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 September 30, 1999

                         Commission file number: 1-13762



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


Maryland                                                              11-3233650
--------                                                              ----------
(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

The company has two class' of common  stock,  issued at $.01 par value per share
with  40,369,506 and 10,483,763  shares of common stock and Class B Common Stock
outstanding, respectively
                             as of November 11, 1999

<PAGE>

                        RECKSON ASSOCIATES REALTY CORP.
                                QUARTERLY REPORT
                  FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999

                               TABLE OF CONTENTS

INDEX                                                            PAGE
--------------------------------------------------------------------------------
PART I.  FINANCIAL INFORMATION
--------------------------------------------------------------------------------

Item 1.  Financial Statements (unaudited)

         Consolidated  Balance  Sheets as of  September  30,
         1999 (unaudited) and December 31, 1998

         Consolidated Statements of Income for the three and
         nine  months  ended  Sepetember  30,  1999 and 1998
         (unaudited)

         Consolidated  Statements  of Cash Flows for the six
         months ended September 30 1999 and 1998 (unaudited)

         Notes  to  the  Consolidated  Financial  Statements
         (unaudited)

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
--------------------------------------------------------------------------------
<PAGE>
<TABLE>
                              Reckson Associates Realty Corp.
                                Consolidated Balance Sheets
                      (Dollars in thousands, except for share amounts)
<CAPTION>
                                                              September 30,    December 31,
                                                                  1999            1998
                                                             --------------  --------------
                                                                    (Unaudited)
<S>                                                          <C>             <C>
Assets:
Commercial real estate properties, at cost:
     Land                                                    $     264,326   $     212,540
     Building and improvements                                   1,764,826       1,372,549
Developments in progress:
     Land                                                           61,487          69,143
     Development costs                                              78,955          82,901
Furniture, fixtures and equipment                                    6,378           6,090
                                                             --------------  --------------
                                                                 2,175,972       1,743,223
Less accumulated depreciation                                     (202,212)       (159,049)
                                                             --------------  --------------
                                                                 1,973,760       1,584,174

Investment in real estate joint ventures                            27,774          15,104
Investment in mortgage notes and notes receivable                  349,690          99,268
Cash and cash equivalents                                           39,292           2,349
Tenants receivables                                                  3,260           5,159
Investments in and advances to affiliates                          161,067          53,329
Deferred rent receivable                                            23,804          22,526
Prepaid expenses and other assets                                   62,804          46,372
Contract and land deposits and pre-acquisition costs                 2,847           2,253
Deferred leasing and loan costs                                     36,866          24,282
                                                             --------------  --------------
Total Assets                                                 $   2,681,164   $   1,854,816
                                                             ==============  ==============

Liabilities:
Mortgage notes payable                                       $     460,725   $     253,463
Unsecured credit facilities                                        253,600         465,850
Unsecured term loan                                                 75,000          20,000
Senior unsecured notes                                             449,296         150,000
Accrued expenses and other liabilities                              54,692          50,960
Dividends and distributions payable                                 27,241          19,663
                                                             --------------  --------------
Total Liabilities                                                1,320,554         959,936
                                                             --------------  --------------

Commitments and other comments                                         ---             ---

Minority interests' in consolidated partnerships                    92,718          52,173
Preferred unit interest in the operating partnership                42,518          42,518
Limited partners' minority interest in the operating
    partnership                                                     91,517          94,125
                                                             --------------  --------------
                                                                   226,753         188,816
                                                             --------------  --------------
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
    Perpetual convertible preferred stock, 6,000,000
        and 0 shares issued and outstanding, respectively               60             ---

Common Stock, $01 par value, 100,000,000 shares
    authorized
    Common stock, 40,369,506 and 40,035,419 shares
        issued and outstanding, respectively                           404             400
    Class B Common Stock, 10,913,763 and 0 shares
        issued and outstanding, respectively                           109             ---
Additional paid in capital                                       1,133,192         705,572
                                                             --------------  --------------
Total Stockholders' Equity                                       1,133,857         706,064
                                                             --------------  --------------
Total Liabilities and Stockholders' Equity                   $   2,681,164   $   1,854,816
                                                             ==============  ==============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
                                                Reckson Associates Realty Corp.
                                               Consolidated Statements of Income
                               (Unaudited and in thousands, except per share and share amounts)
<CAPTION>
                                                                 Three Months Ended                Nine Months Ended
                                                                    September 30,                     September 30,
                                                            --------------------------------  --------------------------------
                                                                  1999             1998             1999             1998
                                                            ---------------  ---------------  ---------------  ---------------
<S>                                                         <C>              <C>              <C>              <C>
Revenues:
Base rents                                                  $       95,474   $       60,275   $      234,759   $      162,846
Tenant escalations and reimbursements                               15,395            7,663           32,524           20,776
Equity in earnings of real estate joint ventures
    and service companies                                              483              536            1,372            1,201
Interest income on mortgage notes and notes
    receivable                                                         520            2,083            5,627            5,536
Gain on sales of real estate                                        10,052              ---           10,052              ---
Other                                                                3,421            1,043            8,359            2,624
                                                            ---------------  ---------------  ---------------  ---------------
Total Revenues                                                     125,345           71,600          292,693          192,983
                                                            ---------------  ---------------  ---------------  ---------------
Expenses:
Property operating expenses                                         40,679           22,202           91,125           61,774
Marketing, general and administrative                                6,804            4,380           16,241           11,807
Interest                                                            20,774           13,040           53,620           34,537
Depreciation and amortization                                       21,868           14,835           56,086           38,098
                                                            ---------------  ---------------  ---------------  ---------------
Total Expenses                                                      90,125           54,457          217,072          146,216
                                                            ---------------  ---------------  ---------------  ---------------
Income before preferred dividends and distributions,
    minority interests' and extraordinary items                     35,220           17,143           75,621           46,767
Minority partners' interests in consolidated
    partnerships                                                    (2,150)            (665)          (4,933)          (1,882)
Distributions to preferred unit holders                               (660)            (657)          (1,981)          (1,092)
Limited partners' interest in the operating
    partnership                                                     (3,014)          (1,209)          (7,082)          (5,962)
                                                            ---------------  ---------------  ---------------  ---------------
Income before extraordinary items and dividends to
    preferred  shareholders                                         29,396           14,612           61,625           37,831
Extraordinary items - (loss) on extinguishment of
    debt, net of limited partners share of $74, $323,
    $74 and $323, respectively                                        (555)          (1,670)            (555)          (1,670)
Dividends to preferred shareholders                                 (7,325)          (4,377)         (17,035)          (8,110)
                                                            ---------------  ---------------  ---------------  ---------------
Net income available to common shareholders                 $       21,516   $        8,565   $       44,035   $       28,051
                                                            ===============  ===============  ===============  ===============
Net Income available to:

    Common shareholders                                     $       15,066   $        8,565   $       35,854   $       28,051
    Class B common shareholders                                      6,450              ---            8,181              ---
                                                            ---------------  ---------------  ---------------  ---------------
Total                                                       $       21,516   $        8,565   $       44,035   $       28,051
                                                            ===============  ===============  ===============  ===============
Basic net income per weighted average common share
    before extraordinary items:
    Common shareholders                                     $         0.38   $         0.25   $         0.90   $         0.75
    Extraordinary items (loss) per common share                      (0.01)           (0.04)           (0.01)           (0.04)
                                                            ---------------  ---------------  ---------------  ---------------
    Basic net income per weighted average common
        share                                               $         0.37   $         0.21   $         0.89   $         0.71
                                                            ===============  ===============  ===============  ===============
    Class B common shareholders                             $         0.57   $          ---   $         1.52   $          ---
    Extraordinary items (loss) per Class B  common
        share                                                        (0.01)             ---            (0.03)             ---
                                                            ---------------  ---------------  ---------------  ---------------
    Basic net income per weighted average Class B
        common share                                        $         0.56   $          ---             1.49              ---
                                                            ===============  ===============  ===============  ===============
Weighted average common shares outstanding:
    Common shareholders                                         40,367,161       40,011,627       40,234,749       39,283,706
    Class B common shareholders                                 11,456,931              ---        5,488,759              ---
Diluted net income per weighted average common share:
    Common shareholders                                     $         0.37   $         0.21   $         0.88   $         0.70
    Class B common shareholders                             $         0.41   $          ---   $         0.95   $          ---
Diluted weighted average common shares outstanding:
    Common shareholders                                         40,796,597       40,533,540       40,651,512       39,833,059
    Class B common shareholders                                 11,456,931              ---        5,488,759              ---
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
                            Reckson Associates Realty Corp.
                        Consolidated Statements of Cash Flows)
                             (Unaudited and in thousands)
<CAPTION>
                                                               Nine Months Ended
                                                                  September 30,
                                                            --------------------------
                                                                1999          1998
                                                            ------------  ------------
<S>                                                         <C>           <C>
Cash flows from Operating Activities:
Net Income available to common shareholders                 $    44,035   $    28,051
Adjustments to reconcile net income to net cash
    provided by operating activities:
    Depreciation and amortization                                56,086        38,098
    Minority partners' interests in consolidated
        partnerships                                              4,933         1,882
    Extraordinary loss on extinguishment of debt                    555         1,670
    Gain on sale of interest in Reckson Executive
        Centers, LLC                                                ---            (9)
    Gain on sales of real estate, securities and
        mortgage redemption                                     (10,052)          (43)
    Limited partners' interest in the operating
        partnership                                               7,082         5,962
    Equity in earnings of real estate joint ventures
        and service companies                                    (1,372)       (1,201)
    Distributions from a real estate joint venture                  337           379
Changes in operating assets and liabilities:
    Tenant receivables                                            1,899           249
    Real estate tax escrow                                       (2,405)          236
    Prepaid expenses and other assets                           (13,764)        4,984
    Deferred rents receivable                                    (3,473)       (6,950)
    Accrued expenses and other liabilities                       21,852        13,275
                                                            ------------  ------------
    Net cash provided by operating activities                   105,713        86,583
                                                            ------------  ------------
Cash Flows from Investing Activities:
    Increase in deposits and pre-acquisition costs               (3,485)         (245)
    Increase in developments in progress                         (8,198)      (89,648)
    Purchase of commercial real estate properties              (265,400)     (466,959)
    Investment in mortgage notes and notes
        receivable                                             (295,048)       12,257
    Investments in real estate joint ventures                   (11,875)       (7,760)
    Additions to commercial real estate properties              (21,612)      (15,507)
    Purchase of furniture, fixtures and equipment                  (396)       (1,649)
    Payment of leasing costs                                    (11,851)       (6,254)
    Proceeds  from sales of real estate, securities
        and mortgage redemption                                 269,324           809
                                                            ------------  ------------
    Net cash used in investing activities                      (348,541)     (574,956)
                                                            ------------  ------------
Cash Flows from Financing Activities:
    Proceeds from issuance of common stock net
        of issuance costs                                         1,397        93,630
    Proceeds from issuance of preferred stock net
        of issuance costs                                       148,000       220,800
    Repurchase of Class B Common Stock                          (17,389)          ---
    Principal payments on secured borrowings                     (3,163)       (4,006)
    Payment of loan and equity issuance costs                    (7,113)       (3,557)
    Proceeds from secured borrowings                            125,547           ---
    Investments in and advances to affiliates                  (107,768)      (31,484)
    Proceeds from issuance of senior unsecured
        notes net of issuance costs                             299,262           ---
    Proceeds from unsecured credit facilities                   353,500       345,000
    Repayment of unsecured credit facilities                   (510,750)     (112,000)
    Contributions of minority partners' in consolidated
        partnerships                                             75,000           ---
    Distributions to minority partners' in consolidated
        partnerships                                             (4,573)       (1,825)
    Distributions to limited partners' in the operating
        partnership                                              (8,081)       (4,929)
    Distributions to preferred unit holders                      (1,981)         (652)
    Dividends to common shareholders                            (47,044)      (25,646)
    Dividends to preferred shareholders                         (15,073)       (5,257)
                                                            ------------  ------------
    Net cash provided by financing activities                   279,771       470,074
                                                            ------------  ------------
    Net (decrease) increase in cash and cash
        equivalents                                              36,943       (18,299)
    Cash and cash equivalents at beginning of period              2,349        21,828
                                                            ------------  ------------
    Cash and cash equivalents at end of period              $    39,292   $     3,529
                                                            ============  ============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>
<PAGE>
                        RECKSON ASSOCIATES REALTY CORP.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 1999
                                  (Unaudited)

1. ORGANIZATION AND FORMATION OF THE COMPANY

     Reckson  Associates  Realty  Corp.  (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 aggregate proceeds to
the Company,  net of  underwriting  discount,  advisory  fee and other  offering
expenses, were approximately $162 million.

     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 approximately 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  interests in certain
property  partnerships,  fee simple and leasehold  interests in  properties  and
development land,  certain business assets of executive center entities and 100%
of the non-voting preferred stock of the management and construction companies.

     As of  September  30,  1999,  the  Company  owned  and  operated  77 office
properties  comprising  approximately  13.1 million  square feet, 109 industrial
properties  comprising  approximately  8.0  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").  The Company  also owns and operates a
357,000 square foot office building  located in Orlando,  Florida.  In addition,
the Company owned or had contracted to acquire  approximately  377 acres of land
in 16  separate  parcels of which the  Company  can  develop  approximately  2.8
million  square  feet of  industrial  and office  space.  The  Company  also has
invested  approximately $312.9 million in mortgage notes encumbering three Class
A  office  properties  encompassing   approximately  1.6  million  square  feet,
approximately  472 acres 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 September 30, 1999 the Company had advanced $83.6 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 Real Estate Investment Trust
("REIT")-qualified  investments  or advances  made to RSI under terms similar to
the RSI Facility. As of September 30, 1999, approximately $54.8 million had been
invested  through  the  RSVP  Commitment,  of  which  $21.8  million  represents
RSVP-controlled  joint  venture  REIT-qualified  investments  and $33.0  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 Company 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 Company 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 Company has agreed to invest up to $150  million in RMI.  On  September  27,
1999,  the Company sold its interest in RMI to Keystone  Property  Trust ("KTR")
(formerly American Real Estate Investment Corporation) (see note 6).

     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, other than a 357,000 square foot office property located in Orlando,
Florida, have been sold. (see note 6).

2.   BASIS OF PRESENTATION

     The accompanying consolidated financial statements include the consolidated
financial position of the Company and the Operating Partnership at September 30,
1999 and December 31, 1998 and the results of their operations for the three and
nine months ended  September  30, 1999 and 1998  respectively,  and,  their cash
flows for the nine months ended September 30, 1999 and 1998,  respectively.  The
Operating  Partnership's  investments in Metropolitan and Omni Partner's,  L. P.
("Omni")  are  reflected  in  the   accompanying   financial   statements  on  a
consolidated  basis  with a  reduction  for  minority  partners'  interest.  The
Operating  Partnership's  investment  in RMI was  reflected in the  accompanying
financial  statements  on a  consolidated  basis with a reduction  for  minority
partner's  interest  through  September  26, 1999.  On September  27, 1999,  the
Operating  Partnership  sold  its  interest  in RMI to KTR  (see  note  6).  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 Company, in accordance with
generally accepted  accounting  principles  ("GAAP"),  was used as the valuation
basis for the merger. The assets acquired and liabilities assumed by the Company
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 operating  real estate  properties and real
estate properties which have been sold.

     The minority  interests at September 30, 1999 represent an approximate  12%
limited partnership interest in the Operating Partnership, an approximate 28%
interest in certain industrial joint venture properties formerly owned by RMI, a
convertible preferred interest in Metropolitan 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 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
September 30, 1999 and for the nine month  periods ended  September 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  Company's  audited  financial  statements  and the  notes
thereto included in the Company's Form 10K for the year ended December 31, 1998.

     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.

     In June 1999, the Financial Accounting Standards Board issued Statement No.
137,  amending  Statement No. 133,  "Accounting  for Derivative  Instruments and
Hedging  Activities",  which extended the required date of adoption to the years
beginning  after June 15, 2000.  The Statement  permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement  effective  January 1, 2001.  The Company does not  anticipate
that the  adoption  of this  Statement  will have any  effect on its  results of
operations or financial position.

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

3.   MORTGAGE NOTES PAYABLE

     As of September 30, 1999, the Company had  approximately  $460.7 million of
fixed rate  mortgage  notes which mature at various  times between June 2000 and
November  2027.  The notes are  secured  by 23  properties  and have a  weighted
average interest rate of approximately 7.6%.


4.   SENIOR UNSECURED NOTES

     As of  September  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 Company's unsecured credit facility.

5.   UNSECURED CREDIT FACILITIES AND UNSECURED TERM LOAN

     As of  September  30,  1999,  the  Company  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  Company's  investment  grade  rating on its  senior
unsecured  debt. On March 16, 1999, the Company  received its  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  Company  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 September 30, 1999,
the Company had  availability  under the Credit Facility to borrow an additional
$196.2 million (net of $50.2 million of outstanding undrawn letters of credit).

     As of September 30, 1999, the Company 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 currently priced off of LIBOR plus 175 basis
points.  The Term Loan  matures on December 3, 1999 and the Company is currently
in  negotiations  with the Chase Manhattan Bank to extend and refinance the Term
Loan. At September 30, 1999, the Company had $75 million  outstanding  under the
Term Loan.

     On May 24, 1999, in conjunction with the acquisition of Tower (see Note 6),
the Company  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.
As a result,  certain deferred loan costs incurred in connection with the Bridge
Facility were written off. Such amount is reflected as an extraordinary  loss in
the accompanying consolidated statements of income.

6.   COMMERCIAL REAL ESTATE INVESTMENTS

     During  the three  months  ended  March 31,  1999,  the  Company  purchased
approximately 68.1 acres of vacant land in Northern New Jersey for approximately
$2.6  million.  In  addition,  RMI  purchased  74.6  acres  of  vacant  land for
approximately $3.7 million and a 846,000 square foot industrial property located
in Cranbury,  New Jersey for approximately $34 million.  During the three months
ended  September  30,  1999,  these  assets  were  sold to KTR  and  the  Matrix
Development Group ("Matrix").

     On April 13, 1999, the Company  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 Company recognized a gain of approximately
$4.3 million. Such gain has been included in gain on sales of real estate on the
accompanying consolidated statements of income.

     On June 7, 1999 the  Company  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 Company  obtained a $1.2  million,  three year
purchase money mortgage.

     On June 15, 1999, the Company 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  Company  to all the net cash  flow of the  property  and to
substantial  rights  regarding the operations of the property,  with the Company
anticipating to ultimately  obtain title to the property.  This  acquisition was
financed  with  proceeds  from the  issuance of six  million  shares of Series B
Convertible  Cumulative Preferred Stock (see note 7) 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 Company has recognized the real estate
operations of the 919 Third Avenue in the accompanying  consolidated  statements
of income from the date of acquisition.

     On August 9, 1999, the Company executed a contract,  which is to take place
in three  stages,  for the sale of its  interest  in RMI which  consisted  of 28
properties, comprising approximately 6.1 million square feet and three other big
box industrial  properties to KTR. In addition,  the Company also entered into a
sale  agreement  with  Matrix  relating  to a first  mortgage  note and  certain
industrial land holdings (the "Matrix  Sale").  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 KTR,  preferred  units  of  KTR's
operating partnership, relief of debt and a purchase money mortgage note secured
by certain land that is being sold to Matrix.

     During  September  1999,  the  Matrix  Sale and the first  stage of the RMI
closing  occurred  whereby  the  Company  sold its  interest in RMI to KTR for a
combined sales price of approximately  $164.7 million (net of minority partner's
interest).  The combined consideration  consisted of approximately $86.3 million
in cash, $40 million of preferred  stock of KTR, $1.5 million in common stock of
KTR,  approximately $26.7 million of debt relief and approximately $10.2 million
in  purchase  money  mortgages.  As a result,  the  Company  incurred  a gain of
approximately $10.1 million. Cash proceeds from the sales were used primarily to
repay borrowings under the Credit Facility.

     The  second  and  third  stages  of the RMI  closing  are  scheduled  to be
completed in December 1999 and April 2000,  respectively.  Both of the remaining
stages each consist of three  industrial  buildings and are being sold for total
consideration of $50 million and $48 million, respectively.

     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 Board of  Directors  of the Company has  authorized a purchase buy back
program for the Company's Class B Common Stock (see note 7).

     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 and all
of the  property  located  outside  the Tri State  Area  other  than one  office
property  located in Orlando,  Florida for  approximately  $171.1  million.  The
combined  consideration  consisted of  approximately  $143.8 million in cash and
approximately  $27.3  million of debt relief.  Net cash  proceeds from the sales
were used primarily to repay borrowings  under the Credit Facility.  As a result
of incurring  certain sales and closing costs in connection with the sale of the
assets  located  outside the Tri State Area,  the Company has incurred a loss of
approximately  $4.4  million  which has been  included  in gain on sales of real
estate on the accompanying consolidated statements of income.

7. STOCKHOLDERS' EQUITY

      On May 24, 1999, in conjunction  with the Tower  acquisition,  the Company
issued  11,694,567  shares of 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 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.

      On June 2,  1999,  the  Company  issued  six  million  shares  of Series B
Convertible  Cumulative  Preferred  Stock (the  "Series B Preferred  Stock") for
aggregate  proceeds of $150 million.  The Series B Preferred Stock is redeemable
by the Company on or after March 2, 2002 and is  convertible  into the Company's
common  stock at a price of $26.05  per  share.  The  Series B  Preferred  Stock
accumulate  dividends  at an  initial  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.  Proceeds from the Series B Preferred  Stock offering were
used as partial  consideration  in the  acquisition  of the first  mortgage note
secured by 919 Third Avenue located in New York City.

      On  September  22,  1999,  the Board of  Directors  declared a dividend of
$.37125  per  share  of  common  stock  payable  on  October  19,  1999  to  its
shareholders  of record as of  October  7,1999.  The  dividend  declared,  which
related to the three months ended  September  30, 1999,  is based upon an annual
dividend of $1.485 per share.

     On September  22, 1999,  the Board of Directors  declared a dividend on its
Series A Convertible  Cumulative  Preferred Stock of $.4766 per share payable on
November 1, 1999 to  shareholders of record as of October 15, 1999. The dividend
declared,  which relates to the three months ended October 31, 1999, is based on
an annual dividend of $1.906 per share.

      On  September  22,  1999,  the Board of  Directors  declared a dividend of
$.49063  on its  Series  B  Preferred  Stock  payable  on  November  1,  1999 to
shareholders  of record as of October 15, 1999.  The  dividend  declared , which
related to the three  months  ended  October 31,  1999,  is based upon an annual
dividend of $1.96 per share.

     On September 22, 1999,  the Board of Directors  declared a dividend of $.56
per share of Class B Common Stock payable on November 1, 1999 to its
shareholders  of record as of October 15,  1999.  The dividend  declared,  which
related to the three  months  ended  October 31,  1999,  is based upon an annual
dividend of $2.24 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 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 September 30, 1999, the Company purchased and retired
780,804 shares of Class B Common Stock for approximately $17.4 million.

     Basic net income per share on the  Company's  common  stock was  calculated
using the  weighted  average  number of shares  outstanding  of  40,367,161  and
40,011,627 for the three months ended September 30, 1999 and 1998,  respectively
and 40,234,749  and 39,283,706 for the nine months ended  September 30, 1999 and
1998, 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 11,456,931
and  5,488,759  for  the  three  and  nine  months  ended  September  30,  1999,
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 share for the
Company's common stock (in thousands except for earnings per share data):

<TABLE>
<CAPTION>
                                                                   Three Months Ended                Nine Months Ended
                                                                      September 30,                     September 30,
                                                            --------------------------------  --------------------------------
                                                                  1999             1998             1999             1998
                                                            ---------------  ---------------  ---------------  ---------------
<S>                                                         <C>              <C>              <C>              <C>
Numerator:
    Income before extraordinary item, dividends to
        preferred shareholders and income allocated
        to Class B  shareholders                            $       29,396   $       14,612   $       61,625   $       37,831
    Dividends to preferred shareholders                             (7,325)          (4,377)         (17,035)          (8,110)
    Extraordinary loss (net of share applicable to
        limited partners and Class B Common
        shareholders )                                                (389)          (1,670)            (389)          (1,670)
    Income allocated to Class B shareholders                        (6,616)             ---           (8,347)             ---
                                                            ---------------  ---------------  ---------------  ---------------
    Numerator for basic and diluted earnings per
        share                                               $       15,066   $        8,565   $       35,854   $       28,051
                                                            ===============  ===============  ===============  ===============

Denominator:
    Denominator for basic earnings per share-
        weighted-average common shares                              40,367           40,012           40,235           39,284
    Effect of dilutive securities:
        Employee stock options                                         430              522              417              549
                                                            ---------------  ---------------  ---------------  ---------------
    Denominator for diluted earnings per common
        share- adjusted weighted-average shares and
        assumed conversions                                         40,797           40,534           40,652           39,833
                                                            ===============  ===============  ===============  ===============
Basic earnings per common share:
    Income before extraordinary item                        $         0.38   $         0.25   $         0.90   $         0.75
    Extraordinary item                                               (0.01)           (0.04)           (0.01)           (0.04)
                                                            ---------------  ---------------  ---------------  ---------------
    Net income per common share                             $         0.37   $         0.21   $         0.89   $         0.71
                                                            ===============  ===============  ===============  ===============
Diluted earnings per common share:
    Income before extraordinary item                        $         0.38   $         0.25   $         0.89   $         0.75
    Extraordinary item                                               (0.01)           (0.04)           (0.01)           (0.05)
                                                            ---------------  ---------------  ---------------  ---------------
    Diluted net income per common share                     $         0.37   $         0.21   $         0.88   $         0.70
                                                            ===============  ===============  ===============  ===============
<FN>
See accompanying notes to financial statements.
</FN>
</TABLE>


     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 share for the
Company's  Class B Common  Stock (in  thousands  except for  earnings  per share
data):

<TABLE>
<CAPTION>
                                                           Three Months Ended   Nine Months Ended
                                                           September 30, 1999   September 30, 1998
                                                           ------------------   ------------------
<S>                                                         <C>                  <C>
Numerator:
    Income before extraordinary item, dividends to
        preferred shareholders and income allocated
        to common shareholders                              $         29,396     $         61,625
    Dividends to preferred shareholders                               (7,325)             (17,035)
    Extraordinary loss (net of share applicable to
        limited partners and common shareholders)                       (166)                (166)
    Income allocated to common shareholders                          (15,455)             (36,243)
                                                            -----------------    -----------------
    Numerator for basic earnings per share                             6,450                8,181
Add back:
    Income allocated to common shareholders                           15,066               35,854
    Limited partners' interest in the operating
        partnership                                                    3,014                7,082
                                                            -----------------    -----------------
Numerator for diluted earnings per share                    $         24,530     $         51,117
                                                            =================    =================

Denominator:
    Denominator for basic earnings per share-
        weighted-average Class B common shares                        11,457                5,489
    Effect of dilutive securities:
        Weighted average common shares outstanding                    40,367               40,235
        Weighted average OP Units outstanding                          7,702                7,706
        Employee stock options                                           430                  417
                                                            -----------------    -----------------
    Denominator for diluted earnings per Class B
        common share-adjusted weighted-average
        shares and assumed conversions                                59,956               53,847
                                                            =================    =================
Basic earnings per Class B common share:
    Income before extraordinary item                        $           0.57     $           1.52
    Extraordinary item                                                 (0.01)               (0.03)
                                                            -----------------    -----------------
    Net income per Class B common share                     $           0.56     $           1.49
                                                            =================    =================
Diluted earnings per Class B common share:
    Income before extraordinary item                        $           0.41     $           0.95
    Extraordinary item                                                  ----                  ---
                                                            -----------------    -----------------
    Diluted net income per Class B common share             $           0.41     $           0.95
                                                            =================    =================
</TABLE>

8.   Non Cash Investing and Financing Acitivties (in thousands)

                                              Nine Months Ended September 30,
                                                  ----------  -----------
                                                      1999        1998
                                                  ----------  -----------
Cash paid during the period for interest          $  40,341   $   29,411
                                                  ==========  ===========
Interest capitalized during the period            $   7,281   $    5,140
                                                  ==========  ===========


    On May 24, 1999,  in  conjunction  with the Tower  acquisition,  the Company
issued  11,694,567  shares of Class B Common  Stock  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.  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"). In addition, the Company's portfolio also
includes  one office  property  located in  Orlando,  Florida and for the period
commencing January 6, 1998 and ending September 26, 1999,  industrial properties
which were owned by RMI. The Company has 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  Company  expects  to meet its  short  term  liquidity
requirements  in part  through  the  Credit  Facility  and Term  Loan,  interest
incurred on borrowings under the Credit Facility and Term Loan is not considered
as part of  property  operating  performance.  Further,  the  Company  does  not
consider the property  operating  performance of the office property  located in
Orlando, Florida as a part of its Core Portfolio.

    The  accounting  policies of the  reportable  segments are the same as those
described in the summary of significant accounting policies.

    The following tables set forth the components of the Company's  revenues and
expenses and other related  disclosures for the three months ended September 30,
1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                   Three months ended September 30, 1999
                                                            -----------------------------------------------------
                                                             Core                                   Consolidated
                                                             Portfolio       RMI         Other      Totals
                                                            -----------  -----------  -----------  --------------
<S>                                                         <C>          <C>          <C>          <C>
Revenues:
    Base rents, tenant escalations and
        reimbursements                                      $   97,787   $    5,480   $    7,602   $     110,869
    Equity in earnings of real estate joint ventures
        and service companies                                      ---          ---          483             483
    Other income                                                   209          ---       13,784          13,993
                                                            -----------  -----------  -----------  --------------
Total Revenues                                                  97,996        5,480       21,869         125,345
                                                            -----------  -----------  -----------  --------------
Expenses:
    Property expenses                                           37,202          823        2,654          40,679
    Marketing, general and administrative                        4,384          158        2,262           6,804
    Interest                                                     7,428          128       13,218          20,774
    Depreciation and amortization                               18,684        1,343        1,841          21,868
                                                            -----------  -----------  -----------  --------------
Total Expenses                                                  67,698        2,452       19,975          90,125
                                                            -----------  -----------  -----------  --------------
Income before preferred dividends and distributions,
    minority interests' and extraordinary items             $   30,298   $    3,028   $    1,894   $      35,220
                                                            ===========  ===========  ===========  ==============
Total assets                                                $2,104,169   $        0   $  576,995   $   2,681,164
                                                            ===========  ===========  ===========  ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                   Three months ended September 30, 1998
                                                            -----------------------------------------------------
                                                             Core                                   Consolidated
                                                             Portfolio       RMI         Other      Totals
                                                            -----------  -----------  -----------  --------------
<S>                                                         <C>          <C>          <C>          <C>
Revenues:
    Base rents, tenant escalations and
        reimbursements                                      $   63,820   $    3,967   $      151   $      67,938
    Equity in earnings of real estate joint ventures
        and service companies                                      ---          ---          536             536
    Other income                                                   107          ---        3,019           3,126
                                                            -----------  -----------  -----------  --------------
Total Revenues                                                  63,927        3,967        3,706          71,600
                                                            -----------  -----------  -----------  --------------
Expenses:
    Property expenses                                           21,032          677          493          22,202
    Marketing, general and administrative                        3,349          158          873           4,380
    Interest                                                     4,427          278        8,335          13,040
    Depreciation and amortization                               12,560          934        1,341          14,835
                                                            -----------  -----------  -----------  --------------
Total Expenses                                                  41,368        2,047       11,042          54,457
                                                            -----------  -----------  -----------  --------------
Income before preferred dividends and distributions,
    minority interests' and extraordinary items             $   22,559   $    1,920   $   (7,336)  $      17,143
                                                            ===========  ===========  ===========  ==============
Total assets                                                $1,557,066   $  142,863   $   72,888   $   1,772,817
                                                            ===========  ===========  ===========  ==============
</TABLE>

     The following tables set forth the components of the Company's revenues and
expenses and other related  disclosures  for the nine months ended September 30,
1999 and 1998 (in thousands):

<TABLE>
<CAPTION>
                                                                    Nine months ended September 30, 1999
                                                            -----------------------------------------------------
                                                             Core                                   Consolidated
                                                             Portfolio       RMI         Other      Totals
                                                            -----------  -----------  -----------  --------------
<S>                                                         <C>          <C>          <C>          <C>
Revenues:
    Base rents, tenant escalations and
        reimbursements                                      $  240,753   $   15,380   $   11,150   $     267,283
    Equity in earnings of real estate joint ventures
        and service companies                                      ---          ---        1,372           1,372
    Other income                                                   422            2       23,614          24,038
                                                            -----------  -----------  -----------  --------------
Total Revenues                                                 241,175       15,382       36,136         292,693
                                                            -----------  -----------  -----------  --------------
Expenses:
    Property expenses                                           84,912        2,390        3,823          91,125
    Marketing, general and administrative                       12,184          456        3,601          16,241
    Interest                                                    17,179          671       35,770          53,620
    Depreciation and amortization                               47,677        3,710        4,699          56,086
                                                            -----------  -----------  -----------  --------------
Total Expenses                                                 161,952        7,227       47,893         217,072
                                                            -----------  -----------  -----------  --------------
Income before preferred dividends and distributions,
    minority interests' and extraordinary items             $   79,223   $    8,155   $  (11,757)  $      75,621
                                                            ===========  ===========  ===========  ==============
</TABLE>

<TABLE>
<CAPTION>
                                                                    Nine months ended September 30, 1998
                                                            -----------------------------------------------------
                                                             Core                                   Consolidated
                                                             Portfolio       RMI         Other      Totals
                                                            -----------  -----------  -----------  --------------
<S>                                                         <C>          <C>          <C>          <C>
Revenues:
    Base rents, tenant escalations and
        reimbursements                                      $  172,868   $   10,603   $      151   $     183,622
    Equity in earnings of real estate joint ventures
        and service companies                                      ---          ---        1,201           1,201
    Other income                                                   329          ---        7,831           8,160
                                                            -----------  -----------  -----------  --------------
Total Revenues                                                 173,197       10,603        9,183         192,983
                                                            -----------  -----------  -----------  --------------
Expenses:
    Property expenses                                           59,488        1,793          493          61,774
    Marketing, general and administrative                        8,587          364        2,856          11,807
    Interest                                                    12,110          814       21,613          34,537
    Depreciation and amortization                               32,804        2,469        2,825          38,098
                                                            -----------  -----------  -----------  --------------
Total Expenses                                                 112,989        5,440       27,787         146,216
                                                            -----------  -----------  -----------  --------------
Income before preferred dividends and distributions,
    minority interests' and extraordinary items             $   60,208   $    5,163   $  (18,604)  $      46,767
                                                            ===========  ===========  ===========  ==============
</TABLE>

10.  Subsequent Events

     On October 15, 1999 the Company  entered  into a contract to purchase  1350
Avenue of the Americas,  a 540,000 square foot,  Class A office property located
in New York City for approximately $126.5 million. The closing is anticipated to
occur in December,1999.

     As of October 25, 1999, the Company has purchased and retired an additional
430,000 shares of its Class B Common Stock for approximately $8.6 million.

     During  November  1999, the Boards of Directors of RSI and the Company have
approved  amendments  to the RSI  Facility  and the RSVP  Commitment  which  are
necessary for RSI to proceed with certain  proposed  acquisition  financing.  As
consideration  for  such  approvals,  RSI  will  pay  a  fee  to  the  Operating
Partnership in the form of approximately 176,000 shares of RSI common stock.

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 or 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,  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, 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  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 City
metropolitan 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
September  30,  1999,  the  Company  owned and  operated  77  office  properties
comprising  approximately  13.1 million square feet,  109 industrial  properties
comprising  approximately  8.0  million  square  feet and two retail  properties
comprising  approximately 20,000 square feet, located in the Tri-State Area. The
Company also owns and operates a 357,000 square foot office building  located on
Orlando  Florida.  In addition,  the Company owned or had  contracted to acquire
approximately  377 acres of land in 16 separate parcels of which the Company can
develop  approximately  2.8 million  square feet of industrial and office space.
The Company also has invested  approximately  $312.9  million in mortgage  notes
encumbering  three  Class A office  properties  encompassing  approximately  1.6
million square feet,  approximately  472 acres 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 September 30, 1999, the Company had advanced $83.6 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 September
30,  1999,  approximately  $54.8  million  had been  invested  through  the RSVP
Commitment,  of which $21.8  million  represents  RSVP-controlled  joint venture
REIT-qualified  investments and $33 million represents advances to RSI under the
RSVP  Commitment.

     During  November  1999, the Boards of Directors of RSI and the Company have
approved  amendments  to the RSI  Facility  and the RSVP  Commitment  which  are
necessary for RSI to proceed with certain  proposed  acquisition  financing.  As
consideration  for  such  approvals,  RSI  will  pay  a  fee  to  the  Operating
Partnership in the form of approximately 176,000 shares of RSI common stock.

     RSI  serves  as the  managing  member of RSVP.  RSI  invests  in  operating
companies that generally provide commercial  services to properties owned by the
Company  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 Company 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 Company has agreed to invest up to $150 million in RMI.

     On August 9, 1999, the Company  executed a contract,  which will take place
in three  stages,  for the sale of its  interest  in RMI which  consisted  of 28
properties, comprising approximately 6.1 million square feet and three other big
box industrial  properties to KTR. In addition,  the Company also entered into a
sale  agreement  with  Matrix  relating  to a first  mortgage  note and  certain
industrial land holdings (the "Matrix  Sale").  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 KTR,  preferred  units  of  KTR's
operating partnership, relief of debt and a purchase money mortgage note secured
by certain land that is being sold to Matrix.

     During  September  1999,  the  Matrix  Sale and the first  stage of the RMI
closing  occurred  whereby  the  Company  sold its  interest in RMI to KTR for a
combined sales price of approximately  $164.7 million (net of minority partner's
interest).  The combined consideration  consisted of approximately $86.3 million
in cash, $40 million of preferred  stock of KTR, $1.5 million in common stock of
KTR,  approximately $26.7 million of debt relief and approximately $10.2 million
in  purchase  money  mortgages.  As a result,  the  Company  incurred  a gain of
approximately $10.1 million. Cash proceeds from the sales were used primarily to
repay borrowings under the Credit Facility.

     The  second  and  third  stages  of the RMI  closing  are  scheduled  to be
completed in December 1999 and April 2000,  respectively.  Both of the remaining
stages each consist of three  industrial  buildings and are being sold for total
consideration of $50 million and $48 million, respectively.

     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 general
accepted  accounting   principles  ("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 Board of  Directors  of the Company has  authorized a purchase buy back
program  for the  Company's  Class B Common  Stock (see  liquidity  and  capital
resources).

     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  consisted  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 and all
of the  property  located  outside  the Tri State  Area  other  than one  office
property  located in Orlando,  Florida for  approximately  $171.1  million.  The
combined  consideration  consisted of  approximately  $143.8 million in cash and
approximately  $27.3  million of debt relief.  Net cash  proceeds from the sales
were used primarily to repay borrowings  under the Credit Facility.  As a result
of incurring  certain sales and closing costs in connection with the sale of the
assets  located  outside the Tri State Area,  the Company has incurred a loss of
approximately  $4.4  million  which has been  included  in gain on sales of real
estate on the accompanying consolidated statements of income.

     The  market  capitalization  of the  Company  at  September  30,  1999  was
approximately $2.9 billion. The Company's market  capitalization is based on the
market  value  of the  Company's  common  stock  and  common  units  of  limited
partnership  interest  in  the  Operating  Partnership  ("OP  Units")  (assuming
conversion)  of  $20.81  per  share/unit  (based  on the  closing  price  of the
Company's common stock on September 30, 1999), the market value of the Company's
Class B Common  Stock of $21.88  per share  (based on the  closing  price of the
Company's  Class  B  Common  Stock  on  September  30,  1999)  ,the  liquidation
preference  value  of the  Company's  preferred  stock  of $25  per  share,  the
liquidation preference value of the Operating  Partnership's preferred units and
the $1.2 billion  (including its share of joint venture debt and net of minority
partners' interests) of debt outstanding at September 30, 1999. As a result, the
Company's total debt to total market  capitalization ratio at September 30, 1999
equaled approximately 42.4%.

RESULTS  OF OPERATIONS

     The Company's  total  revenues  increased by $53.7 million or 75.1% for the
three months ended September 30, 1999 as compared to the 1998 period. The growth
in total revenues is primarily attributable to the gain on sales of real estate
($10.1 million or 18.7%),  the Company's  acquisition of the Tower  portfolio on
May 24, 1999 (including $4.8 million  attributable to properties sold during the
quarter) and the  acquisition  of the first  mortgage  note secured by 919 Third
Avenue.  Property  operating  revenues,  which  include  base  rents and  tenant
escalations and  reimbursements  ("Property  Operating  Revenues")  increased by
$42.9 million or 63.2% for the three months ended September 30, 1999 as compared
to the  1998  period.  The 1999  increase  in  Property  Operating  Revenues  is
comprised  of  approximately  $3.9 million  attributable  to increases in rental
rates and changes in occupancies and approximately $39.0 million attributable to
the  acquisitions  and  development of  properties.  The Company's base rent was
increased by the impact of the straight-line rent adjustment by $2.1 million for
the three  months ended  September  30, 1999 as compared to $2.0 million for the
1998 period.

      Property operating expenses, real estate taxes and ground rents ("Property
Expenses")  increased  by $18.5  million  or 83.2%  for the three  months  ended
September 30, 1999 as compared to the 1998 period. These increases are primarily
due to the  acquisition of the Tower  portfolio on May 24, 1999  (including $2.2
million  attributable to properties sold during the quarter) and the acquisition
of the first mortgage note secured by 919 Third Avenue,  which  operations  were
reflected in Property  Expenses.  Gross operating  margins  (defined as Property
Operating  Revenues  less Property  Expenses,  taken as a percentage of Property
Operating  Revenues) for the three months ended September 30, 1999 and 1998 were
63.3% and  67.3%  respectively.  The  decrease  in gross  operating  margins  is
primarily  attributable  to the Company's  acquisitions  of full service  office
buildings which generally operate on lower gross operating margins .

      Marketing,  general and administrative  expenses increased by $2.4 million
for the three  months ended  September  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 Company  including the opening of its New York
City division. Marketing, general and administrative expenses as a percentage of
total  revenues  were 5.4% for the three  months  ended  September  30,  1999 as
compared to 6.1% for the 1998 period.

      Interest  expense  increased  by $7.7  million for the three  months ended
September 30, 1999 as compared to the 1998 period.  The increase is attributable
to an  increased  cost  attributable  to an  increased  average  balance  on the
Company's  credit  facilities  and Term Loan,  interest on the Company's  senior
unsecured  notes issued on March 26, 1999 and an increase in secured  borrowings
primarily  attributable  to the  assumption  of debt  (including  $26.9  million
relating to  properties  sold during the quarter) and  incurrence of new debt in
conjunction with the Tower acquisition. The weighted average balance outstanding
on the  Company's  credit  facilities  and Term Loan was $479.7  million for the
three months ended September 30, 1999 as compared to $419.8 million for the 1998
period.

      The Company's  total revenues  increased by $99.7 million or 51.7% for the
nine months ended  September 30 1999 as compared to the 1998 period.  The growth
in total revenues is primarily  attributable to the gain on sales of real estate
($10.1 million or 10.1%),  the Company's  acquisition of the Tower  portfolio on
May 24, 1999 (including $7.3 million  attributable to properties that were sold)
and the  acquisition  of the first  mortgage  note secured by 919 Third  Avenue.
Property  Operating  Revenues  increased by $83.7  million or 45.6% for the nine
months  ended  September  30,  1999 as  compared  to the 1998  period.  The 1999
increase  in  Property   Operating   Revenues  is   comprised  of  $7.9  million
attributable  to increases in rental rates and changes in occupancies  and $75.8
million  attributable  to  acquisitions  and  development  of  properties.   The
Company's  base  rent was  increased  by the  impact of the  straight-line  rent
adjustment  by $6.8  million for the nine  months  ended  September  30, 1999 as
compared to $5.7 million for the 1998 period.

     Property  Expenses  increased by $29.4 million or 47.5% for the nine months
ended  September  30, 1999 as compared to the 1998 period.  These  increases are
primarily due to the acquisition of the Tower portfolio (including $3.1 million
attributable to properties sold during the third quarter) and the acquisition of
the first  mortgage  note  secured by 919 Third  Avenue,  which  operations  are
reflected  in Property  Expenses.  Gross  operating  margins for the nine months
ended  September  30,  1999 and 1998 were  65.9% and  66.4%,  respectively.  The
decrease in gross operating  margins reflects the Company's  acquisition of full
service  office  buildings  which  generally  operate on lower  gross  operating
margins.

     Marketing,  general and  administrative  expenses increased by $4.4 million
for the nine months ended September 30, 1999 as compared 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 Company  including the opening of its New York City  division.
Marketing, general and administrative expenses as a percentage of total revenues
were 5.6% for the nine months ended  September  30, 1999 as compared to 6.1% for
the 1998 period.

     Interest  expense  increased  by $19.1  million for the nine  months  ended
September 30, 1999 as compared to the 1998 period.  The increase is attributable
to an  increased  cost  attributable  to an  increased  average  balance  on the
Company's  credit  facilities  and Term Loan,  interest on the Company's  senior
unsecured notes issued on March 26, 1999 and an increase in secured borrowings
primarily  attributable  to the  assumption  of debt  (including  $26.9  million
relating to properties sold during the third quarter) and incurrence of new debt
in  conjunction  with  the  Tower  acquisition.  The  weighted  average  balance
outstanding on the Company's credit  facilities was  $446.1million  for the nine
months  ended  September  30, 1999 as  compared  to $348.0  million for the 1998
period.

LIQUIDITY AND CAPITAL RESOURCES

     During April 1998,  the Company  completed a preferred  stock  offering and
sold 9,200,000 shares of 7.625% Series A Convertible  Cumulative Preferred Stock
at  a  price  of  $25.00  per  share.   Net  proceeds  from  the  offering  were
approximately  $220.8 million and were used to repay borrowings under the credit
facilities.  The preferred stock is convertible to the Company's common stock at
a  conversion  rate of .8769  shares of common stock for each share of preferred
stock. Additionally, in connection with the acquisition of six office properties
and the remaining 50% interest in a 365,000  square foot vacant office  building
located  in  the  Westchester  County,  the  Company  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 Company's  unsecured credit
facility.

     On May 24, 1999, in  conjunction  with the Tower  acquisition,  the Company
issued  11,694,567  shares of 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 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 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 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 September 30, 1999, the Company purchased and retired
780,804 shares of Class B Common Stock for approximately $17.4 million.

     On June 2,  1999,  the  Company  issued  six  million  shares  of  Series B
Convertible  Cumulative  Preferred  Stock (the  "Series B Preferred  Stock") for
aggregate  proceeds of $150 million.  The Series B Preferred Stock is redeemable
by the Company on or after March 2, 2002 and is  convertible  into the Company's
common  stock at a price of $26.05  per  share.  The  Series B  Preferred  Stock
accumulate  dividends  at an  initial  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.  Proceeds from the Series B Preferred  Stock offering were
used as partial  consideration  in the  acquisition  of the first  mortgage note
secured by 919 Third Avenue located in New York City.

     As of  September  30,  1999  the  Company  had a three  year  $500  million
unsecured revolving credit facility (the "Credit Facility") with 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  Company's  investment  grade  rating on its  senior
unsecured  debt. On March 16, 1999, the Company  received its  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  Company  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 September 30, 1999,
the Company had  availability  under the Credit Facility to borrow an additional
$196.2 million (net of $50.2 million of outstanding undrawn letters of credit).

     As of September 30, 1999, the Company 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 currently priced off of LIBOR plus 175 basis
points.  The Term Loan  matures on December 3, 1999 and the Company is currently
in  negotiations  with the Chase Manhattan Bank to extend and refinance the Term
Loan. At September 30, 1999, the Company had $75 million  outstanding  under the
Term Loan.

     On May 24, 1999, in conjunction  with the acquisition of Tower, the Company
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.  As a
result,  certain  deferred  loan costs  incurred in  connection  with the Bridge
Facility were written off. Such amount is reflected as an extraordinary  loss in
the Company's consolidated statements of income.

     The  Company's  indebtedness  at  September  30, 1999  totaled $1.2 billion
(including  its  share  of joint  venture  debt  and net of  minority  partners'
interests)  and was  comprised of $253.6  million  outstanding  under the credit
facilities,  $75 million outstanding under the Term Loan,  approximately  $449.3
million of senior unsecured notes and  approximately  $460.7 million of mortgage
indebtedness.   Based  on  the   Company's   total  market   capitalization   of
approximately $2.9 billion at September 30, 1999 (calculated based on the market
value of the  Company's  common  stock and OP Units,  assuming  conversion,  the
market value of the Company's Class B Common Stock,  the liquidation  preference
value of the Company's  preferred stock and the liquidation  preference value of
the Operating  Partnership's  preferred  units),  the Company's debt represented
approximately 42.4% 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  securities  and
additional equity securities of the Company. 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 95% 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.

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 Company's  office and  industrial  properties  for the nine
month  period  ended  September  30,  1999 and the  historical  average  of such
non-incremental   capital   expenditures,   tenant   improvements   and  leasing
commissions for the years 1995 through 1998.

<TABLE>
Non-Incremental Revenue Generating Capital Expenditures
<CAPTION>
                                                                                                   Nine
                                                                                                   Months
                                                                                                   Ended
                                                                                       1995 -1998  Sept. 30,
                                         1995         1996         1997         1998    Average    1999
                                  ------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Office Properties
     Total                           $364,545     $375,026   $1,108,675   $2,004,976     $963,305    $1,513,209
     Per Square Foot                     0.19         0.13         0.22         0.23         0.19          0.16

Industrial Properties
     Total                           $290,457     $670,751     $733,233   $1,205,266     $724,927      $791,704
     Per Square Foot                     0.08         0.18         0.15         0.12         0.13          0.09
</TABLE>

<TABLE>
Non-Incremental Revenue Generating Tenant Improvements and Leasing Commissions
<CAPTION>
                                                                                                   Nine
                                                                                                   Months
                                                                                                   Ended
                                                                                       1995 -1998  Sept. 30,
                                         1995         1996         1997         1998    Average    1999
                                  ------------------------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Long Island Office Properties
     Tenant Improvements             $452,057     $523,574     $784,044   $1,140,251     $724,982      $542,538
     Per Square Foot Improved            4.44         4.28         7.00         3.98         4.92          4.15
     Leasing Commissions             $144,925     $119,047     $415,822     $418,191     $274,496      $190,105
     Per Square Foot Leased              1.42         0.97         4.83         1.46         2.17          0.88
                                  ------------ ------------ ------------ ------------ ------------ -------------
     Total Per Square Foot              $5.86        $5.25       $11.83        $5.44        $7.09         $5.03
                                  ============ ============ ============ ============ ============ =============


Westchester Office Properties
     Tenant Improvements              N/A         $834,764   $1,211,665     $711,160     $961,413      $865,536
     Per Square Foot Improved         N/A             6.33         8.90         4.45         6.67          6.25
     Leasing Commissions              N/A         $264,388     $366,257     $286,150     $326,204      $334,783
     Per Square Foot Leased           N/A             2.00         2.69         1.79         2.24          2.42
                                  ------------ ------------ ------------ ------------ ------------ -------------
     Total Per Square Foot            N/A            $8.33       $11.59        $6.24        $8.91         $8.67
                                  ============ ============ ============ ============ ============ =============

Connecticut Office Properties <F1>
     Tenant Improvements              N/A          $58,000   $1,022,421     $202,880     $570,356      $108,881
     Per Square Foot Improved         N/A            12.45        13.39         5.92         9.66          4.89
     Leasing Commissions              N/A            $0.00     $256,615     $151,063     $181,190       $89,142
     Per Square Foot Leased           N/A             0.00         3.36         4.41         3.89          4.00
                                  ------------ ------------ ------------ ------------ ------------ -------------
     Total Per Square Foot            N/A           $12.45       $16.75       $10.33       $13.55         $8.89
                                  ============ ============ ============ ============ ============ =============

New Jersey Office Properties
     Tenant Improvements              N/A          N/A          N/A         $654,877     $654,877      $190,958
     Per Square Foot Improved         N/A          N/A          N/A             3.78         3.78          2.10
     Leasing Commissions              N/A          N/A          N/A         $396,127     $396,127      $346,831
     Per Square Foot Leased           N/A          N/A          N/A             2.08         2.08          3.81
                                  ------------ ------------ ------------ ------------ ------------ -------------
     Total Per Square Foot            N/A          N/A          N/A            $5.86        $5.86         $5.91
                                  ============ ============ ============ ============ ============ =============

Industrial Properties
     Tenant Improvements             $210,496     $380,334     $230,466     $283,842     $276,285      $249,807
     Per Square Foot Improved            0.90         0.72         0.55         0.76         0.73          0.20
     Leasing Commissions             $107,351     $436,213      $81,013     $200,154     $206,183      $753,855
     Per Square Foot Leased              0.46         0.82         0.19         0.44         0.48          0.61
                                  ------------ ------------ ------------ ------------ ------------ -------------
     Total Per Square Foot              $1.36        $1.54        $0.75        $1.20        $1.21         $0.81
                                  ============ ============ ============ ============ ============ =============
<FN>
<F1>
1995 - 1998 average weighted to reflect October 1996 acquisition date
</FN>
</TABLE>

LEASE EXPIRATIONS

The following table sets forth scheduled lease expirations for executed leases
as of September 30, 1999:

<TABLE>
Long Island Office Properties (excluding Omni):
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                     10       41,860          1.4%      $20.65       $21.28
2000                     43      254,282          8.6%      $21.86       $21.11
2001                     40      187,022          6.3%      $22.15       $24.16
2002                     32      253,748          8.6%      $22.31       $24.37
2003                     52      345,662         11.7%      $21.81       $24.60
2004                     43      259,947          8.8%      $22.83       $25.29
2005 and thereafter      94    1,623,174         54.7%         ---          ---
                     ------- ------------ ------------
Total                   314    2,965,695        100.0%
                     ======= ============ ============
<FN>
<F1>    Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>    Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Omni:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                   ---
2000                      3       56,211          9.5%      $32.15       $36.99
2001                      4       32,680          5.6%      $27.36       $33.63
2002                      4      129,351         22.0%      $30.00       $33.26
2003                      5       72,530         12.3%      $29.56       $34.29
2004                      4      112,414         19.1%      $26.03       $33.16
2005 and thereafter       9      185,607         31.5%         ---          ---
                     ------- ------------ ------------
Total                    29      588,793       100.00%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Industrial Properties:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                     13      145,928          3.1%       $5.11        $5.98
2000                     32      491,504         10.6%       $4.97        $5.63
2001                     31      732,183         15.8%       $5.69        $7.02
2002                     26      221,744          4.8%       $6.25        $6.96
2003                     30      724,434         15.6%       $5.26        $5.98
2004                     27      522,242         11.3%       $6.65        $7.18
2005 and thereafter      44    1,799,267         38.8%         ---          ---
                     ------- ------------ ------------
Total                   203    4,637,302       100.00%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Research and Development Properties:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                      3       14,039          1.1%      $11.71       $12.87
2000                      6      101,419          8.0%       $7.77        $8.01
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        $6.41
2004                      7      107,344          8.4%      $11.87       $13.13
2005 and thereafter      13      560,554         44.1%         ---          ---
                     ------- ------------ ------------
Total                    44    1,272,485       100.00%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Westchester Office Properties:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                     13       30,593          1.1%      $22.77       $20.40
2000                     51      366,033         13.4%      $22.42       $22.74
2001                     44      322,090         11.8%      $22.03       $22.34
2002                     48      457,396         16.7%      $20.47       $20.70
2003                     35      246,705          9.0%      $21.75       $22.98
2004                     25      134,039          4.9%      $20.42       $21.41
2005 and thereafter      38    1,176,001         43.0%         ---          ---
                     ------- ------------ ------------
Total                   254    2,732,857        100.0%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
Stamford Office Properties:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                      7       16,966          1.7%      $22.58       $21.84
2000                     26      106,290         10.4%      $22.41       $22.78
2001                     25      103,383         10.1%      $24.14       $25.22
2002                     16       91,088          8.9%      $27.20       $28.43
2003                     14       93,385          9.1%      $31.89       $32.69
2004                     19      213,768         20.9%      $21.23       $22.20
2005 and thereafter      23      399,020         39.0%         ---          ---
                     ------- ------------ ------------
Total                   130    1,023,900        100.0%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
New Jersey Office Properties:
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                    ---          ---          0.0%         ---          ---
2000                     30      285,661         15.8%      $23.30       $23.72
2001                     22      261,036         14.5%      $18.09       $18.29
2002                     21      182,636         10.1%      $19.82       $20.02
2003                     18      327,593         18.1%      $17.90       $18.01
2004                     31      217,955         12.1%      $22.32       $22.87
2005 and thereafter      23      530,546         29.4%         ---          ---
                     ------- ------------ ------------
Total                   145    1,805,427       100.00%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>
<TABLE>
New York City
<CAPTION>
                                               %
                                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 <F1>    Rent <F2>
--------------------------------------------------------------------------------
<S>                  <C>     <C>          <C>          <C>          <C>
1999                      2        8,010          0.3%      $36.46       $36.47
2000                     10      267,904          9.3%      $28.53       $31.91
2001                     17      138,472          4.8%      $35.10       $32.75
2002                     14      176,539          6.1%      $32.37       $33.18
2003                      6       93,752          3.3%      $31.16       $31.64
2004                      8      108,110          3.8%      $34.31       $33.76
2005 and thereafter      76    2,081,702         72.4%         ---          ---
                     ------- ------------ ------------
Total                   133    2,874,489       100.00%
                     ======= ============ ============
<FN>
<F1>
Per square foot rental rate represents annualized straight line
rent as of the lease expiration date.
<F2>
Per square foot rental rate represents annualized base rent
as of the lease expiration date plus non-recoverable operating
expense pass-throughs.
</FN>
</TABLE>

INFLATION

     The office  leases  generally  provided  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 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 facilities and Term Loan bear interest at a variable rate, which
will be influenced by changes in short-term  interest rates, and is sensitive to
inflation.

Impact of Year 2000

     Some of the Company'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 Company 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
Company'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  Company  has  received
assurances from its contractors  that all of the Company'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 Company  cannot
guarantee that all contractors  will comply with their assurances and therefore,
the  Company  may  not be  able to  determine  year  2000  compliance  of  those
contractors.  At that time,  the Company will  determine the extent to which the
Company will be able to replace non compliant contractors.  The Company 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 Company.

     To date,  the Company 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  Company  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  Company  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 Company 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 Company would be required to process transactions, such
as the  issuance of  disbursements,  manually  until an  alternative  system was
implemented.  If the Company was not successful in implementing  their year 2000
compliance  plan,  the  Company  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 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 generally accepted accounting principals
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 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
nonrental  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 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):

<TABLE>
<CAPTION>
                                                                   Three Months Ended                Nine Months Ended
                                                                      September 30,                     September 30,
                                                            --------------------------------  --------------------------------
                                                                  1999             1998             1999             1998
                                                            ---------------  ---------------  ---------------  ---------------
<S>                                                         <C>              <C>              <C>              <C>
Net income available to common shareholders                 $       21,516   $        8,565   $       44,035   $       28,051
Adjustments for Funds From Operations:
Add:
Real estate depreciation and amortization                           21,312           14,036           54,406           36,822
Minority partners' interests in consolidated
    partnerships                                                     2,150              665            4,933            1,882
Limited partners' interest in the operating
    partnerships                                                     3,014            1,209            7,082            5,962
Extraordinary item - loss on extinguishment of debt,
    net of limited partners' share of $74, $323, $74
    and $323, respectively                                             555            1,670              555            1,670
Dividends and distributions on dilutive shares/units                 9,579              ---           21,283              ---
Less:
Gain on sales of real estate                                        10,052              ---           10,052              ---
Amount distributable to minority partners' in
    consolidated partnerships                                        2,607            1,189            6,031            2,965
                                                            ---------------  ---------------  ---------------  ---------------
Funds From Operations (FFO) - diluted                               45,467           24,956          116,211           71,422
Less:
Straight line rents                                                  2,086            1,966            6,600            5,454
Non-Incremental capitalized tenant improvements
    and leasing commissions                                          1,618              762            3,673            3,577
Non-Incremental capitalized improvements                               833              917            2,312            2,390
                                                            ---------------  ---------------  ---------------  ---------------
Cash available for distribution (CAD) - diluted             $       40,930   $       21,311   $      103,626   $       60,001
                                                            ===============  ===============  ===============  ===============
Diluted FFO and CAD calculations:
Basic GAAP weighted average shares outstanding                      51,824           40,012           45,724           39,284
Add GAAP weighted average dilutive securities
    outstanding                                                        430              522              417              549
                                                            ---------------  ---------------  ---------------  ---------------
Dilutive GAAP weighted average shares outstanding                   52,254           40,534           46,141           39,833
Adjustments for dilutive FFO and CAD weighted
    average shares/units:
    Add:
    Weighted average units of limited partnership                    7,702            7,741            7,706            7,715
    Weighted average shares of Series A Preferred
        Stock                                                        8,060              ---            8,060              ---
    Weighted average shares of Series B Preferred
        Stock                                                        5,758              ---            2,552              ---
    Weighted average shares of minority partner's
         preferred interest                                          3,454              ---            1,645              ---
    Weighted average shares of preferred units of
        limited partnership                                          1,366              ---            1,366              ---
                                                            ---------------  ---------------  ---------------  ---------------
Dilutive FFO and CAD weighted average shares/units
    outstanding                                                     78,594           48,275           67,470           47,548
                                                            ===============  ===============  ===============  ===============
    FFO per weighted average share/unit                     $         0.58   $         0.52   $         1.72   $         1.50
                                                            ===============  ===============  ===============  ===============
    CAD per weighted average share/unit                     $         0.52   $         0.44   $         1.54   $         1.26
                                                            ===============  ===============  ===============  ===============
    Weighted average dividends per share/unit               $         0.41   $         0.34   $         1.14   $         0.99
                                                            ===============  ===============  ===============  ===============
    FFO payout ratio                                                 70.5%            64.9%            66.3%            65.8%
                                                            ===============  ===============  ===============  ===============
    CAD payout ratio                                                 78.3%            76.7%            74.3%            78.4%
                                                            ===============  ===============  ===============  ===============
</TABLE>

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 does not hedge
interest rate risk using  financial  instruments  nor is the Company  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 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 or an equity  offering  through
accessing the capital markets on terms that are advantageous to the Company.

     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  fair market value  ("FMV") at September 30, 1999
(dollars in thousands):

<TABLE>
<CAPTION>
                                   For the Year Ended December 31,
                         ---------------------------------------------------
                           1999      2000       2001       2002       2003     Thereafter    Total<F1>     F.M.V
                         -----------------------------------------------------------------------------------------
<S>                      <C>       <C>       <C>        <C>        <C>        <C>           <C>         <C>
Long term debt:
  Fixed rate             $ 1,347   $33,883   $ 21,332   $ 14,980   $  6,724   $   832,459   $ 910,725   $ 910,725
  Weighted average
     interest rate         7.96%     7.40%      7.45%      7.89%      8.00%         7.52%       7.53%

  Variable rate          $75,000   $   ---   $253,600   $    ---   $    ---   $       ---   $ 328,600   $ 328,600
  Weighted average
     interest rate         7.13%       ---      6.28%        ---        ---           ---       6.47%
<FN>
<F1>
Includes  unamortized issuance discounts of $704,000 on the 5 and 10 year senior
unsecured notes issued on March 26, 1999 which are due at maturity.
</FN>
</TABLE>

     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  $3.3 million  annual  increase in interest
expense based on approximately $328.6 million outstanding at September 30, 1999.

     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 September 30, 1999 (dollars in thousands):

<TABLE>
<CAPTION>
                              For the Year Ended December 31,
                    ----------------------------------------------------
                      1999       2000       2001       2002       2003     Thereafter      Total       F.M.V
                    ------------------------------------------------------------------------------------------
<S>                 <C>       <C>        <C>        <C>        <C>        <C>           <C>         <C>
Mortgage notes and
   notes receivable:

  Fixed rate        $   685   $282,727   $     15   $ 10,624   $    ---   $    53,490   $ 347,541   $ 347,541
  Weighted average
     interest rate   10.49%      9.42%      9.00%     10.34%        ---        10.68%       9.64%
</TABLE>

     The fair value 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.

                                            21

<PAGE>

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

         The Board of Directors of the Company has approved  certain  amendments
         to the governance provisions of the Company.

         The Board of  Directors  has  approved an  amendment  to the  Company's
         charter to opt into a provision of the Maryland General Corporation Law
         (the  "MGCL")  requiring a vote of  two-thirds  of the common  stock to
         remove one or more directors.  Previously the entire board of directors
         could  be  removed,  at  any  time,  with  or  without  cause,  by  the
         affirmative vote of a majority of the votes entitled to be cast for the
         election of directors.

         Under Section 3-805 of the MGCL (a recent  amendment) a corporation may
         raise the threshold  amount of shares that must be held by stockholders
         calling a special  stockholder meeting to a majority of all votes to be
         cast at such  meeting.  In  accordance  the  with  MGCL,  the  Board of
         Directors has approved an amendment to the Company's by laws  providing
         that a special meeting of stockholders need only be called if requested
         by  holders  of the  majority  of  votes  eligible  to be  cast at such
         meeting.  The Company's  previous bylaws provided that special meetings
         of  stockholders  could be called  by the  secretary  upon the  written
         request of holders of shares  entitled to cast not less than 25% of all
         votes entitled to be cast at such meeting. Raising the threshold allows
         the Company to avoid calling  special  meetings,  unless the purpose of
         the meeting has substantial support among stockholders.

         The Board of Directors has also approved the Company's  opting into the
         Maryland Business  Combination  Statute. A business  combination statue
         provides  substantial  defensive protection to a company, by preventing
         an unsolicited  acquiror  seeking a post-offer  merger from acquiring a
         substantial  stock  position  without first  obtaining  approval of the
         Company's board.  Maryland's business  combination law imposes a 5-year
         time limitation and supermajority  stockholder approval requirements on
         business  combinations  with  persons  who  acquire  10% or  more  of a
         company's  voting power  before the  company's  board of directors  has
         approved the proposed business combination.


Item 6.  Exhibits and Reports on Form 8-K
      a) Exhibit 27 Financial Data Schedule
      b) During the three months ended September 30, 1999, the registrant  filed
         the following reports:

         On August 25, 1999,  the Company filed Form 8-K announcing its entering
         into  a  Contribution  and  Exchange  agreement  with  respect  to  the
         disposition  of RMI. In addition,  the Company  announced  its entering
         into an agreement  with Matrix  relating to the  disposition of certain
         industrial land holdings and a mortgage note.


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.
                         Registrant

November 11, 1999        /s/   Scott H. Rechler
Date                     Scott H. Rechler, Co-Chief Executive Officer
                         and President

November 11, 1999        /s/   Michael Maturo
Date                     Michael Maturo, Executive Vice President,
                         Treasurer and Chief Financial Officer