SEC Filing | SL Green Realty Corp.

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 June 30, 1999 Commission file number: 1-13762 RECKSON OPERATING PARTNERSHIP, L.P. (Exact name of registrant as specified in its charter) Delaware 11-3233647 - -------- ---------- (State other jurisdiction of (IRS. Employer incorporation of organization) Identification Number) 225 Broadhollow Road, Melville, NY 11747 - ---------------------------------- ----- (Address of principal executive office) (zip code) (516) 694-6900 (Registrant's telephone number including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No

RECKSON OPERATING PARTNERSHIP, L. P. QUARTERLY REPORT FOR THE THREE MONTHS ENDED JUNE 30, 1999 TABLE OF CONTENTS INDEX PAGE - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION - -------------------------------------------------------------------------------- Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1999 (unaudited) and December 31, 1998 2 Consolidated Statements of Income for the three and six months ended June 30, 1999 and 1998 (unaudited) 3 Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and 1998 (unaudited) 4 Notes to the Consolidated Financial Statements (unaudited) 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk - -------------------------------------------------------------------------------- PART II. OTHER INFORMATION - -------------------------------------------------------------------------------- Item 1. Legal Proceedings Item 2. Changes in Securities and use of proceeds Item 3. Defaults Upon Senior Securities Item 4. Submission of Matters to a Vote of Securities Holders Item 5. Other Information Item 6. Exhibits and Reports on form 8-K - -------------------------------------------------------------------------------- SIGNATURES - --------------------------------------------------------------------------------

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Reckson Operating Partnership, L.P. Consolidated Balance Sheets (Dollars in thousands, except for share amounts) June 30, December 31, 1999 1998 ----------- ----------- (unaudited) Assets Commercial real estate properties, at cost Land $ 289,191 $ 212,540 Buildings and improvements 1,835,625 1,372,549 Developments in progress: --- Land 75,354 69,143 Development costs 71,613 82,901 Real estate held for sale 221,703 --- Furniture, fixtures and equipment 6,486 6,090 ----------- ----------- 2,499,972 1,743,223 Less accumulated depreciation (189,482) (159,049) ----------- ----------- 2,310,490 1,584,174 Investments in real estate joint ventures 21,803 15,104 Investment in mortgage notes and notes receivable 341,666 99,268 Cash and cash equivalents 41,289 2,228 Tenant receivables 2,978 5,159 Investments in and advances to affiliates 94,698 53,154 Deferred rent receivable 24,955 22,526 Prepaid expenses and other assets 20,053 46,372 Contract and land deposits and pre-acquisition costs 2,118 2,253 Deferred lease and loan costs 33,324 24,282 ----------- ----------- Total Assets $ 2,893,374 $ 1,854,520 =========== =========== Liabilities Mortgage notes payable $ 387,014 $ 253,463 Unsecured credit facilities 479,100 465,850 Unsecured term loan 75,000 20,000 Senior unsecured notes 449,279 150,000 Accrued expenses and other liabilities 64,472 48,384 Distributions payable 24,915 19,663 Affiliate payables 1,157 2,395 ----------- ----------- Total Liabilities 1,480,937 959,755 ----------- ----------- Commitments and other comments --- --- Minority interests in consolidated partnerships 127,506 52,173 ----------- ----------- PARTNERS' CAPITAL Preferred Capital, 15,234,518 and 9,234,518 units outstanding, respectively 413,126 263,126 General Partner's Capital: Common units, 40,364,588 and 40,035,419 units outstanding, respectively 479,826 485,341 Class B Common Units, 11,694,567 and 0 units outstanding, respectively 300,539 --- Limited Partners' Capital, 7,701,542 and 7,764,630 units outstanding, respectively 91,440 94,125 ----------- ----------- Total Partners' Capital 1,284,931 842,592 ----------- ----------- Total Liabilities and Partners' Capital $ 2,893,374 $ 1,854,520 =========== =========== See accompanying notes to financial statements.

Reckson Operating Partnership, L.P. Consolidated Statements of Income (Unaudited and in thousands, except per share and share amounts) Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------- 1999 1998 1999 1998 -------------- -------------- -------------- --------------- Revenues: Base rents $ 77,192 $ 55,536 $ 139,285 $ 102,571 Tenant escalations and reimbursements 8,586 7,061 17,129 13,113 Equity in earnings of real estate joint ventures 438 173 649 273 Equity in earnings of service companies 74 651 240 392 Interest income on mortgage notes and notes receivable 1,910 1,773 4,718 3,453 Other 2,646 1,073 4,932 1,527 ------------ ------------ ------------ ------------- Total Revenues 90,846 66,267 166,953 121,329 ------------ ------------ ------------ ------------- Expenses: Property operating expenses 15,038 12,073 27,436 21,693 Real estate taxes 12,011 9,032 22,112 17,036 Ground rents 490 432 898 845 Marketing, general and administrative 4,550 3,639 8,624 6,943 Interest 18,902 10,970 32,846 21,497 Depreciation and amortization 19,127 12,457 34,218 23,264 ------------ ------------ ------------ ------------- Total Expenses 70,118 48,603 126,134 91,278 ------------ ------------ ------------ ------------- Income before distributions to preferred unit holders and minority interests' 20,728 17,664 40,819 30,051 Preferred unit distributions (5,989) (4,168) (11,031) (4,168) Minority partners' interest in consolidated partnerships income (1,615) (712) (2,783) (1,273) ------------ ------------ ------------ ------------- Net income available to common unit holders $ 13,124 $ 12,784 $ 27,005 $ 24,610 ============ ============ ============ ============= Net Income: General Partner - common units $ 9,550 $ 10,022 $ 21,190 $ 19,857 General Partner - Class B Common Units 1,747 --- 1,747 --- Limited Partners' 1,827 2,762 4,068 4,753 ------------ ------------ ------------ ------------- Total $ 13,124 $ 12,784 $ 27,005 $ 24,610 ============ ============ ============ ============= Net income per common unit: General Partner - common units $ 0.24 $ 0.25 $ 0.53 $ 0.51 General Partner - Class B Common Units $ 0.36 $ --- $ 0.71 $ --- Limited Partners' $ 0.24 $ 0.36 $ 0.53 $ 0.62 Weighted average common units outstanding: General Partner - common units 40,285,000 39,637,000 40,167,000 38,914,000 General Partner - Class B Common Units 4,883,000 --- 2,455,000 --- Limited Partners' 7,705,000 7,694,000 7,708,000 7,701,000 See accompanying notes to financial statements.

Reckson Operating Partnership, L.P Consolidated Statement of Cash Flows (Unaudited and in thousands) Six Months Ended June 30, ------------------------- 1999 1998 ---------- ----------- Cash Flows From Operating Activities: Net Income available to common unitholders $ 27,005 $ 24,610 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,218 23,264 Minority partners' interests in consolidated partnerships 2,783 1,273 Loss reserve on real estate held for sale . 4,450 --- Gain of sale of interest in Reckson Executive Centers, LLC --- (9) Gain on sale of securities and mortgage redemption (4,492) (43) Distribution from a real estate joint venture 173 217 Equity in earnings of service companies (240) (392) Equity in earnings of real estate joint ventures (649) (273) Changes in operating assets and liabilities: Prepaid expenses and other assets (15,254) (10,728) Tenant receivables 2,181 913 Deferred rents receivable (2,429) (3,614) Real estate tax escrow (618) 115 Accrued expenses and other liabilities 22,232 8,573 ---------- ----------- Net cash provided by operating activities 69,360 43,906 ---------- ----------- Cash Flows from Investing Activities: Purchases of commercial real estate properties (194,871) (383,366) Increase in real estate held for sale . (57,095) --- Increase in deposits and pre- acquisition costs (1,889) 4,187 Investment in mortgage notes and notes receivable (262,643) 20,097 Additions to commercial real estate properties (16,389) (9,754) Additions to developments in progress (8,073) (43,330) Payment of leasing costs (7,377) (3,768) Additions to furniture, fixtures and equipment (447) (776) Investments in real estate joint ventures (6,223) (2,970) Proceeds from sales of property, securities and mortgage redemption 25,929 809 ---------- ----------- Net cash used in investing activities (529,078) (418,871) ---------- ----------- Cash Flows from Financing Activities: Principal payments on secured borrowings (1,495) (3,118) Proceeds from issuance of senior unsecured notes net of issuance costs 299,262 --- Payment of loan costs (5,368) (69) Investments in and advances to affiliates (41,304) (26,205) Proceeds from unsecured credit facilities 299,000 180,996 Principal payments on unsecured credit facilities (230,750) (94,000) Contributions of minority partners' in consolidated partnerships 75,000 --- Contributions 149,300 314,315 Distributions (42,416) (14,498) Distributions to minority partners' in consolidated partnerships (2,450) (1,311) ---------- ----------- Net cash provided by financing activities 498,779 356,110 ---------- ----------- Net increase (decrease) in cash and cash equivalents 39,061 (18,855) Cash and cash equivalents at beginning of period 2,228 21,676 ---------- ----------- Cash and cash equivalents at end of period $ 41,289 $ 2,821 ========== =========== See accompanying notes to financial statements.

RECKSON OPERATING PARTNERSHIP, L. P. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS June 30, 1999 (unaudited) 1. Organization and Formation of the Operating Partnership Reckson Operating Partnership, L. P. (The "Operating Partnership") commenced operations on June 2, 1995 and is the successor to the operations of the Reckson Group. The sole general partner in the Operating Partnership, Reckson Associates Realty Corp. (the "Company") is a self administered and self managed Real Estate Investment Trust ("REIT"). The Operating Partnership executed various option and purchase agreements whereby it issued 2,758,960 units in the Operating Partnership ("Units") to the continuing investors and assumed approximately $163 million (net of the Omni mortgages) of indebtedness in exchange for interests in certain property partnerships, fee simple and leasehold interests in properties and development land, certain business assets of the executive center entities and 100% of the non-voting preferred stock of the management and construction companies. As of June 30, 1999, the Operating Partnership owned and operated 92 office properties comprising approximately 14.9 million square feet, 130 industrial properties comprising approximately 11.1 million square feet and two retail properties comprising approximately 20,000 square feet, located in the New York Tri-State area (the "Tri-State Area"). In addition, the Operating Partnership owned or had contracted to acquire approximately 1,013 acres of land (including approximately 306 acres under option) in 20 separate parcels of which the Operating Partnership can develop approximately 9.8 million square feet of industrial and office space. The Operating Partnership also has invested approximately $306.1 million in mortgage notes encumbering three Class A office properties encompassing approximately 1.6 million square feet, a 306 acre parcel of land located in New Jersey and in a note receivable secured by a partnership interest in Omni Partner's, L.P., owner of the Omni, a 575,000 square foot Class A office property located in Uniondale, New York. During 1997, the Company formed Reckson Service Industries, Inc. ("RSI") and Reckson Strategic Venture Partners, LLC ("RSVP"). On June 11, 1998, the Operating Partnership distributed its 95% common stock interest in RSI of approximately $3 million to its owners, including the Company which, in turn, distributed the common stock of RSI to its stockholders. Additionally, during June 1998, the Operating Partnership established a credit facility with RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector operations and other general corporate purposes. As of June 30, 1999, the Operating Partnership had advanced $46.4 million under the RSI facility all of which is outstanding. In addition, the Operating Partnership approved the funding of investments of up to $100 million with or in RSVP (the "RSVP Commitment"), through RSVP-controlled joint venture REIT-qualified investments or advances made to RSI under terms similar to the RSI Facility. As of June 30, 1999, approximately $36.9 million had been invested through the RSVP Commitment, of which $16.3 million represents RSVP controlled joint venture REIT-qualified investments and $20.6 million represents advances to RSI under the RSVP Commitment. RSI serves as the managing member of RSVP. RSI invests in operating companies that generally provide commercial services to the RSI customer base which includes the tenants of RSI's executive suite business and to properties owned by the Operating Partnership and its tenants and third parties nationwide. RSVP was formed to provide the Company with a research and development vehicle to invest in alternative real estate sectors. RSVP invests primarily in real estate and real estate related operating companies generally outside of the Company's core office and industrial focus. RSVP's strategy is to identify and acquire interests in established entrepreneurial enterprises with experienced management teams in market sectors which are in the early stages of their growth cycle or offer unique circumstances for attractive investments as well as a platform for future growth. On January 6, 1998, the Operating Partnership made its initial investment in the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse facilities. In connection with the transaction the Morris Companies contributed 100% of their interests in certain industrial properties to Reckson Morris Operating Partnership, L. P. ("RMI") in exchange for operating partnership units in RMI. The Operating Partnership has agreed to invest up to $150 million in RMI. As of June 30, 1999, the Operating Partnership has invested approximately $95.5 million for an approximate 72% controlling interest. In addition, at June 30, 1999, the Operating Partnership had advanced approximately $34 million to RMI to acquire an 846,000 square foot industrial property (see note 9). During July 1998, the Company formed Metropolitan Partners, LLC ("Metropolitan") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On May 24, 1999 the Company completed the merger with Tower (see Note 6) and acquired three Class A office properties located in New York City totaling 1.6 million square feet and one office property located on Long Island totaling approximately 101,000 square feet. In addition, pursuant to the merger, the Company also acquired certain office properties, a property under development and land located outside of the Tri-State Area which have either been sold, are under contract to sell or are being held for sale. The assets currently being held for sale have been included in real estate held for sale on the accompanying consolidated balance sheet. Basis of Presentation The accompanying consolidated financial statements include the consolidated financial position of the Operating Partnership and its subsidiaries at June 30, 1999 and December 31, 1998 and the results of its operations for the three and six months ended June 30, 1999 and 1998, respectively, and, its cash flows for the six months ended June 30, 1999 and 1998, respectively. The Operating Partnership's investments in Metropolitan, RMI and Omni Partners, L. P. ("Omni"), are reflected in the accompanying financial statements on a consolidated basis with a reduction for minority partners' interest. The operating results of the service businesses currently conducted by Reckson Management Group, Inc., and Reckson Construction Group, Inc., are reflected in the accompanying financial statements on the equity method of accounting. The Operating Partnership also invests in real estate joint ventures where it may own less than a controlling interest, such investments are also reflected in the accompanying financial statements on the equity method of accounting. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements The merger with Tower (see note 6) was accounted for as a purchase in accordance with Accounting Principles Board Opinion No. 16. Accordingly, the fair value of the consideration given by the Operating Partnership, in accordance with GAAP, was used as the valuation basis for the merger. The assets acquired and liabilities assumed by the Operating Partnership were recorded at the fair value as of the closing date of the merger and the excess of the purchase price over the historical basis of the net assets acquired was allocated primarily to commercial real estate properties and real estate held for sale. The minority interests at June 30, 1999 represent an approximate 28% interest in RMI, a convertible preferred interest in Metropolitan and a 40% interest in Omni. The accompanying interim unaudited financial statements have been prepared by the Operating Partnership's management pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosure normally included in the financial statements prepared in accordance with generally accepted accounting principles ("GAAP") may have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The unaudited financial statements as of June 30, 1999 and for the six month periods ended June 30, 1999 and 1998 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, 1999. These financial statements should be read in conjunction with the Operating Partnership's audited financial statements and notes thereto for the year ended December 31, 1998 included in the Operating Partnership's Form S-3 filed on March 11, 1999 with the SEC. In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999. The Statement permits early adoption as of the beginning of any fiscal quarter after its issuance. The Operating Partnership expects to adopt the new Statement effective January 1, 2001. The Operating Partnership does not anticipate that the adoption of this Statement will have any effect on its results of operations or financial position. Certain prior year amounts have been reclassified to conform to the current year presentation. 2. Mortgage Notes Payable As of June 30, 1999, the Operating Partnership had approximately $387 million of fixed rate mortgage notes which mature at various times between August 1999 and November 2027. The notes are secured by 25 properties and two parcels of land and have a weighted average interest rate of approximately 7.5%. In addition, as of June 30, 1999, the Operating Partnership had a construction loan payable secured by a development property held for sale in the amount of approximately $5.4 million which was satisfied during July 1999. 3. Senior Unsecured Notes As of June 30, 1999, the Operating Partnership had outstanding approximately $449.3 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 (dollars in thousands): Issuance Face Amount Coupon Rate Term Maturity -------- ----------- ----------- ---- -------- August 27, 1997 $ 150,000 7.20% 10 years August 28, 2007 March 26, 1999 $ 100,000 7.40% 5 years March 15, 2004 March 26, 1999 $ 200,000 7.75% 10 years March 15, 2009 Interest on the Senior Unsecured Notes is payable semiannually with principal and unpaid interest due on the scheduled maturity dates. In addition, the five year and 10 year Senior Unsecured Notes issued on March 26, 1999 were issued at a discount of $172,000 and $566,000, respectively. Net proceeds of approximately $297.4 million received from the issuance of the March 26, 1999 Senior Unsecured Notes were used to repay outstanding borrowings under the Credit Facility. 4. Unsecured Credit Facilities and Unsecured Term Loan As of June 30, 1999, the Operating Partnership had a three year $500 million unsecured revolving credit facility (the "Credit Facility") from Chase Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the credit facility bank group. Interest rates on borrowings under the Credit Facility are priced off of LIBOR plus a sliding scale ranging from 65 basis points to 90 basis points based on the Operating Partnership's investment grade rating on its senior unsecured debt. On March 16, 1999, the Operating Partnership received its second investment grade rating on its senior unsecured debt. As a result, the pricing under the Credit Facility was adjusted to LIBOR plus 90 basis points. The Operating Partnership utilizes the Credit Facility primarily to finance the acquisitions of properties and other real estate investments, fund its development activities and for working capital purposes. At June 30, 1999, the Operating Partnership had availability under the Credit Facility to borrow an additional $123 million (net of $28 million of outstanding undrawn letters of credit). As of June 30, 1999, the Operating Partnership had a one year $75 million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. Interest rates on borrowings under the Term Loan are priced off of LIBOR plus 150 basis points for the first nine months and 175 basis points for the remaining three months. At June 30, 1999, the Operating Partnership had $75 million outstanding under the Term Loan. On May 24, 1999, in conjunction with the acquisition of Tower (see Note 6), the Operating Partnership obtained a $130 million unsecured bridge facility (The "Bridge Facility") from UBS AG. Interest rates on borrowings under the Bridge Facility were priced off of LIBOR plus approximately 214 basis points. On July 23, 1999, the Bridge Facility was repaid through a long term fixed rate secured borrowing. 5. Partners' Capital On May 26, 1999 the Operating Partnership declared a distribution of $.37125 per common partnership unit payable on July 16, 1999 to its unitholders of record as of July 8, 1999. The distribution declared, which related to the three months ended June 30, 1999, is based upon an annual distribution of $1.485 per unit. On May 26, 1999 the Operating Partnership declared a distribution on the general partner's Series A preferred units of $.4766 per unit payable on August 2, 1999. The distribution declared, which relates to the three months ended July 31, 1999 is based on an annual distribution of $1.906 per unit. On May 24, 1999, in conjunction with the Tower acquisition, the Operating Partnership issued 11,694,567 Class B Common Units of general partnership interest to the Company which were valued for GAAP purposes at $26 per unit for total consideration of approximately $304.1 million. The Class B Common Units are entitled to receive an initial annual distribution of $2.24 per unit which distribution is subject to adjustment annually. The Class B Common Units are exchangeable at any time, at the option of the holder, into an equal number of common units subject to customary antidilution adjustments. The Operating Partnership, at its option, may redeem any or all of the Class B Common Units in exchange for an equal number of common units at any time following the four year, six-month anniversary of the issuance of the Class B Common Units. On June 2, 1999, the Operating Partnership issued six million Series B preferred units of general partnership interests to the Company in exchange for approximately $150 million. The Series B preferred units have a liquidation preference of $25 per unit, and an initial distribution rate of 7.85% per annum with such rate increasing to 8.35% per annum on April 30, 2000 and to 8.85% per annum from and after April 30, 2001. The Series B preferred units are convertible to common units at a conversion rate of .9597 common units for each preferred unit and are redeemable by the Operating Partnership on or after March 2, 2002. Proceeds from the issuance of the Series B preferred units were used as partial consideration in the acquisition of the first mortgage note secured by 919 Third Avenue located in New York City. On July 9, 1999 the Operating Partnership declared a distribution of $.4231 per Class B common partnership unit payable on August 2, 1999 to the general partner. The distribution declared, which related to the period from May 24, 1999 through July 31, 1999, is based upon an annual distribution of $2.24 per unit. Net income per common partnership unit and Class B Common partnership unit is determined by allocating net income after preferred distributions and minority partners' interest in consolidated partnerships income to the general and limited partners' based on their weighted average distribution per common partnership units outstanding during the respective periods presented. Holders of preferred units of limited and general partnership interest are entitled to distributions based on the stated rates of return (subject to adjustment) for those units. 6. Commercial Real Estate Investments During the three months ended March 31, 1999, the Operating Partnership purchased approximately 68.1 acres of vacant land in Northern New Jersey for approximately $2.6 million which allows for approximately 1.1 million square feet of future development opportunities. In addition, RMI purchased 74.6 acres of vacant land for approximately $3.7 million which allows for approximately 1,000,000 square feet of future development opportunities and an 846,000 square foot industrial property located in Cranbury, New Jersey for approximately $34 million which was advanced by the Company. On April 13, 1999, the Operating Partnership received approximately $25.8 million from the redemption of a mortgage note receivable which secured three office properties located in Garden City, Long Island, encompassing approximately 400,000 square feet. As a result, the Operating Partnership recognized a gain of approximately $4.5 million. Such gain has been included in other income on the accompanying consolidated statement of income. On June 7, 1999 the Operating Partnership sold a 24,000 square foot office property located in Ossining, New York for approximately $1.5 million. As partial consideration for the sale, the Operating Partnership obtained a $1.2 million, three year purchase money mortgage. On June 15, 1999, the Operating Partnership acquired the first mortgage note secured by a 42 story, 1.4 million square foot Class A office property located at 919 third Avenue in New York City for approximately $277.5 million. The first mortgage note entitles the Operating Partnership to all the net cash flow of the property and to substantial rights regarding the operations of the property, with the Operating Partnership anticipating ultimately obtaining title to the property. This acquisition was financed with proceeds from the issuance of six million Series B preferred units of general partnership interest (see note 5) and through draws under the Credit Facility. Current financial accounting guidelines provide that where a lender has virtually the same risks and potential rewards as those of a real estate owner it should recognize the full economics associated with the operations of the property. As such, the Operating Partnership has recognized the real estate operations of the 919 Third Avenue in the accompanying consolidated statement of income for the period from the date of acquisitions through June 30, 1999. In July 1998, the Company formed a joint venture, Metropolitan Partners LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real Estate Equities Company, a Texas real estate investment trust ("Crescent"). On December 8, 1998, the Company, Metropolitan and Tower Realty Trust, Inc. ("Tower") executed a merger agreement and on May 24, 1999 Tower was merged (the "Merger") into Metropolitan, with Metropolitan surviving the Merger. Concurrently with the Merger, Tower Realty Operating Partnership, L.P. ("Tower OP") was merged with and into a subsidiary of Metropolitan. The consideration issued in the mergers was comprised of (i) 25% cash (approximately $107.2 million) and (ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class B Common Stock") (valued for GAAP purposes at approximately $304.1 million). Under the terms of the transaction, Metropolitan effectively paid for each share of Tower common stock and each unit of limited partnership interest of Tower OP the sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock. The shares of Class B Common Stock are entitled to receive an initial annual dividend of $2.24 per share, which dividend is subject to adjustment annually. 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 common stock, par value $.01 per share, of the Company 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 common stock at any time following the four year, six-month anniversary of the issuance of the Class B Common Stock. The Company controls Metropolitan and owns 100% of the common equity; Crescent owns a $85 million preferred equity investment in Metropolitan. Crescent's investment accrues distributions at a rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan at any time during that period for $85 million, plus an amount sufficient to provide a 9.5% internal rate of return. If Metropolitan does not redeem the preferred interest, upon the expiration of the two-year period, Crescent must convert its $85 million preferred interest into either (i) a common membership interest in Metropolitan or (ii) shares of the Company's common stock at a conversion price of $24.61 per share. The Tower portfolio acquired in the Merger consists of three office properties comprising approximately 1.6 million square feet located in New York City, one office property located on Long Island and certain office properties and other real estate assets located outside the Tri-State Area. Prior to the closing of the Merger, the Company arranged for the sale of four of Tower's Class B New York City properties, comprising approximately 701,000 square feet for approximately $84.5 million. Subsequent to the closing of the Merger, the Company has sold a real estate joint venture interest, one office property and one development property all located outside the Tri State Area for approximately $58 million. In addition, the remaining properties located outside of the Tri-State Area are under contract to sell or are being held for sale. The Company currently anticipates that it will incur certain sales and closing costs in connection with the sale of several of the assets located outside the Tri State Area. As a result, the Company has recorded a loss reserve of approximately $4.4 million which has been included in other income on the Company's consolidated statement of income. 7. Segment Disclosure The Operating Partnership's portfolio consists of Class A office properties located within the New York City metropolitan area and Class A suburban office and industrial properties located in the Tri-State Area (the "Core Portfolio"). In addition the Operating Partnership's portfolio also includes 22 industrial properties owned by RMI. The Company and RMI have managing directors who report directly to the Chief Operating Officer and Chief Financial Officer who have been identified as the Chief Operating Decision Makers because of their final authority over resource allocation decisions and performance assessment. In addition, as the Operating Partnership expects to meet its short term liquidity requirements in part through the credit facilities and Term Loan, interest incurred on borrowings under the credit facilities and Term Loan is not considered as part of property operating performance. Further, the Company does not consider the property operating performance of real estate held for sale as a reportable segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The following table sets forth the components of the Operating Partnership's revenues and expenses and other related disclosures for the three months ended June 30, 1999 and 1998 (in thousands): Three months ended June 30, 1999 ------------------------------------------ Core Consolidated Portfolio RMI Other Totals --------- ---------- --------- ------------ Revenues: Base rents, tenant escalations and reimbursements $ 76,943 $ 5,287 $ 3,548 $ 85,778 Equity in earnings of real estate joint ventures and service companies ....................... -- -- 512 512 Other income .................................... 144 -- 4,412 4,556 ---------- --------- --------- ---------- Total Revenues ....................................... 77,087 5,287 8,472 90,846 ---------- --------- --------- ---------- Expenses: Property expenses ............................... 25,554 816 1,169 27,539 Marketing, general and administrative ........... 3,858 167 525 4,550 Interest ........................................ 5,191 940 12,771 18,902 Depreciation and amortization ................... 16,212 1,287 1,628 19,127 ---------- --------- --------- ---------- Total Expenses ....................................... 50,815 3,210 16,093 70,118 ---------- --------- --------- ---------- Income before preferred dividends and distributions and minority interests' ......................... $ 26,272 $ 2,077 $ (7,621) $ 20,728 ========== ========= ========= ========== Total Assets $2,082,784 $ 194,898 $ 615,692 $2,893,374 ========== ========= ========= ========== Three months ended June 30, 1998 ------------------------------------------ Core Consolidated Portfolio RMI Other Totals --------- ---------- --------- ------------ Revenues: Base rents, tenant escalations and reimbursements $ 59,186 $ 3,411 $ -- $ 62,597 Equity in earnings of real estate joint ventures and service companies ....................... -- -- 824 824 Other income .................................... 189 -- 2,657 2,846 ---------- --------- --------- ---------- Total Revenues ....................................... 59,375 3,411 3,481 66,267 ---------- --------- --------- ---------- Expenses: Property expenses ............................... 20,963 574 -- 21,537 Marketing, general and administrative ........... 2,508 106 1,025 3,639 Interest ........................................ 4,211 281 6,478 10,970 Depreciation and amortization ................... 10,899 778 780 12,457 ---------- --------- --------- ---------- Total Expenses ....................................... 38,581 1,739 8,283 48,603 ---------- --------- --------- ---------- Income before preferred dividends and distributions and minority interests' ......................... $ 20,794 $ 1,672 $ (4,802) $ 17,664 ========== ========= ========= ========== Total Assets $1,425,924 $ 113,937 $ 84,481 $1,624,342 ========== ========= ========= ========== Six months ended June 30, 1999 ------------------------------------------ Core Consolidated Portfolio RMI Other Totals --------- ---------- --------- ------------ Revenues: Base rents, tenant escalations and reimbursements $ 142,966 $ 9,900 $ 3,548 $ 156,414 Equity in earnings of real estate joint ventures and service companies ....................... --- --- 889 889 Other income .................................... 213 2 9,435 9,650 ---------- --------- --------- ---------- Total Revenues ....................................... 143,179 9,902 13,872 166,953 ---------- --------- --------- ---------- Expenses: Property expenses ............................... 47,710 1,567 1,169 50,446 Marketing, general and administrative ........... 7,800 298 526 8,624 Interest ........................................ 9,751 1,217 21,878 32,846 Depreciation and amortization ................... 28,993 2,367 2,858 34,218 ---------- --------- --------- ---------- Total Expenses ....................................... 94,254 5,449 26,431 126,134 ---------- --------- --------- ---------- Income before preferred dividends and distributions and minority interests' ......................... $ 48,925 $ 4,453 $ (12,559) $ 40,819 ========== ========= ========= ========== Total Assets $2,082,784 $ 194,898 $ 615,692 $2,893,374 ========== ========= ========= ========== Six months ended June 30, 1998 ------------------------------------------ Core Consolidated Portfolio RMI Other Totals --------- ---------- --------- ------------ Revenues: Base rents, tenant escalations and reimbursements $ 109,048 $ 6,636 $ --- $ 115,684 Equity in earnings of real estate joint ventures and service companies ....................... --- --- 665 665 Other income .................................... 222 --- 4,758 4,980 ---------- --------- --------- ---------- Total Revenues ....................................... 109,270 6,636 5,423 121,329 ---------- --------- --------- ---------- Expenses: Property expenses ............................... 38,458 1,116 --- 39,574 Marketing, general and administrative ........... 5,238 206 1,499 6,943 Interest ........................................ 7,683 536 13,278 21,497 Depreciation and amortization ................... 20,245 1,535 1,484 23,264 ---------- --------- --------- ---------- Total Expenses ....................................... 71,624 3,393 16,261 91,278 ---------- --------- --------- ---------- Income before preferred dividends and distributions and minority interests' ......................... $ 37,646 $ 3,243 $ (10,838) $ 30,051 ========== ========= ========= ========== Total Assets $1,425,924 $ 113,937 $ 84,481 $1,624,342 ========== ========= ========= ========== 8. Non-Cash Investing and Financing Activities (in thousands) Six Months Ended June 30, ----------------------- 1999 1998 ---------- ----------- Cash paid during the period for interest $ 24,662 $ 17,869 ======== ========= Interest capitalized during the period $ 4,440 $ 3,263 ======== ========= On May 24, 1999, in conjunction with the Tower acquisition, the Operating Partnership issued 11,694,567 Class B Common Units which were valued for GAAP purposes at approximately $304.1 million and assumed approximately $133.4 million of indebtedness for a total non cash investment of approximately $437.5 million. 9. Subsequent Event On August 9, 1999, the Operating Partnership executed a contract for the sale of RMI and three other big box industrial properties to American Real Estate Investment Corporation ("REA"). In addition, the Operating Partnership also entered into a sale agreement with Matrix Development Group ("Matrix") relating to a first mortgage note and certain industrial land holdings. The combined total sale price is $310 million (approximately $42 million of which is payable to the Morris Companies and its affiliates) and will consist of a combination of cash, convertible preferred and common stock of REA, preferred units of REA's operating partnership, relief of debt and a purchase money mortgage note secured by certain land that is being sold to Matrix. The closing will take place in three stages which are anticipated to be completed during August 1999, December 1999, and April 2000. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the historical financial statements of Reckson Operating Partnership, L. P. (the "Operating Partnership") and related notes. The Operating Partnership 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 Operating Partnership's expectations for future periods. Certain forward-looking statements, including, without limitation, statements relating to the timing and success of acquisitions, the financing of the Operating Partnership's operations, the ability to lease vacant space and the ability to renew or relet space under expiring leases, involve certain risks and uncertainties. Although the Operating Partnership 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 Operating Partnership can give no assurance that its expectation will be achieved. Certain factors that might cause the results of the Operating Partnership to differ materially from those indicated by such forward-looking statements include, among other factors, general economic conditions, general real estate industry risks, tenant default and bankruptcies, loss of major tenants, the impact of competition and acquisition, redevelopment and development risks, the ability to finance business opportunities and local real estate risks such as an oversupply of space or a reduction in demand for real estate in the Operating Partnership's real estate markets. Consequently, such forward-looking statements should be regarded solely as reflections of the Operating Partnership'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. Overview and Background The Operating Partnership, which commenced operations on June 2 1995, is engaged in the ownership, management, operation, leasing and development of commercial real estate properties, principally office and industrial buildings, and also owns certain undeveloped land located in the New York Tri-State area (the "Tri-State Area"). Reckson Associates Realty Corp. (the "Company"), is a self administered and self managed Real Estate Investment Trust ("REIT"), and serves as the sole general partner in the Operating Partnership. As of June 30, 1999, the Operating Partnership owned and operated 92 office properties comprising approximately 14.9 million square feet, 130 industrial properties comprising approximately 11.1 million square feet and two retail properties comprising approximately 20,000 square feet, located in the Tri-State Area. In addition, the Operating Partnership owned or had contracted to acquire approximately 1,013 acres of land (including approximately 306 acres under option) in 20 separate parcels of which the Operating Partnership can develop approximately 9.8 million square feet of industrial and office space. The Operating Partnership also has invested approximately $306.1 million in mortgage notes encumbering three Class A office properties encompassing approximately 1.6 million square feet, a 306 acre parcel of land located in New Jersey and in a note receivable secured by a partnership interest in Omni Partner's, L.P., owner of the Omni, a 575,000 square foot Class A office property located in Uniondale, New York. During 1997, the Company formed Reckson Service Industries, Inc. ("RSI") and Reckson Strategic Venture Partners, LLC ("RSVP"). On June 11, 1998, the Operating Partnership distributed its 95% common stock interest in RSI of approximately $3 million to its owners, including the Company which, in turn, distributed the common stock of RSI received from the Operating Partnership to its stockholders. Additionally, during June 1998, the Operating Partnership established a credit facility with RSI (the"RSI Facility") in the amount of $100 million for RSI's service sector operations and other general corporate purposes. As of June 30, 1999, the Operating Partnership had advanced $46.4 million under the RSI Facility. In addition, the Operating Partnership has approved the funding of investments of up to $100 million with or in RSVP (the "RSVP Commitment"), through RSVP-controlled joint venture REIT-qualified investments or advances made to RSI under terms similar to the RSI Facility. As of June 30, 1999, approximately $36.9 million had been invested through the RSVP Commitment, of which $16.3 million represents RSVP-controlled joint venture REIT-qualified investments and $20.6 million represents advances to RSI under the RSVP Commitment. RSI serves as the managing member of RSVP. RSI invests in operating companies that generally provide commercial services to properties owned by the Operating Partnership and its tenants and third parties nationwide. RSVP was formed to provide the Company with a research and development vehicle to invest in alternative real estate sectors. RSVP invests primarily in real estate and real estate related operating companies generally outside of the Company's core office and industrial focus. RSVP's strategy is to identify and acquire interests in established entrepreneurial enterprises with experienced management teams in market sectors which are in the early stages of their growth cycle or offer unique circumstances for attractive investments as well as a platform for future growth. On January 6, 1998, the Operating Partnership made its initial investment in the Morris Companies, a New Jersey developer and owner of "Big Box" warehouse facilities. In connection with the transaction the Morris Companies contributed 100% of their interests in certain industrial properties to Reckson Morris Operating Partnership, L. P. ("RMI") in exchange for operating partnership units in RMI. The Operating Partnership has agreed to invest up to $150 million in RMI. As of June 30, 1999, the Operating Partnership has invested approximately $95.5 million for an approximate 72% controlling interest. In addition, at June 30, 1999, the Operating Partnership had advanced approximately $34 million to RMI to acquire an 846,000 square foot industrial property. On August 9, 1999, the Operating Partnership executed a contract for the sale of RMI and three other big box industrial properties to American Real Estate Investment Corporation ("REA"). In addition, the Operating Partnership also entered into a sale agreement with Matrix Development Group ("Matrix") relating to a first mortgage note and certain industrial land holdings. The combined total sale price is $310 million (approximately $42 million of which is payable to the Morris Companies and its affiliates) and will consist of a combination of cash, convertible preferred and common stock of REA, preferred units of REA's operating partnership, relief of debt and a purchase money mortgage note secured by certain land that is being sold to Matrix. The closing will take place in three stages which are anticipated to be completed during August 1999, December 1999, and April 2000. In July 1998, the Company formed a joint venture, Metropolitan Partners LLC, a Delaware limited liability company ("Metropolitan"), with Crescent Real Estate Equities Company, a Texas real estate investment trust ("Crescent"). On December 8, 1998, the Company, Metropolitan and Tower Realty Trust, Inc. ("Tower") executed a merger agreement and on May 24, 1999 Tower was merged (the "Merger") into Metropolitan, with Metropolitan surviving the Merger. Concurrently with the Merger, Tower Realty Operating Partnership, L.P. ("Tower OP") was merged with and into a subsidiary of Metropolitan. The consideration issued in the mergers was comprised of (i) 25% cash (approximately $107.2 million) and (ii) 75% of shares of Class B Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class B Common Stock") (valued for GAAP purposes at approximately $304.1 million). Under the terms of the transaction, Metropolitan effectively paid for each share of Tower common stock and each unit of limited partnership interest of Tower OP the sum of (i) $5.75 in cash, and (ii) 0.6273 of a share of Class B Common Stock. The shares of Class B Common Stock are entitled to receive an initial annual dividend of $2.24 per share, which dividend is subject to adjustment annually. 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 common stock, par value $.01 per share, of the Company 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 common stock at any time following the four year, six-month anniversary of the issuance of the Class B Common Stock. The Company controls Metropolitan and owns 100% of the common equity; Crescent owns a $85 million preferred equity investment in Metropolitan. Crescent's investment accrues distributions at a rate of 7.5% per annum for a two-year period and may be redeemed by Metropolitan at any time during that period for $85 million, plus an amount sufficient to provide a 9.5% internal rate of return. If Metropolitan does not redeem the preferred interest, upon the expiration of the two-year period, Crescent must convert its $85 million preferred interest into either (i) a common membership interest in Metropolitan or (ii) shares of the Company's common stock at a conversion price of $24.61 per share. The Tower portfolio acquired in the Merger consists of three office properties comprising approximately 1.6 million square feet located in New York City, one office property located on Long Island and certain office properties and other real estate assets located outside the Tri-State Area. Prior to the closing of the Merger, the Company arranged for the sale of four of Tower's Class B New York City properties, comprising approximately 701,000 square feet for approximately $84.5 million. Subsequent to the closing of the Merger, the Company has sold a real estate joint venture interest, one office property and one development property all located outside the Tri State Area for approximately $58 million. In addition, the remaining properties located outside of the Tri-State Area are under contract to sell or are being held for sale. The Company currently anticipates that it will incur certain sales and closing costs in connection with the sale of several of the assets located outside the Tri State Area. As a result, the Company has recorded a loss reserve of approximately $4.4 million which has been included in other income on the Company's consolidated statement of income. The market capitalization of the Operating Partnership at June 30, 1999 was approximately $3.2 billion. The Operating Partnership's market capitalization is calculated based on the value of the Operating Partnership's common units and Class B Common Units (which, for this purpose, is assumed to be the same per unit as the market value of a share of the Company's common stock and Class B Common Stock), the stated values of the Operating Partnership's preferred units and the $1.4 billion (including its share of joint venture debt and net of minority partners' interest) of debt outstanding at June 30, 1999. As a result, the Operating Partnership's total debt to total market capitalization ratio at June 30, 1999 equaled approximately 42.7%. Result of Operations The Operating Partnership's total revenues increased by $24.6 million or 37.1% for the three months ended June 30, 1999 as compared to the 1998 period. The growth in total revenues is substantially attributable to the Operating Partnership's acquisition of 42 properties comprising approximately 8.0 million square feet and the development of three properties comprising approximately 412,000 square feet. Property operating revenues, which include base rents and tenant escalations and reimbursements ("Property Operating Revenues") increased by $23.2 million or 37% for the three months ended June 30, 1999 as compared to the 1998 period. The 1999 increase in Property Operating Revenues is comprised of approximately $2.4 million attributable to increases in rental rates and changes in occupancies and approximately $20.8 million attributable to the acquisitions and development of properties. The remaining balance of the increase in total revenues in 1999 is primarily attributable to interest income on the Operating Partnership's investments in mortgage notes and notes receivable. The Operating Partnership's base rent was increased by the impact of the straight-line rent adjustment by $3.2 million for the three months ended June 30, 1999 as compared to $2.1 million for the 1998 period. Property operating expenses, real estate taxes and ground rents ("Property Expenses") increased by $6 million or 27.9% for the three months ended June 30, 1999 as compared to the 1998 period. These increases are primarily due to the acquisition of properties. Gross operating margins (defined as Property Operating Revenues less Property Expenses, taken as a percentage of Property Operating Revenues) for the three months ended June 30, 1999 and 1998 were 67.9% and 65.6% respectively. The increase in gross operating margins reflects increases realized in rental rates and the Operating Partnership's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties with concentrations of properties in office and industrial parks or in its established sub-markets. Marketing, general and administrative expenses increased by $911,000 for the three months ended June 30, 1999 as compared to the 1998 period. The increase is due to the increased costs of managing the acquisition properties and the increase in corporate management and administrative costs associated with the growth of the Operating Partnership including the opening of its New York City division. Marketing, general and administrative expenses as a percentage of total revenues were 5.01% for the three months ended June 30, 1999 as compared to 5.49% for the 1998 period. Interest expense increased by $7.9 million for the three months ended June 30, 1999 as compared to the 1998 period. The increase is attributable to an increased cost attributable to an increased average balance on the Operating Partnership's credit facilities and Term Loan, interest on the Operating Partnership's senior unsecured notes issued on March 26, 1999, and an increase in secured borrowings primarily attributable to the assumption of debt in conjunction with the Tower acquisition. The weighted average balance outstanding on the Company's credit facilities and Term Loan was $352.1 million for the three months ended June 30, 1999 as compared to $306.9 million for the 1998 period. The Operating Partnership's total revenues increased by $45.6 million or 37.6% for the six months ended June 30 1999 as compared to the 1998 period. The growth in total revenues is substantially attributable to the Operating Partnership's acquisition of 70 properties comprising approximately 12.4 million square feet. Property Operating Revenues increased by $40.7 million or 35.2% for the six months ended June 30, 1999. As compared to the 1998 period. The 1999 increase in Property Operating Revenues is comprised of $5.5 million attributable to increases in rental rates and changes in occupancies and $35.2 million attributable to acquisitions and development of properties. The remaining balance of the increase in total revenues in 1999 is primarily attributable to interest income on the Operating Partnership's investments in mortgage notes and notes receivable. The Operating Partnership's base rent was increased by the impact of the straight-line rent adjustment by $4.6 million for the six months ended June 30 1999 as compared to $3.6 million for the 1998 period. Property Expenses increased by $10.9 million for the six months ended June 30, 1999 as compared to the 1998 period. These increases are primarily due to the acquisition of properties. Gross operating margins for the six months ended June 30, 1999 and 1998 were 67.8% and 65.8%, respectively. The increase in gross operating margins reflects increases realized in rental rates and the Operating Partnership's ability to realize certain operating efficiencies as a result of operating a larger portfolio of properties with concentration of properties in office and industrial parks or in its established sub-markets. Marketing, general and administrative increased by $1.7 million for the six months ended June 30, 1999 as comparable to the 1998 period. The increase is due to increased costs of managing the acquisition properties and the increase in corporate management and administrative costs associated with the growth of the Operating Partnership including the opening of its New York City division. Marketing, general and administrative expenses as a percentage of total revenues were 5.17% for the six months ended June 30, 1999 as compared to 5.72% for the 1999 period. Interest expense increased by $11.3 million for the six months ended June 30, 1999 as compared to the 1998 period. The increase is attributable to an increased cost attributable to an increased average balance on the Operating Partnership's credit facilities and Term Loan, interest on the Operating Partnership's senior unsecured notes issued on March 26, 1999 and an increase in secured borrowings primarily attributable to the assumption of debt in conjunction with the Tower acquisition. The weighted average balance outstanding on the Operating Partnership's credit facilities was $429 million for the six months ended June 30, 1999 as compared to $311.5 million for the 1998 period. Liquidity and Capital Resources During April 1998, the Company contributed approximately $221 million to the Operating Partnership in exchange for 9,200,000 Series A preferred units. The Series A preferred units have a liquidation preference of $25 per unit, a distribution rate of 7.625 % and are convertible to the Operating Partnership's common units at a conversion rate of .8769 common units for each preferred unit. Additionally, with the acquisition of six office properties and the remaining 50% interest in a 365,000 square foot vacant office building located in Westchester County, the Operating Partnership issued series B, C and D preferred operating units in the amount of approximately $42.5 million. The series B, C and D preferred units have a current distribution rate of 6.25% and are convertible to common units at conversion prices of approximately $32.51, $29.39 and $29.12, respectively for each preferred unit. On March 26, 1999, the Operating Partnership issued $100 million of 7.4% senior unsecured notes due March 15, 2004 and $200 million of 7.75% senior unsecured notes due March 15, 2009. Net proceeds of approximately $297.4 million were used to repay outstanding borrowings under the Operating Partnership's unsecured credit facility. As of June 30, 1999, the Operating Partnership had a three year $500 million unsecured revolving credit facility (the "Credit Facility") from Chase Manhattan Bank, Union Bank of Switzerland and PNC Bank as co-managers of the credit facility bank group. Interest rates on borrowings under the Credit Facility are priced off of LIBOR plus a sliding scale ranging from 65 basis points to 90 basis points based on the Operating Partnership's investment grade rating on its senior unsecured debt. On March 16, 1999, the Operating Partnership received its second investment grade rating on its senior unsecured debt. As a result, the pricing under the Credit Facility was adjusted to LIBOR plus 90 basis points. The Operating Partnership utilizes the Credit Facility primarily to finance the acquisitions of properties and other real estate investments, fund its development activities and for working capital purposes. At June 30, 1999, the Operating Partnership had availability under the Credit Facility to borrow an additional $123 million (net of $28 million of outstanding undrawn letters of credit). As of June 30, 1999, the Operating Partnership had a one year $75 million unsecured term loan (the "Term Loan") from Chase Manhattan Bank. Interest rates on borrowings under the Term Loan are priced off of LIBOR plus 150 basis points for the first nine months and 175 basis points for the remaining three months. At June 30, 1999, the Operating Partnership had $75 million outstanding under the Term Loan. On May 24, 1999, in conjunction with the acquisition of Tower, the Operating Partnership obtained a $130 million unsecured bridge facility (The "Bridge Facility") from UBS AG. Interest rates on borrowings under the Bridge Facility were priced off of LIBOR plus approximately 214 basis points. On July 23, 1999, the Bridge Facility was repaid through a long term fixed rate secured borrowing. On May 24, 1999, in conjunction with the Tower acquisition, the Operating Partnership issued 11,694,567 Class B Common Units of general partnership interest to the Company which were valued for GAAP purposes at $26 per unit for total consideration of approximately $304.1 million. The Class B Common Units are entitled to receive an initial annual distribution of $2.24 per unit, which distribution is subject to adjustment annually. The Class B Common Units are exchangeable at any time, at the option of the holder, into an equal number of common units subject to customary antidilution adjustments. The Operating Partnership, at its option, may redeem any or all of the Class B Common Units in exchange for an equal number of common units at any time following the four year, six-month anniversary of the issuance of the Class B Common Units. On June 2, 1999, the Operating Partnership issued six million Series B preferred units of general partnership interests to the Company in exchange for approximately $150 million. The Series B preferred units have a liquidation preference of $25 per unit, and an initial distribution rate of 7.85% per annum with such rate increasing to 8.35% per annum on April 30, 2000 and to 8.85% per annum from and after April 30, 2001. The Series B preferred units are convertible to common units at a conversion rate of .9597 common units for each preferred unit and are redeemable by the Operating Partnership on or after March 2, 2002. Proceeds from the issuance of the Series B preferred units were used as partial consideration in the acquisition of the first mortgage note secured by 919 Third Avenue located in New York City. The Operating Partnership's indebtedness at June 30, 1999 totaled $1.4 billion (including its share of joint venture debt and net of the minority partners' interests) and was comprised of $473.3 million outstanding under the credit facilities (of which $125 million has been subsequently refinanced with a long term fixed rate secured borrowing), $75 million outstanding under the Term Loan, $449.3 million of senior unsecured notes and approximately $366.3 million of mortgage indebtedness. Based on the Operating Partnership's total market capitalization of approximately $3.2 billion at June 30, 1999 (calculated based on the value of the Operating Partnership's common units and Class B Common Units (which, for this purpose, is assumed to be the same per unit as the market value of a share of the Company's common stock and Class B Common Stock), the stated value of the Operating Partnership's preferred units), the Operating Partnership's debt represented approximately 42.7% of its total market capitalization. Historically, rental revenue has been the principal source of funds to pay operating expenses, debt service and capital expenditures, excluding non-recurring capital expenditures of the Operating Partnership. The Operating Partnership expects to meet its short term liquidity requirements generally through its net cash provided by operating activities along with the Credit Facility previously discussed. The Operating Partnership expects to meet certain of its financing requirements through long-term secured and unsecured borrowings and the issuance of debt securities and additional equity securities of the Operating Partnership. The Operating Partnership will refinance existing mortgage indebtedness or indebtedness under the Credit Facility at maturity or retire such debt through the issuance of additional debt securities or additional equity securities. The Operating Partnership anticipates that the current balance of cash and cash equivalents and cash flows from operating activities, together with cash available from borrowings and debt and equity offerings, will be adequate to meet the capital and liquidity requirements of the Operating Partnership in both the short and long-term. SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES, TENANT IMPROVEMENT AND LEASING COMMISSIONS The following table summarizes the expenditures incurred for non-incremental capital expenditures, tenant improvements and leasing commissions for the Operating Partnerhips's office and industrial properties for the six month period ended June 30, 1999 and the historical average of such non-incremental capital expenditures, tenant improvements and leasing commissions for the years 1995 through 1998. Non-Incremental Revenue Generating Tenant Improvements and Leasing Commissions Six Months Ended 1995 -1998 June 30, 1995 1996 1997 1998 Average 1999 ------------------------------------------------------------------------------ Long Island Office Properties Tenant Improvements $452,057 $523,574 $784,044 $1,140,251 $724,982 $141,292 Per Square Foot Improved 4.44 4.28 7.00 3.98 4.92 2.33 Leasing Commissions $144,925 $119,047 $415,822 $418,191 $274,496 $90,216 Per Square Foot Leased 1.42 0.97 4.83 1.46 2.17 1.18 --------- --------- ---------- ----------- --------- --------- Total Per Square Foot $5.86 $5.25 $11.83 $5.44 $7.09 $3.51 ========= ========= ========== =========== ========= ========= Westchester Office Properties Tenant Improvements N/A $834,764 $1,211,665 $711,160 $961,413 $376,574 Per Square Foot Improved N/A 6.33 8.90 4.45 6.67 4.12 Leasing Commissions N/A $264,388 $366,257 $286,150 $326,204 $165,254 Per Square Foot Leased N/A 2.00 2.69 1.79 2.24 1.81 --------- --------- ---------- ----------- --------- --------- Total Per Square Foot N/A $8.33 $11.59 $6.24 $8.91 $5.93 ========= ========= ========== =========== ========= ========= Connecticut Office Properties Tenant Improvements N/A $58,000 $1,022,421 $202,880 $570,356 $45,445 Per Square Foot Improved N/A 12.45 13.39 5.92 9.66 6.47 Leasing Commissions N/A $0.00 $256,615 $151,063 $181,190 $14,550 Per Square Foot Leased N/A 0.00 3.36 4.41 3.89 2.07 --------- --------- ---------- ----------- --------- --------- Total Per Square Foot N/A $12.45 $16.75 $10.33 $13.55 $8.54 ========= ========= ========== =========== ========= ========= New Jersey Office Properties Tenant Improvements N/A N/A N/A $654,877 $654,877 $119,323 Per Square Foot Improved N/A N/A N/A 3.78 3.78 2.20 Leasing Commissions N/A N/A N/A $396,127 $396,127 $193,570 Per Square Foot Leased N/A N/A N/A 2.08 2.08 3.18 --------- --------- ---------- ----------- --------- --------- Total Per Square Foot N/A N/A N/A $5.86 $5.86 $5.38 ========= ========= ========== =========== ========= ========= Industrial Properties Tenant Improvements $210,496 $380,334 $230,466 $283,842 $276,285 $150,222 Per Square Foot Improved 0.90 0.72 0.55 0.76 0.73 0.15 Leasing Commissions $107,351 $436,213 $81,013 $200,154 $206,183 $681,474 Per Square Foot Leased 0.46 0.82 0.19 0.44 0.48 0.67 --------- --------- ---------- ----------- --------- --------- Total Per Square Foot $1.36 $1.54 $0.75 $1.20 $1.21 $0.82 ========= ========= ========== =========== ========= ========= 1995 - 1998 average weighted to reflect October 1996 acquisition date LEASE EXPIRATIONS The following table sets forth scheduled lease expirations for executed leases as of June 30, 1999: Long Island Office Properties (excluding Omni): Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 19 79,657 2.7% $21.31 $21.54 2000 45 268,683 9.1% $21.71 $23.29 2001 40 187,022 6.3% $22.15 $24.02 2002 33 255,550 8.6% $22.30 $23.71 2003 52 342,577 11.6% $21.81 $23.10 2004 38 246,753 8.4% $22.69 $25.17 2005 and thereafter 89 1,576,056 53.3% --- --- ------ ---------- -------- Total 316 2,956,298 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Omni: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 --- --- --- --- --- 2000 4 60,316 10.2% $31.71 $36.63 2001 4 32,680 5.6% $27.36 $33.63 2002 4 129,351 22.0% $24.78 $27.14 2003 5 72,530 12.3% $29.56 $29.71 2004 4 112,414 19.1% $25.98 $33.12 2005 and thereafter 8 181,502 30.8% --- --- ------ ---------- -------- Total 29 588,793 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Industrial Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 22 296,298 5.2% $5.12 $5.68 2000 30 1,105,940 19.3% $4.84 $5.19 2001 28 676,925 11.8% $5.70 $7.16 2002 26 207,544 3.6% $6.42 $7.09 2003 30 724,434 12.7% $5.26 $6.06 2004 24 509,372 8.9% $6.59 $7.15 2005 and thereafter 42 2,207,616 38.5% --- --- ------ ---------- -------- Total 202 5,728,129 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Research and Development Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 4 26,891 2.1% $8.68 $9.44 2000 7 111,040 8.7% $8.20 $8.58 2001 8 150,120 11.8% $10.75 $11.31 2002 3 67,967 5.3% $10.54 $12.51 2003 4 271,042 21.3% $5.38 $5.25 2004 6 105,303 8.3% $11.93 $13.20 2005 and thereafter 11 540,277 42.5% --- --- ------ ---------- -------- Total 43 1,272,640 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Westchester Office Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 21 77,887 2.8% $19.74 $20.18 2000 53 502,045 18.1% $22.63 $22.86 2001 46 334,819 12.1% $21.83 $21.89 2002 46 441,072 15.9% $20.16 $20.40 2003 35 245,108 8.8% $21.80 $22.94 2004 19 106,700 3.9% $20.10 $20.34 2005 and thereafter 34 1,063,628 38.4% --- --- ------ ---------- -------- Total 254 2,771,259 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Stamford Office Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 10 24,916 2.4% $23.61 $23.78 2000 26 114,054 11.0% $22.16 $22.54 2001 23 102,583 9.9% $24.10 $25.18 2002 15 89,774 8.7% $27.32 $28.51 2003 16 99,052 9.6% $31.71 $32.46 2004 15 201,091 19.4% $20.77 $21.29 2005 and thereafter 25 403,160 39.0% --- --- ------ ---------- -------- Total 130 1,034,630 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. New Jersey Office Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 5 41,540 2.5% $20.06 $20.28 2000 34 329,989 19.7% $22.66 $22.83 2001 21 260,195 15.5% $18.09 $18.10 2002 20 166,699 10.0% $19.96 $20.06 2003 18 327,593 19.6% $18.09 $18.14 2004 25 200,994 12.0% $21.98 $21.94 2005 and thereafter 17 346,494 20.7% --- --- ------ ---------- -------- Total 140 1,673,504 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. New York Office Properties: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 8 34,158 1.3% $34.19 $35.37 2000 19 946,214 34.9% $32.61 $32.72 2001 19 136,453 5.0% $36.25 $36.38 2002 16 194,873 7.2% $32.20 $33.92 2003 7 93,752 3.4% $31.34 $31.75 2004 8 107,589 4.0% $34.48 $34.59 2005 and thereafter 68 1,197,158 44.2% --- --- ------ ---------- -------- Total 145 2,710,197 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. Reckson / Morris Industrial: Percent Total of Total Per Rentable Rentable Square Per Year of Number Square Square Foot Square Lease of Feet Feet S/L Foot Expiration Leases Expiring Expiring Rent Rent - -------------------------------------------------------------------------------- 1999 7 387,686 12.7% $3.95 $3.98 2000 6 173,768 5.7% $5.14 $5.31 2001 1 243,751 8.0% $7.50 $7.69 2002 1 610,949 20.0% $3.75 $3.96 2003 3 113,916 3.8% $4.53 $4.72 2004 5 308,057 10.1% $4.52 $4.87 2005 and thereafter 8 1,211,594 39.7% --- --- ------ ---------- -------- Total 31 3,049,721 100.0% ====== ========== ======== Per square foot rental rate represents annualized straight line rent as of the lease expiration date. Per square foot rental rate represents annualized base rent as of the lease expiration date plus non-recoverable operating expense pass-throughs. 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 and electric costs over a base amount. The industrial leases also 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 Operating Partnership believes that inflationary increases in expenses will generally be offset by contractual rent increases and expense escalations described above. The credit facilities and Term Loan bear interest at a variable rate, which will be influenced by changes in short-term interest rates, and are sensitive to inflation. Impact of Year 2000 Some of the Operating Partnership's older computer programs were written using two digits rather than four to define the applicable year. As a result, those computer programs have time-sensitive software that recognizes a date using "00" as the year 1900 rather than the year 2000. This could cause a system failure or miscalculation causing disruptions of operations, including, among other things, a temporary inability to process transactions, or engage in similar normal business activities. The Operating Partnership has completed an assessment to modify or replace portions of its software so that its computer systems will function properly with respect to dates in the year 2000 and thereafter. Currently, the entire property management system is year 2000 compliant and has been thoroughly tested. Since the Operating Partnership's accounting software is maintained and supported by an unaffiliated third party, the total year 2000 project cost as it relates to the accounting software is estimated to be minimal. The year 2000 project has been completed, which is prior to any anticipated impact on its operating systems. Additionally, the Operating Partnership has received assurances from its contractors that all of the Operating Partnership's building management and mechanical systems are currently year 2000 compliant or will be made compliant prior to any impact on those systems. However, the Operating Partnership cannot guarantee that all contractors will comply with their assurances and therefore, the Operating Partnership may not be able to determine year 2000 compliance of those contractors. At that time, the Operating Partnership will determine the extent to which the Operating Partnership will be able to replace non compliant contractors. The Operating Partnership believes that with modifications to existing software and conversions to new software, the year 2000 issue will not pose significant operational problems for its computer systems. However, if such modifications and conversions are not made, or are not completed timely, the year 2000 issue could have a material impact on the operations of the Operating Partnership. To date, the Operating Partnership has expended approximately one million dollars in connection with upgrading building management, mechanical and computer systems. The costs and completion of the project on which the Operating Partnership believes it has completed the year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and costs of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. In a "worst case scenario", the Operating Partnership believes that failure of the building management and mechanical systems to operate properly would result in inconveniences to the building tenants which might include no elevator service, lighting or entry and egress. In this case, the management of the Operating Partnership would manually override such systems in order for normal operations to resume. Additionally, in a "worst case scenario" of the failure of the upgrades to the accounting software, the Operating Partnership would be required to process transactions, such as the issuance of disbursements, manually until an alternative system was implemented. If the Operating Partnership was not successful in implementing their year 2000 compliance plan, the Operating Partnership may suffer a material adverse impact on their consolidated results of operations and financial condition. Funds From Operations Management believes that funds from operations ("FFO") is an appropriate measure of performance of an operating partnership which is a general partner of an equity REIT. FFO is defined by the National Association of Real Estate Investment Trusts (NAREIT) as net income or loss, excluding gains or losses from debt restructurings and sales of properties, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. FFO does not represent cash generated from operating activities in accordance with generally accepted accounting principles 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 Operating Partnership's operating performance or as an alternative to cash flow as a measure of liquidity. In March 1995, NAREIT issued a "White Paper" analysis to address certain interpretive issues under its definition of FFO. The White Paper provides that amortization of deferred financing costs and depreciation of non-rental real estate assets are no longer to be added back to net income to arrive at FFO. Since all companies and analysts do not calculate FFO in a similar fashion, the Operating Partnership's calculation of FFO presented herein may not be comparable to similarly titled measures as reported by other companies. The following table presents the Operating Partnership's FFO calculation (in thousands): Three Months Ended June 30, Six Months Ended June 30, --------------------------- ------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Net Income $ 13,124 $ 12,784 $ 27,005 $ 24,610 Adjustment for Funds From Operations: Add: Real Estate Depreciation and Amortization 18,406 12,181 33,094 22,787 Minority interests in consolidated partnerships 1,615 712 2,783 1,273 Less: Amount distributed to minority partners in consolidated partnerships 1,980 1,001 3,448 1,799 --------- --------- --------- --------- Funds From Operations $ 31,165 $ 24,676 $ 59,434 $ 46,871 ========= ========= ========= ========= ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The primary market risk facing the Operating Partnership is interest rate risk on its long term debt, mortgage notes and notes receivable. The Operating Partnership does not hedge interest rate risk using financial instrument nor is the Operating Partnership subject to foreign currency risk. The Operating Partnership manages its exposure to interest rate risk on its variable rate indebtedness by borrowing on a short-term basis under its Credit Facility or Term Loan until such time as it is able to retire the short-term variable rate debt with a long-term fixed rate debt offering on terms that are advantageous to the Operating Partnership or through general partner contributions. The following table sets forth the Operating Partnership's long term debt obligations, principal cash flows by scheduled maturity, weighted average interest rates and estimated fair market value ("FMV") at June 30, 1999 (dollars in thousands): For the Year Ended December 31, --------------------------------------------------------- 1999 2000 2001 2002 2003 Thereafter Total F.M.V ---------- --------- --------- -------- --------- ---------- ---------- ----------- Long term debt: Fixed rate $ 8,904 $ 32,487 $ 19,825 $ 15,002 $ 19,742 $ 735,681 $ 831,641 $ 831,641 Average interest rate 8.85% 7.38% 7.43% 7.80% 7.65% 7.49% 7.51% Variable rate $ 205,000 $ 5,373 $ 349,100 $ --- $ --- $ --- $ 559,473 $ 559,473 Average interest rate 6.93% 7.75% 5.93% --- --- --- 6.39% Includes unamortized issuance discounts of $721,000 on the 5 and 10 year senior unsecured notes issued on March 26, 1999 which are due at maturity. In addition, the Operating Partnership has assessed the market risk for its variable rate debt, which is based upon LIBOR, and believes that a one percent increase in the LIBOR rate would have an approximate 5.6 million annual increase in interest expense based on approximately $559.4 million outstanding at June 30, 1999. The following table sets forth the Operating Partnership's mortgage notes and note receivables by scheduled maturity date, weighted average interest rates and estimated FMV at June 30, 1999 (dollars in thousands): For the Year Ended December 31, --------------------------------------------------------- 1999 2000 2001 2002 2003 Thereafter Total F.M.V ---------- --------- --------- -------- --------- ---------- ---------- ----------- Mortgage notes and notes receivable: Fixed rate $ 5,038 $ 277,548 $ --- $ 6,785 $ --- $ 50,990 $ 340,361 $ 340,361 Average interest rate 10% 9.41% --- 10.65% --- 10.69% 9.63% The fair value of the Operating Partnership'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.

PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities and use of proceeds On May 24, 1999, in conjunction with the Tower acquisition, the Operating Partnership issued 11,694,567 Class B Common Units of general partnership interest to the Company which were valued for GAAP purposes at $26 per share for total consideration of approximately $304.1 million. The Class B Common Units are entitled to receive an initial annual distribution of $2.24 per share and is subject to adjustment annually. The Class B Common Units are exchangeable at any time, at the option of the holder, into an equal number of common units subject to customary antidilution adjustments. The Operating Partnership, at its option, may redeem any or all of the Class B Common Units in exchange for an equal number of common units at any time following the four year, six-month anniversary of the issuance of the Class B Common Units. On June 2, 1999, the Operating Partnership issued six million Series B preferred units of general partnership interests to the Company in exchange for approximately $150 million. The Series B preferred units have a liquidation preference of $25 per unit, and an initial distribution rate of 7.85% per annum with such rate increasing to 8.35% per annum on April 30, 2000 and to 8.85% per annum from and after April 30, 2001. The Series B preferred units are convertible to common units at a conversion rate of .9597 common units for each preferred unit and are redeemable by the Operating Partnership on or after March 2, 2002. Proceeds from the issuance of the Series B preferred units were used as partial consideration in the acquisition of the first mortgage note secured by 919 Third Avenue located in New York City. On March 16 , 1999, the Operating Partnership's Registration Statement on Form S-3 (File No. 333-67129) was declared effective by the Securities and Exchange Commission. On March 23, 1999, the Operating Partnership offered $100 million of its 7.40% Notes due March 15, 2004 and $200 million of its 7.75% Notes due March 15 2009 in an underwritten public offering in which Goldman, Sachs & Co. acted as the managing underwriter. The public offering price of the Notes aggregated approximately $299.3 million and the underwriting discount aggregated $1.9 million. Net proceeds to the Operating Partnership aggregated approximately $297.4 million and were used to repay borrowings under the Operating Partnership's Credit Facility. 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) Exhibit 27 Financial Data Schedule b) During the three months ended June 30, 1999 the registrant filed the following reports: On May 11, 1999, the Operating Partnership filed Form 8-K announcing that the Operating Partnership had entered into an agreement to acquire the first mortgage note secured by 919 Third Avenue located in New York City. On June 7, 1999, the Operating Partnership filed Form 8-K announcing that on May 24, 1999 (i) the stockholders of Tower Realty Trust, Inc. approved the merger of the two companies, (ii) Metropolitan Operating Partnership, L. P. entered into a $130 million unsecured credit agreement, (iii) that on May 26, 1999, the Company announced Scott Rechler had been named Co-Chief Executive Officer and President along with other appointments, (iv) that the Operating Partnership had increased its distribution on its common units to an annualized distribution rate of $1.485 per unit and (v) that on June 2, 1999, the Company issued six million shares of Preferred Stock for aggregate proceeds of $150 million. On June 25, 1999, the Operating Partnership filed Form 8-K announcing that it had closed on the acquisition of the first mortgage note secured by 919 Third Avenue located in New York City. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. RECKSON OPERATING PARTNERSHIP, L.P. BY: RECKSON ASSOCIATES REALTY CORP., its general partner August 11, 1999 /s/ Scott H. Rechler Date Scott H. Rechler, Co-Chief Executive Officer and President August 11, 1999 /s/ Michael Maturo Date Michael Maturo, Executive Vice President, Treasurer and Chief Financial Officer

5 0000930810 RECKSON OPERATING PARTNERSHIP, L.P. 1,000 6-MOS DEC-31-1999 JUN-30-1999 41,289 0 122,631 0 0 163,920 2,499,972 (189,482) 2,893,374 90,544 1,390,393 0 413,126 871,805 0 2,893,374 156,414 166,953 0 59,070 0 0 32,846 40,819 0 40,819 0 0 0 25,258 .53 0