Edgar Filing: RECKSON ASSOCIATES REALTY CORP

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

COMMISSION FILE NUMBER: 1-13762

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

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

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

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

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) Yes X No__, and (2) has been
subject to such filing requirements for the past 90 days. Yes X No __.

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The Company has two classes of common stock, issued at $.01 par value per
share with 46,167,242 and 10,283,513 shares of Class A common stock and Class B
common stock outstanding, respectively as of May 10, 2001

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RECKSON ASSOCIATES REALTY CORP.
QUARTERLY REPORT
FOR THE THREE MONTHS ENDED MARCH 31, 2001

TABLE OF CONTENTS

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

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets as of March 31, 2001 (unaudited) and
December 31, 2000 .................................................................... 2

Consolidated Statements of Income for the three months ended March 31, 2001 and
2000 (unaudited) ..................................................................... 3

Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and
2000 (unaudited) ..................................................................... 4

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

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13

Item 3. Quantitative and Qualitative Disclosures about Market Risk ........................... 20

PART II. OTHER INFORMATION

Item 1. Legal Proceedings .................................................................... 25

Item 2. Changes in Securities and Use of Proceeds ............................................ 25

Item 3. Defaults Upon Senior Securities ...................................................... 25

Item 4. Submission of Matters to a Vote of Securities Holders ................................ 25

Item 5. Other Information .................................................................... 25

Item 6. Exhibits and Reports on Form 8-K ..................................................... 25

SIGNATURES .................................................................................. 25

PART I -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

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

MARCH 31, 2001 DECEMBER 31,
(UNAUDITED) 2000
---------------- ---------------

ASSETS:
Commercial real estate properties, at cost:
Land .................................................................... $ 398,139 $ 396,482
Building and improvements ............................................... 2,268,512 2,219,448
Developments in progress:
Land .................................................................... 63,263 60,918
Development costs ....................................................... 81,980 93,759
Furniture, fixtures and equipment ........................................ 7,240 7,138
---------- -----------
2,819,134 2,777,745
Less accumulated depreciation ............................................ (308,853) (288,479)
---------- -----------
2,510,281 2,489,266
Investment in real estate joint ventures ................................. 76,584 43,534
Investment in mortgage notes and notes receivable ........................ 58,222 58,220
Cash and cash equivalents ................................................ 32,106 17,843
Tenant receivables ....................................................... 12,699 11,511
Investments in and advances to affiliates ................................ 170,425 177,474
Deferred rents receivable ................................................ 79,133 67,930
Prepaid expenses and other assets ........................................ 60,960 68,895
Contract and land deposits and pre-acquisition costs ..................... 2,445 1,676
Deferred leasing and loan costs .......................................... 60,789 61,681
---------- -----------
TOTAL ASSETS ............................................................. $3,063,644 $ 2,998,030
========== ===========
LIABILITIES:
Mortgage notes payable ................................................... $ 727,088 $ 728,971
Unsecured credit facility ................................................ 304,600 216,600
Senior unsecured notes ................................................... 449,404 449,385
Accrued expenses and other liabilities ................................... 74,546 95,393
Dividends and distributions payable ...................................... 28,983 28,801
---------- -----------
TOTAL LIABILITIES ........................................................ 1,584,621 1,519,150
---------- -----------
Minority partners' interests in consolidated partnerships ................ 227,001 226,350
Preferred unit interest in the operating partnership ..................... 42,518 42,518
Limited partners' minority interest in the operating partnership ......... 97,141 97,353
---------- -----------
366,660 366,221
---------- -----------
Commitments and other comments ........................................... -- --

STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value, 25,000,000 shares authorized
Series A preferred stock, 9,192,000 shares issued and outstanding ....... 92 92
Series B preferred stock, 2,000,000 shares issued and outstanding ....... 20 20
Common Stock, $.01 par value, 100,000,000 shares authorized Class A common
stock, 45,812,864 and 45,352,286 shares issued and
outstanding, respectively ............................................. 458 454
Class B common stock, 10,283,513 shares issued and outstanding .......... 103 103
Additional paid in capital ............................................... 1,111,690 1,111,990
---------- -----------
Total Stockholders' Equity ............................................... 1,112,363 1,112,659
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................... $3,063,644 $ 2,998,030
========== ===========

(see accompanying notes to financial statements)

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

THREE MONTHS ENDED
MARCH 31,
-------------------------------
2001 2000
-------------- --------------

REVENUES:
Base rents ................................................................. $ 107,494 $ 94,400
Tenant escalations and reimbursements ...................................... 15,945 12,847
Equity in earnings of real estate joint ventures and service companies ..... 398 1,413
Interest income on mortgage notes and notes receivable ..................... 1,508 2,285
Investment and other income ................................................ 5,541 6,714
----------- -----------
Total Revenues ............................................................ 130,886 117,659
----------- -----------
EXPENSES:
Property operating expenses ................................................ 40,994 38,289
Marketing, general and administrative ...................................... 7,497 6,438
Interest ................................................................... 23,631 23,840
Depreciation and amortization .............................................. 23,521 21,012
----------- -----------
Total Expenses ............................................................ 95,643 89,579
----------- -----------
Income before minority interests and preferred dividends and
distributions ............................................................. 35,243 28,080
Minority partners' interests in consolidated partnerships .................. (5,755) (1,975)
Distributions to preferred unit holders .................................... (660) (660)
Limited partners' minority interest in the operating partnership ........... (2,715) (2,278)
----------- -----------
Net Income ................................................................. 26,113 23,167
Dividends to preferred shareholders ........................................ (5,425) (7,325)
----------- -----------
Net income available to common shareholders ................................ $ 20,688 $ 15,842
=========== ===========
Net Income available to:
Class A common shareholders ............................................... $ 15,308 $ 11,446
Class B common shareholders ............................................... 5,380 4,396
----------- -----------
Total ...................................................................... $ 20,688 $ 15,842
=========== ===========
Basic net income per weighted average common share:
Class A common shareholders ............................................... $ .34 $ .28
=========== ===========
Class B common shareholders ............................................... $ .52 $ .43
=========== ===========
Basic weighted average common shares outstanding:
Class A common shareholders ............................................... 45,483,544 40,382,182
Class B common shareholders ............................................... 10,283,513 10,283,598

Diluted net income per weighted average common share:
Class A common shareholders ............................................... $ .33 $ .28
=========== ===========
Class B common shareholders ............................................... $ .37 $ .31
=========== ===========
Diluted weighted average common shares outstanding:
Class A common shareholders ............................................... 45,949,816 40,709,045
Class B common shareholders ............................................... 10,283,513 10,283,598

(see accompanying notes to financial statements)

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

THREE MONTHS ENDED
MARCH 31,
---------------------------
2001 2000
----------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................. $ 26,113 $ 23,167
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ............................................. 23,521 21,012
Minority partners' interests in consolidated partnerships ................. 5,755 1,975
Limited partners' minority interest in the operating partnership .......... 2,715 2,278
Equity in earnings of real estate joint ventures and service companies .... (398) (1,413)
Changes in operating assets and liabilities:
Tenant receivables ........................................................ (1,188) 1,120
Real estate tax escrows ................................................... (1,937) 926
Prepaid expenses and other assets ......................................... 13,118 5,714
Deferred rents receivable ................................................. (11,203) (4,465)
Accrued expenses and other liabilities .................................... (11,674) (5,122)
--------- ----------
Net cash provided by operating activities ................................. 44,822 45,192
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in contract deposits and pre-acquisition costs ................... (795) (928)
Additions to developments in progress ..................................... (5,078) (9,642)
Purchases of commercial real estate properties ............................ -- (139,426)
Proceeds from mortgage note receivable repayments ......................... 3 685
Investments in real estate joint ventures ................................. (32,752) (83)
Distribution from a real estate joint venture ............................. -- 140
Additions to commercial real estate properties ............................ (43,568) (8,655)
Additions to furniture, fixtures and equipment ............................ (113) (359)
Payment of leasing costs .................................................. (3,102) (2,642)
--------- ----------
Net cash used in investing activities ..................................... (85,405) (160,910)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock net of issuance costs .............. 1,338 195
Principal payments on secured borrowings .................................. (1,883) (1,666)
Payment of loan and equity issuance costs ................................. (334) (1,617)
Investments in and advances to affiliates ................................. 5,557 (17,768)
Proceeds from secured borrowings .......................................... -- 70,000
Proceeds from unsecured credit facility ................................... 88,000 110,000
Distributions to minority partners in consolidated partnerships ........... (5,104) (2,060)
Distributions to limited partners in the operating partnership ............ (2,967) (2,859)
Distributions to preferred unit holders ................................... (660) (660)
Dividends to common shareholders .......................................... (23,676) (20,748)
Dividends to preferred shareholders ....................................... (5,425) (7,325)
--------- ----------
Net cash provided by financing activities ................................. 54,846 125,492
--------- ----------
Net increase in cash and cash equivalents ................................. 14,263 9,774
Cash and cash equivalents at beginning of period .......................... 17,843 21,368
--------- ----------
Cash and cash equivalents at end of period ................................ $ 32,106 $ 31,142
========= ==========

(see accompanying notes to financial statements)

RECKSON ASSOCIATES REALTY CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)

1. ORGANIZATION AND FORMATION OF THE COMPANY

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

The Company was incorporated in Maryland in September 1994. In June 1995,
the Company completed an Initial Public Offering (the "IPO") and commenced
operations.

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

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 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. All of the assets acquired in
the merger located outside of the Tri-State Area, other than a 357,000 square
foot office property located in Orlando, Florida, have been sold.

On September 28, 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association ("TIAA") and contributed
eight Class A suburban office properties to the Tri-State JV in exchange for
approximately $136 million and a 51% majority ownership interest in the
Tri-State JV.

2. BASIS OF PRESENTATION

The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at March 31,
2001 and December 31, 2000 and the results of their operations and their cash
flows for the three months ended March 31, 2001 and 2000, respectively. The
Operating Partnership's investments in Metropolitan, Omni Partners ("Omni"), the
Tri-State JV and certain joint venture properties 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 minority interests at March 31, 2001 represent an approximate 12%
limited partnership interest in the Operating Partnership, a convertible
preferred interest in Metropolitan , a 49% interest in the Tri-State JV and a
40% interest in Omni.

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,
2001 and for the three month periods ended March 31, 2001 and 2000 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,
2001. 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 10K for the year ended December 31, 2000.

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

Financial Accounting Standards Board's ("FASB") Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133")
which became effective January 1, 2001 requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must 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 January 1, 2001, the carrying value of the
Company's derivatives equaled their fair value and as a result no cumulative
effect changes were recorded. Additionally, as of March 31, 2001, the carrying
value of the Company's derivatives equaled their fair value resulting in no
adjustment to income.

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

3. MORTGAGE NOTES PAYABLE

As of March 31, 2001, the Company had approximately $457.1 million of fixed
rate mortgage notes which mature at various times between 2001 and 2027. The
notes are secured by 22 properties and have a weighted average interest rate of
approximately 7.6%.

In addition, as of March 31, 2001, the Company had $270 million of variable
rate mortgage notes which mature between 2001 and 2003. The notes are secured by
two properties and have a weighted average interest rate of LIBOR plus 132 basis
points. The Company is currently negotiating to refinance both of these notes to
long term, fixed rate mortgage notes.

4. SENIOR UNSECURED NOTES

As of March 31, 2001, the Operating Partnership had outstanding
approximately $449.4 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):

FACE COUPON
ISSUANCE AMOUNT 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 Senior Unsecured Notes issued on March 26, 1999 were issued at an aggregate
discount of $738,000. Such discount is being amortized over the term of the
Senior Unsecured Notes to which they relate.

5. UNSECURED CREDIT FACILITY

As of March 31, 2001, the Company had a three year $575 million unsecured
revolving credit facility (the "Credit Facility") from The Chase Manhattan Bank,
as administrative agent, UBS Warburg LLC as syndication agent and Deutsche Bank
as documentation agent. The Credit Facility matures in September, 2003 and
borrowings under the Credit Facility are currently priced off of LIBOR plus 105
basis points.

The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At March 31, 2001, the Company had availability under the Credit
Facility to borrow an additional $270.4 million (of which, approximately $49.6
million has been allocated for outstanding undrawn letters of credit).

6. COMMERCIAL REAL ESTATE INVESTMENTS

As of March 31, 2001, the Company owned and operated 82 office properties
(inclusive of ten office properties owned through joint ventures) comprising
approximately 14.4 million square feet,104 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area. During the
quarter ended March 31, 2001, the Company completed the development of one
office property encompassing approximately 277,500 square feet and one
industrial property encompassing approximately 206,000 square feet. Both of
these properties are located on Long Island. As of March 31, 2001, the Company
is in the process of developing a 315,000 square foot office building located in
New Jersey. The Company also owns a 357,000 square foot office building located
in Orlando, Florida and approximately 290 acres of land in 13 separate parcels
of which the Company can develop approximately 1.4 million square feet of office
space and approximately 224,000 square feet of industrial space. The Company
also has invested approximately $2.9 million in a mortgage note encumbering
approximately 97 acres of land, approximately $17.0 million in a note receivable
secured by a partnership interest in Omni Partners, L.P., owner of the Omni, a
575,000 square foot Class A office property located in Uniondale, New York and
$36.5 million under three notes which are secured by a minority partners'
preferred interest in the Operating Partnership.

a property under development and land located outside of the Tri-State Area. All
of the assets acquired in the merger located outside of the Tri-State Area,
other than a 357,000 square foot office property located in Orlando, Florida,
have been sold.

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 (May 24, 1999 through May 24, 2001) 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 Class
A common stock at a conversion price of $24.61 per share. On April 4, 2001,
Crescent gave notice to the Company of its intention to convert its preferred
interest into shares of the Company's Class A common stock.

On September 28, 2000, the Company formed the Tri-State JV with TIAA and
contributed eight Class A suburban office properties aggregating approximately
1.5 million square feet to the Tri-State JV in exchange for approximately $136
million and a 51% majority ownership interest in the Tri-State JV.

7. STOCKHOLDERS' EQUITY

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

On May 24, 1999, the Company issued 11,694,567 shares of Class B
Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class
B common stock"), which were valued for GAAP purposes at $26 per share for total
consideration of approximately $304.1 million. The shares of Class B common
stock were entitled to receive an initial annual dividend of $2.24 per share,
which dividend is subject to adjustment annually. On July 1, 2000, the annual
dividend on the Class B Common Stock was increased to $2.40 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,
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 Class A
common stock at any time following November 23, 2003.

On March 12, 2001, 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 $ .386 April 5, 2001 April 17, 2001 March 31, 2001 $ 1.544
Class B common stock $ .60 April 12, 2001 April 30, 2001 April 30, 2001 $ 2.40
Series A preferred stock $ .4766 April 12, 2001 April 30, 2001 April 30, 2001 $ 1.906
Series B preferred stock $ .52222 April 12, 2001 April 30, 2001 April 30, 2001 $ 2.089

accordance with the safe harbor provisions of the Securities Exchange Act of
1934 and may be terminated by the Company at any time. As of March 31, 2001, the
Company had purchased and retired 1,410,804 shares of Class B common stock for
approximately $30.3 million.

Basic net income per share on the Company's Class A common stock was
calculated using the weighted average number of shares outstanding of 45,483,544
and 40,382,182 for the three months ended March 31, 2001 and 2000, respectively.

Basic net income per share on the Company's Class B common stock was
calculated using the weighted average number of shares outstanding of 10,283,513
and 10,283,598 for the three months ended March 31, 2001 and 2000, respectively.

The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings 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,
------------------
2001 2000
---- ----

Numerator:
Net Income ........................................................... $ 26,113 $ 23,167
Dividends to preferred shareholders .................................. (5,425) (7,325)
Income allocated to Class B common shareholders ...................... (5,380) (4,396)
-------- --------
Numerator for basic and diluted earnings per Class A common share..... $ 15,308 $ 11,446
======== ========
Denominator:
Denominator for basic earnings per share- weighted average Class A
common shares ...................................................... 45,484 40,382
Effect of dilutive securities:
Employee stock options ............................................... 466 327
-------- --------
Denominator for diluted earnings per Class A common share -- adjusted
weighted average shares and assumed conversions ...................... 45,950 40,709
======== ========
Basic earnings per Class A common share:
Net income per Class A common share .................................. $ .34 $ .28
======== ========
Diluted earnings per Class A common share:
Diluted net income per Class A common share .......................... $ .33 $ .28
======== ========

The following table sets forth the Company's reconciliation of numerators
and denominators of the basic and diluted earnings per weighted average common
share and the computation of basic and diluted earnings 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,
------------------
2001 2000
---- ----

Numerator:
Net Income .............................................................. $ 26,113 $ 23,167
Dividends to preferred shareholders ..................................... (5,425) (7,325)
Income allocated to Class A common shareholders ......................... (15,308) (11,446)
--------- ---------
Numerator for basic earnings per Class B common share ................... 5,380 4,396
Add back:
Income allocated to Class A common shareholders ......................... 15,308 11,446
Limited partners' minority interest in the operating partnership ........ 2,715 2,278
--------- ---------
Numerator for diluted earnings per Class B common share ................. $ 23,403 $ 18,120
========= =========
Denominator:
Denominator for basic earnings per share- weighted average Class B
common shares ......................................................... 10,284 10,284
Effect of dilutive securities:
Weighted average Class A common shares outstanding .................... 45,484 40,382
Weighted average OP Units outstanding ................................. 7,693 7,700
Employee stock options ................................................ 466 327
--------- ---------
Denominator for diluted earnings per Class B common share-adjusted
weighted average shares and assumed conversions ......................... 63,927 58,693
========= =========
Basic earnings per Class B common share:
Net income per Class B common share ..................................... $ .52 $ .43
========= =========
Diluted earnings per Class B common share:
Diluted net income per Class B common share ............................. $ .37 $ .31
========= =========

8. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION (in thousands)

THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
---- ----

Cash paid during the period for interest ......... $34,950 $33,306
======= =======
Interest capitalized during the period ........... $ 2,703 $ 2,362
======= =======

9. SEGMENT DISCLOSURE

The Company owns all of the interests in its real estate properties by or
through the Operating Partnership. The Company's portfolio consists of Class A
office properties located within the New York City metropolitan area and Class A
suburban office and industrial properties located and operated within the
Tri-State Area (the "Core Portfolio"). The Company's portfolio also includes one
office property located in Orlando, Florida. The Company has managing directors
who report directly to the Chief Operating Officers 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, 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

and (iii) commencing January 1, 2000, the operating performance of the
industrial joint venture properties formerly owned by Reckson Morris Operating
Partnership, L.P. as part of its Core Portfolio's property operating
performance.

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 Company's revenues and
expenses and other related disclosures for the three months ended March 31, 2001
and 2000 (in thousands):

THREE MONTHS ENDED
--------------------------------------------------------------------------------------
MARCH 31, 2001 MARCH 31, 2000
------------------------------------------- ------------------------------------------
CORE CONSOLIDATED CORE CONSOLIDATED
PORTFOLIO OTHER TOTALS PORTFOLIO OTHER TOTALS
-------------- ------------- -------------- -------------- ------------- -------------

REVENUES:
Base rents, tenant escalations and
reimbursements ....................... $ 120,722 $ 2,717 $ 123,439 $ 104,821 $ 2,426 $ 107,247
Equity in earnings of real estate
joint ventures and service
companies ............................ -- 398 398 -- 1,413 1,413
Other income .......................... 549 6,500 7,049 406 8,593 8,999
----------- --------- ----------- ----------- --------- -----------
Total Revenues ........................ 121,271 9,615 130,886 105,227 12,432 117,659
----------- --------- ----------- ----------- --------- -----------
EXPENSES:
Property operating expenses ........... 40,354 640 40,994 37,621 668 38,289
Marketing, general and
administrative ....................... 4,624 2,873 7,497 4,967 1,471 6,438
Interest .............................. 12,906 10,725 23,631 9,192 14,648 23,840
Depreciation and amortization ......... 21,535 1,986 23,521 19,334 1,678 21,012
----------- --------- ----------- ----------- --------- -----------
Total Expenses ........................ 79,419 16,224 95,643 71,114 18,465 89,579
=========== ========= =========== =========== ========= ===========
Income (loss) before minority
interests and preferred dividends
and distributions .................... $ 41,852 $ (6,609) $ 35,243 $ 34,113 $ (6,033) $ 28,080
=========== ========= =========== =========== ========= ===========
Total assets .......................... $ 2,449,621 $ 614,023 $ 3,063,644 $ 2,069,161 $ 835,172 $ 2,904,333
=========== ========= =========== =========== ========= ===========

10. OTHER INVESTMENTS AND ADVANCES

During 1997, the Company formed FrontLine Capital Group, formerly Reckson
Service Industries, Inc., ("FrontLine") and Reckson Strategic Venture Partners,
LLC ("RSVP"). In connection with the formation of FrontLine, the Operating
Partnership established a 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. As of March 31,
2001, the Company had 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 terms similar to the FrontLine Facility. During March 2001,
the Company increased the RSVP Commitment to $110 million and as of March 31,
2001, approximately $109.1 million had been funded through the RSVP Commitment,
of which $67.7 million represents investments in RSVP-controlled
(REIT-qualified) joint ventures and $41.4 million represents advances. In
addition, as of March 31, 2001, the Company, through its Credit Facility, has
allocated approximately $3.2 million in outstanding undrawn letters of credit
for the benefit of FrontLine. As of March 31, 2001, interest accrued under the
FrontLine Facility and RSVP Commitment was approximately $18.1 million.

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.

FrontLine currently owns an interest in HQ Global Holdings, Inc., one of
the largest providers of flexible officing solutions in the world, interests in
its e-commerce and e-services partner companies and its interest in RSVP which
invests primarily in real estate and real estate related operating companies
generally outside of the Company's core office and industrial focus.

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 certain risks and uncertainties. Although
the Company believes that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, the actual results may differ
materially from those set forth in the forward-looking statements and the
Company can give no assurance that its expectation will be achieved. Certain
factors that might cause the results of the Company 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 including delays in completion
and cost overruns, the ability to finance business opportunities, risk of
repayment of debt owed to the Company, risks associated with joint ventures,
increases in interest rates and local real estate risks such as an oversupply of
space or a reduction in demand for real estate in the Company's real estate
markets. 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.

OVERVIEW AND BACKGROUND

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

The Company owns all of the interests in its real properties through
Reckson Operating Partnership, L.P. (the "Operating Partnership"). As of March
31, 2001, the Company owned and operated 82 office properties (inclusive of ten
office properties which are owned through joint ventures) comprising
approximately 14.4 million square feet, 104 industrial properties comprising
approximately 6.8 million square feet and two retail properties comprising
approximately 20,000 square feet located in the Tri-State Area. During the
quarter ended March 31, 2001, the Company completed the development of one
office property encompassing approximately 277,500 square feet and one
industrial property encompassing approximately 206,000 square feet. Both of
these properties are located on Long Island. As of March 31, 2001, the Company
is in the process of developing a 315,000 square foot office building located in
New Jersey. The Company also owns a 357,000 square foot office building located
in Orlando, Florida and approximately 290 acres of land in 13 separate parcels
of which the Company can develop approximately 1.4 million square feet of office
space and approximately 224,000 square feet of industrial space. The Company
also has invested approximately $2.9 million in a mortgage note encumbering
approximately 97 acres of land, approximately $17.0 million in a note receivable
secured by a partnership interest in Omni Partners, L.P., owner of the Omni, a
575,000 square foot Class A office property located in Uniondale, New York and
$36.5 million under three notes which are secured by a minority partners'
preferred interest in the Operating Partnership.

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. As of March 31, 2001, the Company had 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 terms similar to the FrontLine
Facility. During March 2001, the Company increased the RSVP Commitment to $110
million and as of March 31, 2001, approximately $109.1 million had been funded
through the RSVP Commitment, of which $67.7 million represents investments in
RSVP-controlled (REIT-qualified) joint ventures and $41.4 million represents
advances. In addition, as of March 31, 2001, the Company, through its unsecured
credit facility, has allocated approximately $3.2 million in outstanding undrawn
letters of credit for the benefit of FrontLine. As of March 31, 2001, interest
accrued under the FrontLine Facility and RSVP Commitment was approximately $18.1
million.

Both the FrontLine Facility and the RSVP Commitment have a term of five
years and advances under each are recourse obligations of FrontLine. Interest
accrues on advances made under the credit facilities 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.

In July 1998, the Company formed a joint venture, Metropolitan Partners LLC
("Metropolitan"), with Crescent Real Estate Equities Company, a Texas REIT
("Crescent") for the purpose of acquiring Tower Realty Trust, Inc. ("Tower"). On
May 24, 1999 the Company completed the merger with Tower 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. All of the assets acquired in the merger
located outside of the Tri-State Area, other than a 357,000 square foot office
property located in Orlando, Florida, have been sold.

On September 28, 2000, the Company formed a joint venture (the "Tri-State
JV") with Teachers Insurance and Annuity Association and contributed eight Class
A suburban office properties aggregating approximately 1.5 million square feet
to the Tri-State JV in exchange for approximately $136 million and a 51%
majority ownership interest in the Tri-State JV.

The market capitalization of the Company at March 31, 2001 was
approximately $3.3 billion. The Company's 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 $22.30 per share/unit (based on the closing
price of the Company's Class A common stock on March 31, 2001), (ii) the market
value of the Company's Class B common stock of $23.55 per share (based on the
closing price of the Company's Class B common stock on March 31, 2001), (iii)
the liquidation preference value of the Company's Series A preferred 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, (v) the contributed
value of Metropolitan's preferred interest of $85 million and (vi) the
approximately $1.5 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, 2001. As a result, the Company's total debt to total market
capitalization ratio at March 31, 2001 equaled approximately 44.3%.

RESULTS OF OPERATIONS

The Company's total revenues increased by $13.2 million or 11.2% for the
three months ended March 31, 2001 as compared to the 2000 period. Property
operating revenues, which include base rents and tenant escalations and
reimbursements ("Property Operating Revenues") increased by $16.2 million or
15.1% for the three months ended March 31, 2001 as compared to the 2000 period.
The increase in Property Operating Revenues is primarily attributable to
approximately $10.3 million from increases in occupancies and rental rates in
our "same store" properties. In addition, approximately $2.7 million of the
increase was generated by developed and redeveloped properties. The Company's
base rent reflects the positive impact of the straight-line rent adjustment of
$11.2 million for the three months ended March 31, 2001 as compared to $4.5
million for the 2000 period. Included in the $11.2 million straight-line rent
adjustment is $7.5 million attributable to 919 Third Avenue as compared to $1.1
million for the 2000 period. This amount is primarily attributable to the free
rent period contained in the lease of the largest tenant in the building. The
free rent period is effective through February 28, 2002.

Property operating expenses, real estate taxes and ground rents ("Property
Expenses") increased by $2.7 million or 7.1% for the three months ended March
31, 2001 as compared to the 2000 period. This increase is primarily due to an
increase of $2.4 million in our "same-store" 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 March 31, 2001 and 2000 were 66.8% and 64.3%, respectively.
The increase in Gross Operating Margins is primarily attributable to the
increase in rental rates and occupancy levels.

Marketing, general and administrative expenses increased by approximately
$1.1 million for the three months ended March 31, 2001 as compared to the 2000
period. Marketing, general and administrative expenses as a percentage of total
revenues were 5.7% for the three months ended March 31, 2001 as compared to 5.5%
for the 2000 period.

Interest expense decreased by approximately $209,000 for the three months
ended March 31, 2001 as compared to the 2000 period.

LIQUIDITY AND CAPITAL RESOURCES

The Company utilizes the Credit Facility primarily to finance real estate
investments, fund its real estate development activities and for working capital
purposes. At September 30, 2000, the Company had availability under the Credit
Facility to borrow an additional $270.4 million (of which, approximately $49.6
million has been allocated for outstanding undrawn letters of credit).

On May 24, 1999, the Company issued 11,694,567 shares of Class B
Exchangeable Common Stock, par value $.01 per share, of the Company (the "Class
B common stock"), which were valued for accounting principles generally accepted
in the United States ("GAAP") purposes at $26 per share for total consideration
of approximately $304.1 million. The shares of Class B common stock were
entitled to receive an initial annual dividend of $2.24 per share, which
dividend is subject to adjustment annually. On July 1, 2000, the annual dividend
on the Class B Common Stock was increased to $2.40 per share.

The Board of Directors of the Company has authorized the purchase of up to
three million shares of the Company's Class B common stock. In addition, the
Board of Directors has also authorized the purchase of up to an additional three
million shares of the Company's Class B common stock and/or its Class A common
stock. The buy-back program 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. As of March 31, 2001, the Company had purchased and retired
1,410,804 shares of Class B Common Stock for approximately $30.3 million.

The Company's indebtedness at March 31, 2001 totaled approximately $1.5
billion (including its share of joint venture debt and net of minority partners'
interests share of joint venture debt) and was comprised of $304.6 million
outstanding under the Credit Facility, approximately $449.4 million of senior
unsecured notes and approximately $713.0 million of mortgage indebtedness. Based
on the Company's total market capitalization of approximately $3.3 billion at
March 31, 2001 (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, (v) the
contributed value of Metropolitan's preferred interest and (vi) the $1.5 billion
of debt), the Company's debt represented approximately 44.3% 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 Company. The Company expects to meet
its short-term liquidity requirements generally through its net cash provided by
operating activities along with the Credit Facility previously discussed. The
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. In addition, the Company also believes that it will, from time
to time, generate funds from the disposition of certain of its real estate
properties or interests therein. The Company will refinance existing mortgage
indebtedness or indebtedness under the Credit Facility at maturity or retire
such debt through the issuance of additional debt securities or additional
equity securities. The Company anticipates that the current balance of cash and
cash equivalents and cash flows from operating activities, together with cash
available from borrowings and equity offerings, will be adequate to meet the
capital and liquidity requirements of the Company in both the short and
long-term.

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

INFLATION

The office leases generally provide for fixed base rent increases or
indexed escalations. In addition, the office leases provide for separate
escalations of real estate taxes, operating expenses and electric costs over a
base amount. The industrial leases generally provide for fixed base rent
increases,

direct pass through of certain operating expenses and separate real estate tax
escalations over a base amount. The Company believes that inflationary increases
in expenses will be offset by contractual rent increases and expense escalations
described above.

The Credit Facility and certain mortgage notes payable bear interest at a
variable rate, which will be influenced by changes in short-term interest rates,
and are sensitive to inflation.

FUNDS FROM OPERATIONS

Management believes that funds from operations ("FFO") is an appropriate
measure of performance of an equity REIT. FFO is defined by the National
Association of Real Estate Investment Trusts ("NAREIT") as net income or loss,
excluding gains or losses from debt restructuring and sales of properties plus
depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. FFO does not represent cash generated from
operating activities in accordance with accounting principles generally accepted
in the United States ("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. In November 1999, NAREIT issued a "White Paper"
analysis to address certain interpretive issues under its definition of FFO. The
White Paper provides that FFO should include both recurring and non-recurring
operating results, except those results defined as "extraordinary items" under
GAAP. This revised definition is effective for all periods beginning on or after
January 1, 2000.

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

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

THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
---- ----

Net income available to common shareholders ................................ $ 20,688 $ 15,842
Adjustments for basic funds from operations:
Add:
Limited partners' minority interest in the operating partnership ........ 2,715 2,278
Real estate depreciation and amortization ............................... 22,988 20,616
Minority partners' interests in consolidated partnerships ............... 5,755 1,975
Less:
Amounts distributable to minority partners in consolidated
partnerships ........................................................... 5,701 2,381
-------- --------
Basic Funds From Operations ("FFO") ........................................ 46,445 38,330
Add:
Dividends and distributions on dilutive shares and units ................ 7,679 9,579
-------- --------
Diluted FFO ............................................................... $ 54,124 $ 47,909
======== ========
Basic FFO calculations:
Weighted average common shares outstanding ................................ 55,767 50,666
Weighted average units of limited partnership interest outstanding ........ 7,693 7,700
-------- --------
Basic weighted average common shares and units outstanding ................ 63,460 58,366
======== ========
Basic FFO per weighted average common share or unit ....................... $ .73 $ .66
Basic weighted average dividends or distributions per share or unit ....... $ .42 $ .40
Basic FFO payout ratio .................................................... 57.5% 61.6%

Diluted FFO calculations:
Basic weighted average common shares and units outstanding ................ 63,460 58,366
Adjustments for dilutive FFO weighted average shares and units
outstanding:
Add:
Weighted average common stock equivalents .............................. 466 327
Weighted average shares of Series A Preferred Stock .................... 8,060 8,060
Weighted average shares of Series B Preferred Stock .................... 1,919 5,758
Weighted average shares of minority partners preferred interest ........ 3,454 3,454
Weighted average units of preferred limited partnership interest ....... 1,367 1,367
-------- --------
Dilutive FFO weighted average shares and units outstanding ................ 78,726 77,332
======== ========
Diluted FFO per weighted average share or unit ............................ $ .69 $ .62
Diluted weighted average dividends or distributions per share or unit ..... $ .41 $ .40
Diluted FFO payout ratio .................................................. 60.2% 64.0%

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

THREE MONTHS ENDED
MARCH 31,
------------------
2001 2000
---- ----

Basic Funds From Operations ................................................ $ 46,445 $ 38,330
Adjustments for basic cash available for distribution:
Less:
Straight line rents (Note a) ............................................ 11,159 4,538
Non-incremental capitalized tenant improvements and leasing
commissions ............................................................ 2,646 2,870
Non-incremental capitalized improvements ................................ 635 1,251
-------- --------
Basic Cash Available for Distribution ("CAD") .............................. 32,005 29,671
Add:
Dividends and distributions on dilutive shares and units ................ 1,866 9,579
-------- --------
Diluted CAD ............................................................... $ 33,871 $ 39,250
======== ========
Basic CAD calculations:
Weighted average common shares outstanding ................................ 55,767 50,666
Weighted average units of limited partnership interest outstanding ........ 7,693 7,700
-------- --------
Basic weighted average common shares and units outstanding ................ 63,460 58,366
======== ========
Basic CAD per weighted average common share or unit ....................... $ .50 $ .51
Basic weighted average dividends or distributions per share or unit ....... $ .42 $ .40
Basic CAD payout ratio .................................................... 83.4% 79.6%
Diluted CAD calculations:
Basic weighted average common shares and units outstanding ................ 63,460 58,366
Adjustments for dilutive CAD weighted average shares and units
outstanding:
Add:
Weighted average common stock equivalents .............................. 466 327
Weighted average shares of Series A Preferred Stock .................... -- 8,060
Weighted average shares of Series B Preferred Stock .................... -- 5,758
Weighted average shares of minority partners'preferred interest ........ 3,454 3,454
Weighted average units of preferred limited partnership interest ....... 598 1,367
-------- --------
Dilutive CAD weighted average shares and units outstanding ................ 67,978 77,332
======== ========
Diluted CAD per weighted average share or unit ............................ $ .50 $ .51
Diluted weighted average dividends or distributions per share or unit ..... $ .42 $ .40
Diluted CAD payout ratio .................................................. 84.0% 78.1%

----------
Notes:
(a) Includes straight line rental income attributable to the property located
at 919 Third Avenue, New York, N. Y. of $7,504 and $1,075, respectively.

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 must 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.

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, 2001 (dollars in thousands):

FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2001 2002 2003 2004 2005
---- ---- ---- ---- ----

Long term debt:
Fixed rate ............................. $ 21,342 $ 17,012 $ 8,905 $ 112,276 $ 10,459
Weighted average interest rate ......... 7.57% 7.80% 7.79% 7.50% 7.81%
Variable rate .......................... $ 70,000 $ -- $ 504,600 $ -- $ --
Weighted average interest rate ......... 6.94% -- 6.68% -- --

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

Long term debt:
Fixed rate ............................. $ 737,094 $ 907,088 $ 911,805
Weighted average interest rate ......... 7.56% 7.56%
Variable rate .......................... $ -- $ 574,600 $ 574,600
Weighted average interest rate ......... -- 6.71%

----------
(1) Includes unamortized issuance discounts of $596,000 on the 5 and 10 year
senior unsecured notes issued on March 26, 1999 which are due at maturity.

In addition, the Company 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 $5.8 million annual increase in interest
expense based on approximately $574.6 million of variable rate debt outstanding
at March 31, 2001.

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, 2001 (dollars in thousands):

FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------
2001 2002 2003 2004 2005 THEREAFTER TOTAL (2) FMV
---- ---- ---- ---- ---- ---------- --------- ---

Mortgage notes and notes receivable:
Fixed rate ............................. $ 12 $ 4,208 $ -- $ 36,500 $ -- $ 16,990 $ 57,710 $59,085
Weighted average Interest rate ......... 9.00% 10.08% -- 10.23% -- 11.65% 10.63%

----------

(2) Excludes interest receivables aggregating approximately $512,000.

SUPPLEMENTAL INFORMATION ON CAPITAL EXPENDITURES,
TENANT IMPROVEMENT COSTS AND LEASING COMMISSIONS

The following table summarizes the expenditures incurred for capital
expenditures for the entire portfolio and tenant improvements and leasing
commissions for space leased at the Company's office and industrial properties
for the three months ended March 31, 2001 and a historical average of such non-
incremental capital expenditures, tenant improvements and leasing commissions
for the years 1997 through 2000.

NON-INCREMENTAL REVENUE GENERATING CAPITAL EXPENDITURES

1997-2000
1997 1998 1999 2000 AVERAGE 1Q01
---- ---- ---- ---- --------- ----

SUBURBAN OFFICE PROPERTIES

Total ................... $ 1,108,675 $ 2,004,976 $ 2,298,899 $ 3,289,116 $ 2,175,417 $ 421,964
Per Square Foot ......... 0.22 0.23 0.23 0.33 0.25 0.04
CBD OFFICE PROPERTIES
Total ................... N/A N/A N/A $ 946,718 $ 946,718 $ 220,737
Per Square Foot N/A N/A N/A 0.38 0.38 0.06
INDUSTRIAL PROPERTIES
Total ................... $ 733,233 $ 1,205,266 $ 1,048,688 $ 813,431 $ 950,155 $ 43,714
Per Square Foot ......... 0.15 0.12 0.11 0.11 0.12 0.01

NON-INCREMENTAL REVENUE GENERATING TENANT IMPROVEMENTS AND LEASING COMMISSIONS

1997 1998 1999
-------------- --------------- ---------------

LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ............ $ 784,044 $ 1,140,251 $ 1,009,357
Per Square Foot Improved ....... 7.00 3.98 4.73
Leasing Commissions ............ $ 415,822 $ 418,191 $ 551,762
Per Square Foot Leased ......... 4.83 1.46 2.59
---------- ----------- -----------
Total Per Square Foot .......... $ 11.83 $ 5.44 $ 7.32
========== =========== ===========

WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ............ $1,211,665 $ 711,160 $ 1,316,611
Per Square Foot Improved ....... 8.90 4.45 5.62
Leasing Commissions ............ $ 366,257 $ 286,150 $ 457,730
Per Square Foot Leased ......... 2.69 1.79 1.96
---------- ----------- -----------
Total Per Square Foot .......... $ 11.59 $ 6.24 $ 7.58
========== =========== ===========

CONNECTICUT OFFICE PROPERTIES
Tenant Improvements ............ $1,022,421 $ 202,880 $ 179,043
Per Square Foot Improved ....... 13.39 5.92 4.88
Leasing Commissions ............ $ 256,615 $ 151,063 $ 110,252
Per Square Foot Leased ......... 3.36 4.41 3.00
---------- ----------- -----------
Total Per Square Foot .......... $ 16.75 $ 10.33 $ 7.88
========== =========== ===========

NEW JERSEY OFFICE PROPERTIES
Tenant Improvements ............ N/A $ 654,877 $ 454,054
Per Square Foot Improved ....... N/A 3.78 2.29
Leasing Commissions ............ N/A $ 396,127 $ 787,065
Per Square Foot Leased ......... N/A 2.08 3.96
---------- ----------- -----------
Total Per Square Foot .......... N/A $ 5.86 $ 6.25
========== =========== ===========
NEW YORK CITY OFFICE
PROPERTIES
Tenant Improvements ............ N/A N/A N/A
Per Square Foot Improved ....... N/A N/A N/A
Leasing Commissions ............ N/A N/A N/A
Per Square Foot Leased ......... N/A N/A N/A
---------- ----------- -----------
Total Per Square Foot .......... N/A N/A N/A
========== =========== ===========

INDUSTRIAL PROPERTIES
Tenant Improvements ............ $ 230,466 $ 283,842 $ 375,646
Per Square Foot Improved ....... 0.55 0.76 0.25
Leasing Commissions ............ $ 81,013 $ 200,154 $ 835,108
Per Square Foot Leased ......... 0.19 0.44 0.56
---------- ----------- -----------
Total Per Square Foot .......... $ 0.74 $ 1.20 $ 0.81
========== =========== ===========

1997 -2000
2000 AVERAGE 1Q01 NEW RENEWAL
---- ------- ---- --- -------

LONG ISLAND OFFICE PROPERTIES
Tenant Improvements ............ $ 2,853,706 $ 1,466,840 $ 497,179 $ 342,564 $ 154,615
Per Square Foot Improved ....... 6.99 5.68 8.97 17.24 4.35
Leasing Commissions ............ $ 2,208,604 $ 898,595 $ 273,542 $ 78,276 $ 195,266
Per Square Foot Leased ......... 4.96 3.46 4.93 3.91 5.49
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 11.95 $ 9.14 $ 13.90 $ 21.15 $ 9.84
=========== =========== ========= ========= =========
WESTCHESTER OFFICE PROPERTIES
Tenant Improvements ............ $ 1,860,027 $ 1,274,866 $ 374,274 $ 167,649 $ 206,625
Per Square Foot Improved ....... 5.72 6.17 4.70 7.34 3.64
Leasing Commissions ............ $ 412,226 $ 380,591 $ 32,295 $ 39,295 $ 0
Per Square Foot Leased ......... 3.00 2.36 0.49 1.72 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 8.72 $ 8.53 $ 5.19 $ 9.06 $ 3.64
=========== =========== ========= ========= =========
CONNECTICUT OFFICE PROPERTIES
Tenant Improvements ............ $ 385,531 $ 447,469 $ 101,980 $ 101,980 $ 0
Per Square Foot Improved ....... 4.19 7.10 1.72 5.78 --
Leasing Commissions ............ $ 453,435 $ 242,841 $ 96,929 $ 96,929 $ 0
Per Square Foot Leased ......... 4.92 3.92 1.63 5.50 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 9.11 $ 11.02 $ 3.35 $ 11.28 $ --
=========== =========== ========= ========= =========
NEW JERSEY OFFICE PROPERTIES
Tenant Improvements ............ $ 1,580,323 $ 896,418 $ 85,671 $ 52,477 $ 33,194
Per Square Foot Improved ....... 6.71 4.26 2.08 1.69 3.28
Leasing Commissions ............ $ 1,031,950 $ 738,381 $ 154,956 $ 129,218 $ 25,738
Per Square Foot Leased ......... 4.44 3.49 3.77 4.17 2.54
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 11.15 $ 7.75 $ 5.85 $ 5.86 $ 5.82
=========== =========== ========= ========= =========
NEW YORK CITY OFFICE
PROPERTIES

Tenant Improvements ............ $ 65,267 $ 65,267 $ 688,800 $ 688,800 $ 0
Per Square Foot Improved ....... 1.79 1.79 23.01 23.01 --
Leasing Commissions ............ $ 418,185 $ 418,185 $ 474,229 $ 474,229 $ 0
Per Square Foot Leased ......... 11.50 11.50 15.84 15.84 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 13.29 $ 13.29 $ 38.85 $ 38.85 $ 0.00
=========== =========== ========= ========= =========
INDUSTRIAL PROPERTIES
Tenant Improvements ............ $ 650,216 $ 385,043 $ 34,650 $ 34,650 $ 0
Per Square Foot Improved ....... 0.95 0.63 0.29 0.55 --
Leasing Commissions ............ $ 436,506 $ 388,195 $ 50,055 $ 50,055 $ 0
Per Square Foot Leased ......... 0.64 0.46 0.42 0.79 --
----------- ----------- --------- --------- ---------
Total Per Square Foot .......... $ 1.59 $ 1.09 $ 0.71 $ 1.34 $ 0.00
=========== =========== ========= ========= =========

LEASE EXPIRATIONS

The following table sets forth scheduled lease expirations for executed
leases as of March 31, 2001:

LONG ISLAND OFFICE PROPERTIES (EXCLUDING OMNI):

YEAR OF TOTAL RENTABLE % OF TOTAL PER PER
LEASE NUMBER SQUARE FEET RENTABLE SQUARE SQUARE FOOT SQUARE FOOT
EXPIRATION OF LEASES EXPIRING FEET EXPIRING S/L RENT (1) RENT (2)
---------- --------- -------- ------------- ------------ --------

2001 ........................ 36 168,126 5.1% $ 22.25 $ 24.36
2002 ........................ 33 165,326 5.1% $ 21.98 $ 24.90
2003 ........................ 48 297,892 9.1% $ 22.32 $ 25.03
2004 ........................ 46 274,809 8.4% $ 23.21 $ 26.18
2005 ........................ 65 599,698 18.3% $ 23.42 $ 26.73
2006 ........................ 15 76,583 2.3% $ 26.38 $ 30.41
2007 AND THEREAFTER ......... 81 1,688,317 51.7% -- --
-- --------- -----
TOTAL ....................... 324 3,270,751 100.0%
=== ========= =====

OMNI:

2001 ........................ 3 22,931 3.9% $ 29.09 $ 35.06
2002 ........................ 4 53,127 9.0% $ 34.55 $ 37.91
2003 ........................ 4 58,018 9.8% $ 30.22 $ 34.97
2004 ........................ 4 112,414 19.0% $ 26.12 $ 34.15
2005 ........................ 7 59,166 10.0% $ 27.99 $ 35.26
2006 ........................ 1 9,749 1.6% $ 35.21 $ 38.02
2007 AND THEREAFTER ......... 10 276,259 46.7% -- --
-- ------- -----
TOTAL ....................... 33 591,664 100.0%
== ======= =====

INDUSTRIAL PROPERTIES:

2001 ........................ 21 376,385 7.7% $ 6.28 $ 7.38
2002 ........................ 28 246,504 5.0% $ 6.47 $ 7.32
2003 ........................ 29 735,934 15.0% $ 5.35 $ 6.27
2004 ........................ 33 623,753 12.7% $ 6.25 $ 7.12
2005 ........................ 22 427,994 8.7% $ 5.93 $ 7.97
2006 ........................ 27 834,717 17.0% $ 6.29 $ 7.81
2007 AND THEREAFTER ......... 36 1,664,940 33.9% -- --
-- --------- -----
TOTAL ....................... 196 4,910,227 100.0%
=== ========= =====

LEASE EXPIRATIONS - (CONTINUED)

RESEARCH AND DEVELOPMENT PROPERTIES:

2001 ........................ 7 276,830 21.2% $ 5.63 $ 6.90
2002 ........................ 3 118,620 9.1% $ 10.19 $ 11.82
2003 ........................ 4 37,938 2.9% $ 9.20 $ 10.15
2004 ........................ 9 99,218 7.6% $ 13.86 $ 15.02
2005 ........................ 5 367,556 28.2% $ 8.49 $ 10.53
2006 ........................ 6 90,217 6.9% $ 17.46 $ 20.07
2007 AND THEREAFTER ......... 14 314,417 24.1% -- --
-- ------- -----
TOTAL ....................... 48 1,304,796 100.0%
== ========= =====

WESTCHESTER OFFICE PROPERTIES:

2001 ........................ 29 184,244 5.9% $ 21.09 $ 21.69
2002 ........................ 45 412,680 13.2% $ 21.08 $ 21.10
2003 ........................ 43 247,349 7.9% $ 22.12 $ 23.39
2004 ........................ 30 164,634 5.2% $ 21.09 $ 22.03
2005 ........................ 52 415,469 13.3% $ 23.92 $ 24.32
2006 ........................ 24 643,346 20.5% $ 22.20 $ 24.07
2007 AND THEREAFTER ......... 41 1,065,724 34.0% -- --
-- --------- -----
TOTAL ....................... 264 3,133,446 100.0%
=== ========= =====

STAMFORD OFFICE PROPERTIES:

2001 ........................ 25 67,832 6.3% $ 23.36 $ 23.73
2002 ........................ 18 85,900 8.0% $ 27.67 $ 29.02
2003 ........................ 17 140,239 13.0% $ 31.22 $ 31.70
2004 ........................ 19 226,883 21.1% $ 21.76 $ 22.74
2005 ........................ 24 118,425 11.0% $ 26.81 $ 28.62
2006 ........................ 17 271,239 25.2% $ 24.31 $ 25.08
2007 AND THEREAFTER ......... 16 165,170 15.4% -- --
-- ------- -----
TOTAL ....................... 136 1,075,688 100.0%
=== ========= =====

LEASE EXPIRATIONS - (CONTINUED)

NEW JERSEY OFFICE PROPERTIES:

2001 ........................ 13 183,633 8.7% $ 17.85 $ 18.18
2002 ........................ 22 171,446 8.1% $ 20.02 $ 20.77
2003 ........................ 23 333,689 15.7% $ 19.03 $ 19.16
2004 ........................ 34 241,737 11.4% $ 22.51 $ 23.12
2005 ........................ 31 344,775 16.3% $ 23.19 $ 23.76
2006 ........................ 12 179,319 8.5% $ 22.38 $ 23.58
2007 AND THEREAFTER ......... 17 663,491 31.3% -- --
-- ------- -----
TOTAL ....................... 152 2,118,090 100.0%
=== ========= =====

NEW YORK CITY OFFICE

2001 ........................ 14 100,853 2.9% $ 32.30 $ 33.26
2002 ........................ 22 190,615 5.6% $ 32.62 $ 33.41
2003 ........................ 7 115,726 3.4% $ 31.89 $ 32.33
2004 ........................ 20 224,975 6.6% $ 36.53 $ 38.74
2005 ........................ 37 457,063 13.4% $ 34.76 $ 36.35
2006 ........................ 47 339,560 9.9% $ 29.70 $ 30.77
2007 AND THEREAFTER ......... 75 1,989,668 58.2% -- --
-- --------- -----
TOTAL ....................... 222 3,418,460 100.0%
=== ========= =====

----------
(1) Per square foot rental rate represents annualized straight line rent as of
the lease expiration date.

(2) Per square foot rental rate represents annualized base rent as of the lease
expiration date plus non-recoverable operating expense pass-throughs.

PART II -- OTHER INFORMATION

Item 1. Legal Proceedings -- None
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 Second Amendment to the Amended and Restated Credit Agreements,
dated March 30, 2001, between Reckson Operating Partnership,
L.P. and FrontLine Capital Group

b) Reports on Form 8-K

During the three months ended March 31, 2001, the Registrant filed the
following reports on Form 8-K:

On March 5, 2001, 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 8, 2001, 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 and year ended December 31, 2000 in satisfaction of the
requirements of Regulation FD.

SIGNATURES

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

RECKSON ASSOCIATES REALTY CORP.

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

DATE: May 11, 2001