were 61.2% and 65.6%, respectively. The
decrease in Gross Operating Margins is primarily attributable to decreases in
average occupancy of the portfolio and also as a result of increased Property
Expenses specifically relating to insurance costs, real estate taxes and
utilities and snow removal costs.

Marketing, general and administrative expenses increased by approximately $1.2
million or 16.4% for the three months ended March 31, 2003 as compared to the
2002 period. The increase is in part attributable to compensation costs
associated with the Company's long term incentive programs as well as an
increase in overall compensation costs which commenced in January 2003. In
addition, during the three months ended March 31, 2003, the Company incurred
additional legal and professional fees resulting from increased Board of
Directors activities to comply with the provisions of the Sarbanes Oxley
legislation. Marketing, general and administrative expenses, as a percentage of
total revenues were, 6.3% for the three months ended March 31, 2003 as compared
to 5.7% for the 2002 period. The Company capitalized approximately $1.1 million
of marketing, general and administrative expenses for the three months ended
March 31, 2003 as compared to $1.3 million for the 2002 period. These costs
relate to leasing, construction and development activities, which are performed
by the Company and its subsidiaries.

Interest expense increased by approximately $1.9 million for the three months
ended March 31, 2003 as compared to the 2002 period. The increase includes
$750,000 of interest on the Operating Partnership's $50 million, five-year
senior unsecured notes issued in June 2002. The increase is also affected by the
reduction in capitalized interest expense of $753,000 attributable to a decrease
in the level of development projects. In addition, the increase includes
approximately $533,000 which is attributable to an increase in the weighted
average balance outstanding on the Company's unsecured credit facility. The
weighted average balance outstanding was $285.6 million for the three months
ended March 31, 2003 as compared to $205.5 million for the three months ended
March 31, 2002. These increases were offset by a decrease of approximately
$210,000 in mortgage note payable interest expense.

25

LIQUIDITY AND CAPITAL RESOURCES

Historically, rental revenue has been the principal source of funds to pay
operating expenses, debt service and non-incremental capital expenditures,
excluding incremental 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 its unsecured credit facility
described below. The credit facility contains several financial covenants with
which the Company must be in compliance in order to borrow funds thereunder.
During certain quarterly periods, the Company may incur significant leasing
costs as a result of increased market demands from tenants and high levels of
leasing transactions that result from the re-tenanting of scheduled expirations
or early terminations of leases. As a result, during these periods the Company's
cash flow from operating activities may not be sufficient to pay 100% of the
quarterly dividends due on its common stock. To meet the short-term funding
requirements relating to these leasing costs, the Company may use proceeds of
property sales or borrowings under its credit facility. 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, when
valuations for commercial real estate properties are high, the Company will seek
to sell certain land inventory to realize value and profit created. The Company
will then seek opportunities to reinvest the capital realized from these
dispositions back into value-added assets in the Company's core Tri-State Area
markets, as well as pursue its stock repurchase program. The Company will
refinance existing mortgage indebtedness, senior unsecured notes or indebtedness
under its 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 and proceeds from sales of land will be adequate to meet the
capital and liquidity requirements of the Company in both the short and
long-term.

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 coverage for acts of
terrorism in all risk policies. In November 2002, the Terrorism Risk Insurance
Act of 2002 was signed into law which, among other things, requires insurance
companies to offer coverage for losses resulting from defined "acts of
terrorism" through 2004. 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 $300 million per
occurrence. 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.

The terrorist attacks of September 11, 2001, in New York City may adversely
effect the value of the Company's New York City properties and its ability to
generate cash flow. There may be a decrease in demand in metropolitan areas that
are considered at risk for future terrorist attacks, and this decrease may
reduce the Company's revenues from property rentals.

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.

The Company currently has a three year $500 million unsecured revolving credit
facility (the "Credit Facility") from JPMorgan Chase Bank, as administrative
agent, Wells Fargo Bank, National Association, as syndication agent, and
Citicorp North America, Inc. and Wachovia Bank, National Association, as
co-documentation agents. The Credit Facility matures in December 2005, contains
options for a one-year extension subject to a fee of 25 basis points and, upon
receiving additional lender commitments, increasing the maximum revolving credit
amount to $750 million. In addition, borrowings under the Credit Facility are
currently priced off LIBOR plus 90 basis points and the Credit Facility carries
a facility fee of 20 basis points per annum. In the event of a change in the
Operating Partnership's unsecured credit rating the interest rates and facility
fee are subject to change. The outstanding borrowings under the Credit Facility
were $302.0 million at March 31, 2003.

26

The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At March 31, 2003, the Company had availability under the Credit
Facility to borrow approximately an additional $198.0 million, subject to
compliance with certain financial covenants.

The Company continues to seek opportunities to acquire real estate assets in its
markets. The Company has historically sought to acquire properties where it
could use its real estate expertise to create additional value subsequent to
acquisition. As a result of increased market values for the Company's commercial
real estate assets, the Company has sold certain non-core assets or interests in
assets where significant value has been created. During 2000, 2001 and 2002, the
Company has sold assets or interests in assets with aggregate sales prices of
approximately $499.8 million. The Company has used the proceeds from these sales
primarily to pay down borrowings under the Credit Facility, repurchase its
outstanding stock and for general corporate purposes. In addition, during the
quarterly period ended March 31, 2003, the Company through Reckson Construction
Group, Inc. entered into a sale of a 19.3 acre land parcel and build-to-suit
195,000 square foot office building for aggregate consideration of approximately
$47.0 million.

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 Amounts
joint ventures 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 $15.9 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.

In connection with the proposed restructuring of RSVP, the Company and the
second largest creditor of FrontLine, have agreed to adjust certain allocations
to account for the overhead expenses incurred by RSVP. Such adjustment is not
expected to have a material effect on the Company's potential recovery as a
creditor of FrontLine.

On March 31, 2003, the Company had issued and outstanding 9,915,313 shares of
Class B Exchangeable Common Stock, par value $.01 per share (the "Class B common
stock"). 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. The Class B
common stock currently receives an annual dividend of $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 at
which time the Company anticipates that it will exercise its option to redeem
all of its Class B common stock outstanding.

The Board of Directors of the Company has authorized the purchase of up to five
million shares of the Company's Class A common stock and / or its Class B 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. During the three months
ended March 31, 2003, under this buy-back program, the Company purchased 252,000
shares of Class A common stock at an average price of $18.01 per Class A share
for an aggregate purchase price of approximately $4.5 million.

The following table sets forth the Company's activity under its current common
stock buy-back program (dollars in thousands except per share data):

SHARES AVERAGE AGGREGATE
PURCHASED PRICE PER SHARE PURCHASE PRICE
--------- --------------- --------------

Current program:
Class A common 2,950,400 $ 21.30 $ 62,830
Class B Common 368,200 $ 22.90 8,432
--------- --------
3,318,600 $ 71,262
========= ========

27

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.

On March 31, 2003, the Company had issued and outstanding 8,834,500 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. During the fourth quarter of 2002, the Company purchased and
retired 357,500 shares of the Series A Preferred stock at $22.29 per share for
approximately $8.0 million. As a result of this purchase, annual preferred
dividends will decrease by approximately $682,000.

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, at $25.50 per share and (iii) on or
after June 3, 2004 and thereafter, at $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.

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 from the adoption of Statement No. 123. To determine the fair
value of the stock options granted, the Company uses 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. For the quarterly period ended March 31, 2003 the Company
recorded approximately $1,300 of expense related to the fair value of stock
options issued. Such amount has been included in marketing, general and
administrative expenses in the Company's consolidated statements of income.

The Company's indebtedness at March 31, 2003 totaled approximately $1.4 billion
(including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) and was comprised of $302.0 million
outstanding under the Credit Facility, approximately $499.3 million of senior
unsecured notes and approximately $602.5 million of mortgage indebtedness. Based
on the Company's total market capitalization of approximately $2.9 billion at
March 31, 2003 (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 $1.4
billion of debt), the Company's debt represented approximately 48.0% 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 eight (formerly eleven) executive office centers in the Company's
properties, two of which are held through joint ventures. The leases under which
these office centers operate expire between 2008 and 2011, encompass
approximately 171,000 square feet and have current contractual annual base rents
of approximately $4.2 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, the Bankruptcy Court has granted HQ's petition
to reject three of its leases with the Company, one of which is held through the
919JV. The two rejected leases, held through wholly owned entities, aggregated
approximately 23,700 square feet and were to provide for contractual base rents
of approximately $600,000 for the 2003 calendar year. The third rejected lease
held through the 919JV aggregated approximately 31,000 square feet and was to
provide for contractual base rents of approximately $1.9 million for the 2003
calendar year. Pursuant to the bankruptcy filing, HQ has been paying current
rental charges under its leases with the Company, other than under the three
rejected leases. The Company is in negotiation to restructure three of the
leases and leave the terms of the remaining five 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 currently established reserves of approximately $360,000 (net of minority
partners' interests and including the Company's share of unconsolidated joint
venture interest), or 50%, of the amounts due from HQ as of March 31, 2003.
Scott H. Rechler serves as the non-Executive Chairman of the Board and Jon
Halpern is the Chief Executive Officer and a director of HQ.

28

WorldCom/MCI and its affiliates ("WorldCom"), a telecommunications company,
which leased approximately 527,000 square feet in thirteen 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. During
February 2003, the Bankruptcy Court granted WorldCom's petition to reject three
of its leases with the Company. The three rejected leases aggregated
approximately 192,000 square feet and provided for contractual base rents of
approximately $4.8 million for the 2003 calendar year. All of WorldCom's leases
are current on base rental charges through May 31, 2003, other than under the
three rejected leases and the Company currently holds approximately $300,000 in
security deposits relating to the non-rejected leases. The Company is currently
in negotiations to restructure the remaining WorldCom leases. There can be no
assurance as to whether any deal will be consummated with WorldCom or if
WorldCom will affirm or reject any or all of its remaining leases with the
Company.

As of March 31,2003, WorldCom occupied approximately 355,000 square feet of
office space with aggregate annual base rental revenues of approximately $6.7
million, or 1.8% of the Company's total 2003 annualized rental revenue, making
it the Company's third largest tenant based on base rental revenue earned on a
consolidated basis.

29

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 March 31, 2003 (in thousands):

MATURITY DATE
-----------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
---------- ---------- ---------- ---------- ----------- ---------- -----------

Mortgage notes payable (1) $ 9,419 $ 13,169 $ 14,167 $ 13,785 $ 11,305 $ 117,389 $ 179,234
Mortgage notes payable (2) (3) -- 2,616 18,553 129,920 60,539 346,269 557,897
Senior unsecured notes -- 100,000 200,000 200,000 500,000
Unsecured credit facility -- -- 302,000 -- -- -- 302,000
Land lease obligations 2,031 2,811 2,814 2,795 2,735 43,276 56,462
Operating leases 1,028 1,313 1,359 1,407 1,455 683 7,245
Air rights lease obligations 278 379 379 379 379 4,280 6,074
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 12,756 $ 120,288 $ 339,272 $ 148,286 $ 276,413 $ 711,897 $1,608,912
========== ========== ========== ========== ========== ========== ==========

(1) Scheduled principal amortization payments
(2) Principal payments due at maturity
(3) In addition, the Company has a 60% interest in an unconsolidated joint
venture property. The Company's pro rata share of the mortgage debt at
March 31, 2003 is approximately $7.5 million. This mortgage note bears
interest at 8.85% per annum and matures on September 1, 2005.

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 March 31, 2003, the Company had approximately $1.0 million in
outstanding undrawn standby letters of credit issued under the Credit Facility.
In addition, approximately $44.8 million, or 6.1%, of the Company's mortgage
debt is recourse to the Company.

Other Matters

Ten of the Company's office 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 five of the properties expire during the
remainder of 2003 with the limitations on the remaining properties expiring in
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.

The Company had historically structured long term incentive programs ("LTIP")
using restricted stock and stock loans. In July 2002, as a result of certain
provisions of the Sarbanes Oxley legislation, the Company discontinued the use
of stock loans in its LTIP. In connection with LTIP grants made prior to the
enactment of the Sarbanes Oxley legislation the Company made stock loans to
certain executive and senior officers to purchase 1,372,393 shares of its Class
A common stock at market prices ranging from $18.44 per share to $27.13 per
share. The stock loans were set to bear interest at the mid-term Applicable
Federal Rate and were secured by the shares purchased. Such stock loans
(including accrued interest) vest and are ratably forgiven each year on the
anniversary of the grant date based upon vesting periods ranging from four to
ten years based on continued service and in part on attaining certain annual
performance measures. These stock loans had an initial aggregate weighted
average vesting period of approximately nine years. Approximately $1.1 million
of compensation expense was recorded for the three month periods ended March 31,
2003 and 2002 related to these LTIP. Such amount has been included in marketing,
general and administrative expenses on the Company's consolidated statements of
income.

The outstanding stock loan balances due from executive and senior officers
aggregated approximately $14.5 million and $17.0 million at March 31, 2003 and
December 31, 2002, respectively, and have been included as a reduction of
additional paid in capital on the Company's consolidated balance sheets. Other
outstanding loans to executive and senior officers amounting to approximately
$1.0 million at March 31, 2003 and December 31, 2002, related to life insurance
contracts and approximately $2.1 million and $1.0 million at March 31, 2003 and
December 31, 2002, respectively, primarily related to tax payment advances on a
stock compensation awards made to non-executive officers.

30

In November 2002 and March 2003 an award of rights was granted to certain
executive officers of the Company (the "2002 Rights" and "2003 Rights",
respectively and collectively, the "Rights"). Each Right represents the right to
receive, upon vesting, one share of Class A common stock if shares are then
available for grant under one of the Company's stock option plans or, if shares
are not so available, an amount of cash equivalent to the value of such stock on
the vesting date. The 2002 Rights will vest in four equal annual installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual installments beginning on March 13, 2005 (and shall be fully vested on
March 13, 2007). Dividends on the shares will be held by the Company until such
shares become vested, and will be distributed thereafter to the applicable
officer. The 2002 Rights also entitle the holder thereof to cash payments in
respect of taxes payable by the holder resulting from the Rights. The 2002
Rights aggregate 190,524 shares of the Company's Class A common stock and the
2003 Rights aggregate 60,760 shares of Class A common stock. In addition, during
the three months ended March 31, 2003, the Company recorded approximately
$216,000 of compensation expense related to the Rights. Such amount has been
included in marketing, general and administrative expenses on the Company's
consolidated statement of income.

In March 2003, the Company established a new LTIP for its executive and senior
officers. The four-year plan has a core award which provides for annual stock
based compensation based upon continued service and in part based on attaining
certain annual performance measures. The plan also has a special outperformance
award which provides for compensation to be earned at the end of a four year
period if the Company attains certain four year cumulative performance measures.
Amounts earned under the special outperformance award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board. Performance
measures are based on total shareholder returns on a relative and absolute
basis. On March 13, 2003, the Company made available 1,384,102 shares of its
Class A common stock under its existing stock option plans in connection with
the core award of this LTIP for twelve of its executive and senior officers. In
addition, with respect to the core award of this LTIP, the Company recorded
approximately $268,000 of compensation expense for the period March 13, 2003
through March 31, 2003. Such amount is included in marketing, general and
administrative expenses on the Company's consolidated statement of income.
Further, no provision will be made for the special outperformance award of this
LTIP until such time as achieving the requisite performance measures is
determined to be probable.

Under various Federal, state and local laws, ordinances and regulations, an
owner of real estate is liable for the costs of removal or remediation of
certain hazardous or toxic substances on or in such property. These laws often
impose such liability without regard to whether the owner knew of, or was
responsible for, the presence of such hazardous or toxic substances. The cost of
any required remediation and the owner's liability therefore as to any property
is generally not limited under such enactments and could exceed the value of the
property and/or the aggregate assets of the owner. The presence of such
substances, or the failure to properly remediate such substances, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances may also be liable for the costs of removal or
remediation of such substances at a disposal or treatment facility, whether or
not such facility is owned or operated by such person. Certain environmental
laws govern the removal, encapsulation or disturbance of asbestos-containing
materials ("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with ACMs. In connection with the
ownership (direct or indirect), operation, management and development of real
properties, the Company may be considered an owner or operator of such
properties or as having arranged for the disposal or treatment of hazardous or
toxic substances and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines and
injuries to persons and property.

All of the Company's office and industrial / R&D properties have been subjected
to a Phase I or similar environmental audit after April 1, 1994 (which involved
general inspections without soil sampling, ground water analysis or radon
testing and, for the Company's properties constructed in 1978 or earlier, survey
inspections to ascertain the existence of ACMs were conducted) completed by
independent environmental consultant companies (except for 35 Pinelawn Road
which was originally developed by Reckson and subjected to a Phase 1 in April
1992). These environmental audits have not revealed any environmental liability
that would have a material adverse effect on the Company's business.

31

FUNDS FROM OPERATIONS

The Company believes that Funds from Operations ("FFO") is a widely recognized
and appropriate measure of performance of an equity REIT. Although FFO is a
non-GAAP financial measure, the Company believes it provides useful information
to shareholders, potential investors and management. The Company computes FFO in
accordance with the standards established by the National Association of Real
Estate Investment Trusts ("NARIET"). FFO is defined by NAREIT as net income or
loss, excluding gains or losses from debt restructuring and sales of depreciable
properties plus real estate depreciation and amortization, and after adjustments
for unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP 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. FFO for
the three months ended March 31, 2003 includes a gain from the sale of land in
the amount of $5.5 million.

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):

THREE MONTHS ENDED
MARCH 31,
------------------
2003 2002
------- -------

Net income allocable to common shareholders .................................. $ 8,663 $15,982
Adjustments for basic funds from operations:
Add:
Limited partners' minority interest in the operating partnership ..... 996 1,934
Real estate depreciation and amortization ............................ 31,327 25,321
Minority partners' interests in consolidated partnerships ............ 4,690 5,120
Less:
Gain on sales of depreciable real estate assets ........................ -- 537
Amounts distributable to minority partners in consolidated partnerships 6,807 6,563
------- -------
Basic Funds From Operations ("FFO") ....................................... 38,869 41,257
Add:
Dividends and distributions on dilutive shares and units ........... 5,590 5,948
------- -------
Diluted FFO ............................................................. $44,459 $47,205
======= =======
Weighted average common shares outstanding ................................ 58,116 60,297
Weighted average units of limited partnership interest outstanding ........ 7,276 7,507
------- -------
Basic weighted average common shares and units outstanding ................ 65,392 67,804
Adjustments for dilutive FFO weighted average shares and units outstanding:
Add:
Weighted average common stock equivalents .............................. 119 337
Weighted average shares of Series A Preferred Stock .................... 7,747 8,060
Weighted average shares of Series B Preferred Stock .................... 1,919 1,919
Weighted average shares of preferred limited partnership interest ...... 661 993
------- -------
Dilutive FFO weighted average shares and units outstanding ................ 75,838 79,113
======= =======

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 / R&D 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. As a result of the impact of the events of September 11, 2001,
the Company has realized increased insurance costs, particularly relating to
property and terrorism insurance, and security costs. The Company has included
these costs as part of its escalatable expenses. The Company has billed these
escalatable expense items to its tenants consistent with the terms of the
underlying leases and believes they are collectible. 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.

32

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 March 31, 2003, 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 reflects 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 March 31, 2003 (dollars in thousands):

For the Year Ended December 31,
---------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total(1) FMV
---------------------------------------------------------------------------------------------------

Long term debt:
Fixed rate....... $ 9,419 $ 115,785 $ 32,720 $ 143,705 $ 271,844 $ 663,658 $ 1,237,131 $ 1,258,000
Weighted average
interest rate..... 7.50% 7.95% 6.92% 7.38% 7.80% 7.14% 7.26%
Variable rate....... $ -- $ -- $ 302,000 $ -- $ -- $ -- $ 302,000 $ 302,000
Weighted average
interest rate..... -- --% 2.17% -- -- -- 2.17%

(1) Includes aggregate unamortized issuance discounts of approximately $661,000
on the senior unsecured notes issued during March 199and June 2002, which are
due at maturity.

In addition, a one percent increase in the LIBOR rate would have an approximate
$3.0 million annual increase in interest expense based on $302.0 million of
variable rate debt outstanding at March 31, 2003.

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
March 31, 2003 (dollars in thousands):

For the Year Ended December 31,
-----------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total (1) FMV
---------------------------------------------------------------------------------------------------

Mortgage notes and
notes receivable:
Fixed rate............. $ -- $ -- $ 36,500 $ -- $ -- $ 16,990 $ 53,490 $ 54,625
Weighted average
interest rate...... -- -- 11.32% -- -- 12.00% 11.54%

(1) Excludes interest receivables aggregating approximately $1.2 million
dollars.

33

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures and internal controls designed to
ensure that information required to be disclosed in our filings under the
Securities Exchange Act of 1934 is reported within the time periods specified in
the Securities and Exchange Commission's rules and forms. In this regard, the
Company has formed a Disclosure Committee currently comprised of all of the
Company's executive officers as well as certain other employees with knowledge
of information that may be considered in the SEC reporting process. The
Committee has responsibility for the development and assessment of the financial
and non-financial information to be included in the reports filed by the Company
with the SEC and assists the Company's Co-Chief Executive Officers and Chief
Financial Officer in connection with their certifications contained in the
Company's SEC reports. The Committee meets regularly and reports to the Audit
Committee on a quarterly or more frequent basis. Our principal executive and
financial officers have evaluated our disclosure controls and procedures within
90 days prior to the filing of this Quarterly Report on Form 10-Q and have
determined that such disclosure controls and procedures are effective.

There have been no significant changes in internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.

34

The following table sets forth the Company's schedule of its top 25 tenants
based on base rental revenue as of March 31, 2003:

- ---------------------------------------------------------------------------------------------------------------
PERCENT OF PRO-RATA PERCENT OF CONSOLIDATED
TOTAL SHARE OF ANNUALIZED ANNUALIZED BASE
TENANT NAME (1) TENANT TYPE SQUARE FEET BASE RENTAL REVENUE RENTAL REVENUE
- ---------------------------------------------------------------------------------------------------------------

* DEBEVOISE & PLIMPTON Office 465,420 3.3% 5.5%
* AMERICAN EXPRESS Office 238,342 2.0% 1.8%
* WORLDCOM/MCI Office 335,242 1.8% 1.7%
BELL ATLANTIC Office 210,426 1.6% 1.3%
* SCHULTE ROTH & ZABEL Office 238,052 1.4% 2.4%
DUN & BRADSTREET CORP. Office 123,000 1.2% 1.0%
FUJI PHOTO FILM USA Office 163,880 1.2% 1.0%
UNITED DISTILLERS Office 137,918 1.1% 1.0%
* HQ GLOBAL Office/Industrial 171,099 0.9% 1.0%
* PRUDENTIAL Office 127,153 0.9% 0.9%
* BANQUE NATIONALE DE PARIS Office 145,834 0.9% 1.5%
* KRAMER LEVIN NESSEN KAMIN Office 158,144 0.8% 1.4%
VYTRA HEALTHCARE Office 105,613 0.8% 0.7%
T.D. WATERHOUSE Office 104,981 0.8% 0.7%
P.R. NEWSWIRE ASSOCIATES Office 67,000 0.8% 0.7%
HOFFMANN-LA ROCHE INC. Office 120,736 0.7% 0.6%
HELLER EHRMAN WHITE Office 64,526 0.7% 0.6%
* STATE FARM Office/Industrial 164,175 0.7% 1.0%
EMI ENTERTAINMENT WORLD Office 65,844 0.7% 0.6%
LABORATORY CORP OF AMERICA Office 108,000 0.7% 0.6%
ESTEE LAUDER Industrial 374,578 0.7% 0.6%
* DRAFT WORLDWIDE INC. Office 124,008 0.7% 1.1%
PRACTICING LAW INSTITUTE Office 62,000 0.7% 0.6%
LOCKHEED MARTIN CORP. Office 123,554 0.7% 0.6%
D.E.SHAW Office 70,104 0.6% 0.6%
- ----------------------------------------------------------------------------------------------------------------

(1) Ranked by pro-rata share of annualized based rental revenue adjusted for
pro rata share of joint venture interests and to reflect WorldCom/MCI and
HQ Global leases rejected to date.

* Part or all of space occupied by tenant is in a 51% or more owned joint
venture building.

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

The following table sets forth annual and per square foot non-incremental
revenue-generating capital expenditures in which the Company paid or accrued,
during the respective periods, to retain revenues attributable to existing
leased space for the years 1999 through 2002 and for the three month period
ended March 31, 2003 for the Company's office and industrial / R&D properties
other than One Orlando Center in Orlando, FL:

35

- ----------------------------------------------------------------------------------------------------------------------------
NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES (1)
- ----------------------------------------------------------------------------------------------------------------------------
Average YTD
1999 2000 2001 2002 1999-2002 2003
----------- ----------- ----------- ----------- --------- -----------

Suburban Office Properties
Total $ 2,298,899 $ 3,289,116 $ 4,606,069 $ 5,283,674 $ 3,869,440 $ 1,271,421
Per Square Foot $ 0.23 $ 0.33 $ 0.45 $ 0.53 $ 0.39 $ 0.13

NYC Office Properties
Total N/A $ 946,718 $ 1,584,501 $ 1,939,111 $ 1,490,110 $ 549,081
Per Square Foot N/A 0.38 0.45 $ 0.56 0.46 $ 0.37

Industrial Properties
Total $ 1,048,688 $ 813,431 $ 711,666 $ 1,881,627 $ 1,113,853 $ 290,184
Per Square Foot $ 0.11 $ 0.11 $ 0.11 $ 0.28 $ 0.15 $ 0.04
----------- ----------- ----------- ----------- -----------
Total Portfolio
Total $ 3,347,587 $ 5,049,265 $ 6,902,236 $ 9,104,413 $ 2,110,686
Per Square Foot $ 0.17 $ 0.25 $ 0.34 $ 0.45 $ 0.10

The following table sets forth annual and per square foot non-incremental
revenue-generating tenant improvement costs and leasing commissions in which the
Company committed to perform, during the respective periods, to retain revenues
attributable to existing leased space for the years 1999 through 2002 and for
the three month period ended March 31, 2003 for the Company's office and
industrial / R&D properties other than One Orlando Center in Orlando, FL:

- --------------------------------------------------------------------------------------------------------------------
NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS (1), (3) and (4)
- --------------------------------------------------------------------------------------------------------------------

1999 2000 2001 2002
----------- ----------- ----------- -----------

Long Island Office Properties
Tenant Improvements $ 1,009,357 $ 2,853,706 $ 2,722,457 $ 1,917,466
Per Square Foot Improved $ 4.73 $ 6.99 $ 8.47 $ 7.81
Leasing Commissions $ 551,762 $ 2,208,604 $ 1,444,412 $ 1,026,970
Per Square Foot Leased $ 2.59 $ 4.96 $ 4.49 $ 4.18
----------- ----------- ----------- -----------
Total Per Square Foot $ 7.32 $ 11.95 $ 12.96 $ 11.99
=========== =========== =========== ===========
Westchester Office Properties
Tenant Improvements $ 1,316,611 $ 1,860,027 $ 2,584,728 $ 6,391,589 (2)
Per Square Foot Improved $ 5.62 $ 5.72 $ 5.91 $ 15.05
Leasing Commissions $ 457,730 $ 412,226 $ 1,263,012 $ 1,975,850 (2)
Per Square Foot Leased $ 1.96 $ 3.00 $ 2.89 $ 4.65
----------- ----------- ----------- -----------
Total Per Square Foot $ 7.58 $ 8.72 $ 8.80 $ 19.70
=========== =========== =========== ===========
Connecticut Office Properties
Tenant Improvements $ 179,043 $ 385,531 $ 213,909 $ 491,435
Per Square Foot Improved $ 4.88 $ 4.19 $ 1.46 $ 3.81
Leasing Commissions $ 110,252 $ 453,435 $ 209,322 $ 307,023
Per Square Foot Leased $ 3.00 $ 4.92 $ 1.43 $ 2.38
----------- ----------- ----------- -----------
Total Per Square Foot $ 7.88 $ 9.11 $ 2.89 $ 6.19
=========== =========== =========== ===========
New Jersey Office Properties
Tenant Improvements $ 454,054 $ 1,580,323 $ 1,146,385 $ 2,842,521
Per Square Foot Improved $ 2.29 $ 6.71 $ 2.92 $ 10.76
Leasing Commissions $ 787,065 $ 1,031,950 $ 1,602,962 $ 1,037,012
Per Square Foot Leased $ 3.96 $ 4.44 $ 4.08 $ 3.92
----------- ----------- ----------- -----------
Total Per Square Foot $ 6.25 $ 11.15 $ 7.00 $ 14.68
=========== =========== =========== ===========
New York City Office Properties
Tenant Improvements N/A $ 65,267 $ 788,930 $ 4,350,106
Per Square Foot Improved N/A $ 1.79 $ 15.69 $ 18.39
Leasing Commissions N/A $ 418,185 $ 1,098,829 $ 2,019,837
Per Square Foot Leased N/A $ 11.50 $ 21.86 $ 8.54
----------- ----------- ----------- -----------
Total Per Square Foot N/A $ 13.29 $ 37.55 $ 26.93
=========== =========== =========== ===========
Industrial Properties
Tenant Improvements $ 375,646 $ 650,216 $ 1,366,488 $ 1,850,812
Per Square Foot Improved $ 0.25 $ 0.95 $ 1.65 $ 1.97
Leasing Commissions $ 835,108 $ 436,506 $ 354,572 $ 890,688
Per Square Foot Leased $ 0.56 $ 0.64 $ 0.43 $ 0.95
----------- ----------- ----------- -----------
Total Per Square Foot $ 0.81 $ 1.59 $ 2.08 $ 2.92
=========== =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
Tenant Improvements $ 3,334,711 $ 7,395,070 $ 8,822,897 $17,843,929
Per Square Foot Improved $ 1.53 $ 4.15 $ 4.05 $ 7.96
Leasing Commissions $ 2,741,917 $ 4,960,906 $ 5,973,109 $ 7,257,379
Per Square Foot Leased $ 1.26 $ 3.05 $ 2.75 $ 3.24
----------- ----------- ----------- -----------
Total Per Square Foot $ 2.79 $ 7.20 $ 6.80 $ 11.20
=========== =========== =========== =========== (Continued)

Average YTD
1999-2002 2003 New Renewal
----------- ----------- ----------- -----------

Long Island Office Properties
Tenant Improvements $ 2,125,747 $ 376,436 $ 354,129 $ 22,307
Per Square Foot Improved $ 7.00 $ 7.12 $ 8.11 $ 2.42
Leasing Commissions $ 1,307,937 $ 238,590 $ 215,997 $ 22,593
Per Square Foot Leased $ 4.06 $ 4.51 $ 4.95 $ 2.45
----------- ----------- ----------- -----------
Total Per Square Foot $ 11.06 $ 11.63 $ 13.06 $ 4.87
=========== =========== =========== ===========
Westchester Office Properties
Tenant Improvements $ 3,038,239 $ 96,001 $ 96,001 $ 0
Per Square Foot Improved $ 8.08 $ 4.64 $ 8.72 $ 0.00
Leasing Commissions $ 1,027,204 $ 42,666 $ 18,667 $ 23,999
Per Square Foot Leased $ 3.13 $ 2.06 $ 1.70 $ 2.49
----------- ----------- ----------- -----------
Total Per Square Foot $ 11.20 $ 6.70 $ 10.42 $ 2.49
=========== =========== =========== ===========
Connecticut Office Properties
Tenant Improvements $ 317,480 $ 8,036 $ 8,036 $ 0
Per Square Foot Improved $ 3.58 $ 1.28 $ 1.28 $ 0
Leasing Commissions $ 270,008 $ 38,525 $ 38,525 $ 0
Per Square Foot Leased $ 2.93 $ 6.15 $ 6.15 $ 0
----------- ----------- ----------- -----------
Total Per Square Foot $ 6.52 $ 7.43 $ 7.43 $ 0.00
=========== =========== =========== ===========
New Jersey Office Properties
Tenant Improvements $ 1,505,821 $ 2,271,806 $ 1,947,868 $ 323,938
Per Square Foot Improved $ 5.67 $ 11.80 $ 35.87 $ 2.34
Leasing Commissions $ 1,114,747 $ 1,312,207 $ 609,040 $ 703,167
Per Square Foot Leased $ 4.10 $ 6.82 $ 11.22 $ 5.09
----------- ----------- ----------- -----------
Total Per Square Foot $ 9.77 $ 18.62 $ 47.09 $ 7.43
=========== =========== =========== ===========
New York City Office Properties
Tenant Improvements $ 1,734,768 $ 1,624,190 $ 1,509,190 $ 115,000
Per Square Foot Improved $ 11.96 $ 40.61 $ 59.94 $ 7.76
Leasing Commissions $ 1,178,950 $ 569,370 $ 569,370 $ 0
Per Square Foot Leased $ 13.97 $ 14.24 $ 18.80 $ 0.00
----------- ----------- ----------- -----------
Total Per Square Foot $ 25.92 $ 54.85 $ 78.74 $ 7.76
=========== =========== =========== ===========
Industrial Properties
Tenant Improvements $ 1,060,791 $ 283,635 $ 252,501 $ 31,134
Per Square Foot Improved $ 1.20 $ 1.14 $ 1.48 $ 0.39
Leasing Commissions $ 629,218 $ 259,535 $ 239,357 $ 20,178
Per Square Foot Leased $ 0.64 $ 1.04 $ 1.40 $ 0.26
----------- ----------- ----------- -----------
Total Per Square Foot $ 1.85 $ 2.18 $ 2.88 $ 0.65
=========== =========== =========== ===========
- --------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
Tenant Improvements $ 9,782,844 $ 4,660,104 $ 4,167,725 $ 492,379
Per Square Foot Improved $ 4.75 $ 8.30 $ 9.66 $ 3.78
Leasing Commissions $ 5,528,065 $ 2,460,892 $ 1,690,955 $ 769,937
Per Square Foot Leased $ 2.66 $ 4.38 $ 3.92 $ 5.92
----------- ----------- ----------- -----------
Total Per Square Foot $ 7.41 $ 12.68 $ 13.58 $ 9.70
=========== =========== =========== ===========

As noted, incremental revenue-generating tenant improvement costs and
leasing commissions are excluded from the tables set forth above. The historical
capital expenditues, tenant improvement costs and leasing commissions set forth
above are not necessarily indicative of future non-incremental revenue-
generating capital expenditures or non-incremental revenue-generating tenant
improvement costs and leasing commissions that may be incurred to retain
revenues on leased space.

NOTES:
- ------

(1) Excludes non-incremental capital expenditures, tenant improvements and
leasing commissions for One Orlando Center in Orlando, Florida. Paid or
accrued capital expenses, tenant improvements and leasing commissions for
the three month period ended March 31, 2003 were $160,935, $414,336 and
$422,007 respectively. Committed tenant improvements and leasing
commissions for One Orlando were $1,286,881 and $510,740 respectively.
(2) Excludes tenant improvements and leasing commissions related to a 163,880
square foot leasing transaction with Fuji Photo Film U.S.A. Leasing
commissions on this transaction amounted to $5.33 per square foot and
tenant improvement allowance amounted to $40.88 per square foot.
(3) All amounts represent tenant improvements and leasing costs committed on
leases signed during the period.
(4) Excludes $746,827 of deferred leasing costs in YTD 2003 attributable to
space marketed but not yet leased.

36

The following table sets forth the Company's components of its paid or accrued
non-incremental and incremental revenue-generating capital expenditures, tenant
improvements and leasing costs for the three months ended March 31, 2003 as
reported on its "Statements of Cash Flows - Investment Activities" contained in
its consolidated financial statements (in thousands):

March 31,
2003
-----------
Capital expenditures:
Non-incremental .............................. $ 2,272
Incremental .................................. 255
Tenant improvements:
Non-incremental .............................. 12,366
Incremental .................................. 23
-------
Additions to commercial real estate properties..... $14,916
=======
Leasing costs:
Non-incremental .............................. $ 2,599
Incremental .................................. 2,188
-------
Payment of deferred leasing costs ................. $ 4,787
=======
Acquisition and development costs ................. $ 5,888
=======

The following table sets forth the Company's lease expiration table at April 1,
2003 for its Total Portfolio of properties, its Office Portfolio and its
Industrial / R&D Portfolio:

TOTAL PORTFOLIO (a)

- ---------------------------------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Portfolio % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
- ---------------------------------------------------------------------------------------------------------------

2003 118 1,136,247 5.6% 5.6%
2004 187 1,541,706 7.6% 13.2%
2005 243 2,479,052 12.2% 25.4%
2006 222 2,567,226 12.7% 38.1%
2007 144 1,625,535 8.0% 46.1%
2008 111 1,533,788 7.6% 53.6%
2009 and thereafter 291 8,007,433 39.6% 93.1%
- ---------------------------------------------------------------------------------------------------------------
Total/Weighted Average 1,316 18,890,987 93.1% --
===============================================================================================================
Total Portfolio Square Feet 20,294,055
===============================================================================================================

OFFICE PORTFOLIO (a)

- ---------------------------------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Office % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
- ---------------------------------------------------------------------------------------------------------------

2003 105 829,574 6.1% 6.1%
2004 149 975,820 7.2% 13.3%
2005 209 1,792,499 13.2% 26.5%
2006 172 1,560,167 11.5% 38.0%
2007 112 1,261,583 9.3% 47.3%
2008 78 807,556 6.0% 53.3%
2009 and thereafter 239 5,343,909 39.4% 92.8%
- ---------------------------------------------------------------------------------------------------------------
Total/Weighted Average 1,064 12,571,108 92.8% --
===============================================================================================================
Total Office Portfolio Square Feet 13,559,025
===============================================================================================================

INDUSTRIAL/R&D PORTFOLIO

- ---------------------------------------------------------------------------------------------------------------
Number of Square % of Total Cumulative
Year of Leases Feet Industrial/R&D % of Total
Expiration Expiring Expiring Sq Ft Portfolio Sq Ft
- ---------------------------------------------------------------------------------------------------------------

2003 13 306,673 4.6% 4.6%
2004 38 565,886 8.4% 13.0%
2005 34 686,553 10.2% 23.1%
2006 50 1,007,059 15.0% 38.1%
2007 32 363,952 5.4% 43.5%
2008 33 726,232 10.8% 54.3%
2009 and thereafter 52 2,663,524 39.5% 93.8%
- ---------------------------------------------------------------------------------------------------------------
Total/Weighted Average 252 6,319,879 93.8% --
===============================================================================================================
Total Industrial/R&D Portfolio Square Feet 6,735,030
===============================================================================================================

(a) Excludes the 355,000 square foot office property located in Orlando,
Florida.

37

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.

Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Securities Holders - None
Item 5. Other information - None

Item 6. Exhibits and Reports on Form 8-K
a) Exhibits

10.1 Amended and Restated Long-Term Incentive Award Agreement, dated
as of March 13, 2003, between Registrant and Scott H. Rechler*

99.1 Certification of Donald J. Rechler, Co-Chief Executive Officer
of the Registrant pursuant to Section 1350 of Chapter 63 of
Title 18 of the United States Code

99.2 Certification of Scott H. Rechler, Co-Chief Executive Officer of
the Registrant pursuant to Section 1350 of Chapter 63 of Title
18 of the United States Code

99.3 Certification of Michael Maturo, Executive Vice President,
Treasurer and Chief Financial Officer of the Registrant pursuant
to Section 1350 of Chapter 63 of Title 18 of the United States
Code

* Each of Donald J. Rechler, Mitchell D. Rechler, Gregg M.
Rechler, Michael Maturo, Roger M. Rechler and Jason M. Barnett
has entered into a Long-Term Incentive Award Agreement with the
Registrant, dated March 13, 2003. These Agreements are
identical in all material respects to the Amended and Restated
Long-Term Incentive Award Agreement for Scott H. Rechler filed
herewith.

b) During the three months ended March 31, 2003, the Registrant filed the
following reports on Form 8-K:

On January 27, 2003, the Registrant submitted a report on Form
8-K under Item 5 with respect to the refinancing of its
unsecured Credit Facility.

On March 5, 2003, the Registrant submitted a report on Form 8-K
under Item 9 thereof in order to submit its fourth quarter
presentation in satisfaction of the requirements of Regulation
FD.

On March 5, 2003, 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 December 31, 2002 in
satisfaction of the requirements of Regulation FD.

38

PART II - OTHER INFORMATION (CONTINUED)

SIGNATURES

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

RECKSON ASSOCIATES REALTY CORP.

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

By /s/ Donald J. Rechler
---------------------------
Donald J. Rechler,
Co-Chief Executive Officer

DATE: May 9, 2003

39

CERTIFICATION

I, Donald J. Rechler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Reckson
Associates Realty Corp.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and

6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 9, 2003

/s/ Donald J. Rechler
-----------------------------
Donald J. Rechler
Co-Chief Executive Officer

40

CERTIFICATION

I, Scott H. Rechler, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Reckson
Associates Realty Corp.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and

6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 9, 2003

/s/ Scott H. Rechler
---------------------------------
Scott H. Rechler
Co-Chief Executive Officer

41

CERTIFICATION

I, Michael Maturo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Reckson
Associates Realty Corp.;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented in
this quarterly report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and
we have:

a) designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the Registrant's auditors and the
audit committee of Registrant's board of directors:

a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and

6. The Registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

Date: May 9, 2003

/s/ Michael Maturo
--------------------------------------
Michael Maturo
Executive Vice President, Treasurer
and Chief Financial Officer

42