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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q


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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

                         COMMISSION FILE NUMBER: 1-13762



                       RECKSON OPERATING PARTNERSHIP, L.P.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


MARYLAND                                                              11-3233647
--------                                                              ----------
(STATE OR OTHER JURISDICTION OF             (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)

225 BROADHOLLOW ROAD, MELVILLE, NY                                         11747
----------------------------------                                         -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                               (ZIP CODE)

                                 (631) 694-6900
               (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE)
               ---------------------------------------------------

   INDICATE BY CHECK MARK  WHETHER THE  REGISTRANT  (1) HAS  FILED  ALL  REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE  ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT  WAS  REQUIRED  TO FILE SUCH  REPORTS)  YES X NO__,  AND (2) HAS BEEN
SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .

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

                                 YES ___ NO _X_.


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<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                                QUARTERLY REPORT
                    FOR THE THREE MONTHS ENDED JUNE 30, 2004

                                TABLE OF CONTENTS

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

  Item 1.      Financial Statements

               Consolidated Balance Sheets as of June 30, 2004
                 (unaudited) and December 31, 2003................         2

               Consolidated Statements of Income for the three
                 and six months ended June 30, 2004 and 2003
                 (unaudited)......................................         3

               Consolidated Statements of Cash Flows for the
                 six months ended June 30, 2004 and 2003
                 (unaudited)......................................         4

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

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

  Item 3.      Quantitative and Qualitative Disclosures about
                 Market Risk......................................        36

  Item 4.      Controls and Procedures............................        37

--------------------------------------------------------------------------------
  PART II.     OTHER INFORMATION
--------------------------------------------------------------------------------

  Item 1.      Legal Proceedings..................................        42

  Item 2.      Changes in Securities, Use of Proceeds and
               Issuer Purchases of Equity Securities..............        42

  Item 3.      Defaults Upon Senior Securities....................        42

  Item 4.      Submission of Matters to a Vote of Securities
               Holders............................................        42

  Item 5.      Other Information..................................        42

  Item 6.      Exhibits and Reports on Form 8-K...................        42


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  SIGNATURES
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<PAGE>


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

                       RECKSON OPERATING PARTNERSHIP, L.P.
                           CONSOLIDATED BALANCE SHEETS
                (DOLLARS IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)

                                                       JUNE 30,     DECEMBER 31,
                                                         2004           2003
                                                     -----------    -----------
                                                     (UNAUDITED)
ASSETS:
Commercial real estate properties, at cost:
   Land ..........................................   $   384,137    $   378,479
   Building and improvements .....................     2,608,867      2,211,566
Developments in progress:
   Land ..........................................        95,600         90,706
   Development costs .............................        28,900         68,127
Furniture, fixtures and equipment ................        11,625         11,338
                                                     -----------    -----------
                                                       3,129,129      2,760,216
Less accumulated depreciation ....................      (515,961)      (464,382)
                                                     -----------    -----------
Investment in real estate, net of
   accumulated deprecation .......................     2,613,168      2,295,834

Properties and related assets held for sale,
   net of accumulated depreciation ...............         5,069         52,517
Investments in real estate joint ventures ........         6,462          5,904
Investments in mortgage notes and notes
   receivable ....................................        68,433         54,986
Investments in service companies and affiliate
   loans and joint ventures ......................        75,784         75,544
Cash and cash equivalents ........................        82,670         22,512
Tenant receivables ...............................        11,661         11,929
Deferred rents receivable ........................       122,672        111,962
Prepaid expenses and other assets ................        81,626         34,944
Contract and land deposits and
   pre-acquisition costs .........................            60         20,203
Deferred leasing and loan costs ..................        69,573         64,345
                                                     -----------    -----------

TOTAL ASSETS .....................................   $ 3,137,178    $ 2,750,680
                                                     ===========    ===========


LIABILITIES:
Mortgage notes payable ...........................   $   965,561    $   721,635
Liabilities associated with properties held
   for sale ......................................           311            881
Unsecured credit facility ........................        90,000        169,000
Senior unsecured notes ...........................       549,132        499,445
Accrued expenses and other liabilities ...........       117,227         89,979
Distributions payable ............................        32,994         28,290
                                                     -----------    -----------

TOTAL LIABILITIES ................................     1,755,225      1,509,230
                                                     -----------    -----------

Minority partners' interests in consolidated
   partnerships ..................................       223,405        233,070
                                                     -----------    -----------
Commitments and contingencies ....................                           --

PARTNERS' CAPITAL:
Preferred Capital, 8,710,480 and 10,854,162
   units outstanding, respectively ...............       225,235        281,690

General Partners' Capital:
   Common units, 67,256,850 and 58,275,367
      units outstanding, respectively ............       886,654        682,172
Limited Partners' Capital:
   Class A common units, 3,084,713 units
      issued and outstanding .....................        40,484         38,613
   Class C common units, 465,854 units issued
      and outstanding ............................         6,175          5,905
                                                     -----------    -----------
     Total Partners' Capital .....................     1,158,548      1,008,380
                                                     -----------    -----------

          Total Liabilities and Partners' Capital    $ 3,137,178    $ 2,750,680
                                                     ===========    ===========


                (see accompanying notes to financial statements)

                                       2
<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                        CONSOLIDATED STATEMENTS OF INCOME
        (UNAUDITED AND IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED               SIX MONTHS ENDED
                                                                                 JUNE 30,                        JUNE 30,
                                                                           2004            2003            2004            2003
                                                                       ------------    ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>             <C>
REVENUES:
Property operating revenues:
   Base rents ......................................................   $    109,765    $     94,141    $    220,800    $    188,885
   Tenant escalations and reimbursements ...........................         17,478          13,907          35,593          27,943
                                                                       ------------    ------------    ------------    ------------
Total property operating revenues ..................................        127,243         108,048         256,393         216,828
Interest income on mortgage notes and notes receivable
   (including $539, $1,045, $1,128 and $2,078, respectively
   from related parties) ...........................................          1,876           1,539           3,492           3,010
Investment and other income ........................................          1,447           3,349           5,494           9,137
                                                                       ------------    ------------    ------------    ------------
   TOTAL REVENUES ..................................................        130,566         112,936         265,379         228,975
                                                                       ------------    ------------    ------------    ------------
EXPENSES:
Property operating expenses ........................................         50,626          42,438         102,091          85,818
Marketing, general and administrative ..............................          7,374           8,795          14,441          16,364
Interest ...........................................................         24,607          20,145          50,268          40,242
Depreciation and amortization ......................................         29,617          26,983          58,738          55,763
                                                                       ------------    ------------    ------------    ------------
   TOTAL EXPENSES ..................................................        112,224          98,361         225,538         198,187

Income before minority interests, preferred distributions,
   equity in earnings of real estate joint ventures and
   discontinued operations .........................................         18,342          14,575          39,841          30,788
Minority partners' interests in consolidated partnerships ..........         (4,422)         (4,062)        (10,603)         (8,463)
Equity (loss) in earnings of real estate joint ventures ............            294            (270)            408            (164)
                                                                       ------------    ------------    ------------    ------------
Income before discontinued operations and preferred distributions ..         14,214          10,243          29,646          22,161
Discontinued operations:
   Gain on sales of real estate ....................................          3,830              --           9,342              --
   Income from discontinued operations .............................             99           3,807             588           7,138
                                                                       ------------    ------------    ------------    ------------
Net Income .........................................................         18,143          14,050          39,576          29,299
Preferred unit distributions .......................................         (4,399)         (5,591)         (8,932)        (11,181)
                                                                       ------------    ------------    ------------    ------------
Net income allocable to common unit holders ........................   $     13,744    $      8,459    $     30,644    $     18,118
                                                                       ============    ============    ============    ============
Net income allocable to:
   Common unit holders .............................................   $     13,644    $      6,643    $     30,411    $     14,234
   Class B common unit holders .....................................             --           1,816              --           3,884
   Class C common unit holders .....................................            100              --             233              --
                                                                       ------------    ------------    ------------    ------------
Total ..............................................................   $     13,744    $      8,459    $     30,644    $     18,118
                                                                       ============    ============    ============    ============
Net income per weighted average common units:
   Income from continuing operations ...............................   $        .13    $        .07    $        .30    $        .16
   Discontinued operations .........................................            .06             .05             .15             .10
                                                                       ------------    ------------    ------------    ------------
   Basic net income per common unit ................................   $        .19    $        .12    $        .45    $        .26
                                                                       ============    ============    ============    ============

   Class B common - income from continuing operations ..............   $         --    $        .10    $         --    $        .24
   Discontinued operations .........................................             --             .08              --             .15
                                                                       ------------    ------------    ------------    ------------
   Basic net income per Class B common unit ........................   $         --    $        .18    $         --    $        .39
                                                                       ============    ============    ============    ============

   Class C common - income from continuing operations ..............   $        .15    $         --    $        .34    $         --
   Discontinued operations .........................................            .06              --             .16              --
                                                                       ------------    ------------    ------------    ------------
   Basic net income per Class C common unit ........................   $        .21    $         --    $        .50    $         --
                                                                       ============    ============    ============    ============

Weighted average common units outstanding:
   Common units ....................................................     69,976,809      55,277,219      67,212,309      55,376,642
   Class B common units ............................................             --       9,915,313              --       9,915,313
   Class C common units ............................................        465,845              --         465,845              --
</TABLE>


                (see accompanying notes to financial statements)

                                       3
<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (UNAUDITED AND IN THOUSANDS)

                                                            SIX MONTHS ENDED
                                                                JUNE 30,
                                                         ----------------------
                                                            2004         2003
                                                         ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME ...........................................   $  39,576    $  29,299
Adjustments to reconcile net income to net cash
      provided by operating activities:
   Depreciation and amortization (including
      discontinued operations) .......................      59,069       61,887
   Gain on sales of real estate ......................     (11,330)          --
   Minority partners' interests in consolidated
      partnerships ...................................      13,136        9,025
   (Equity) loss in earnings of real estate
      joint ventures .................................        (408)         164
Changes in operating assets and liabilities:
   Tenant receivables ................................         278        6,326
   Prepaid expenses and other assets .................      (8,204)      (5,988)
   Deferred rents receivable .........................      (8,983)      (9,207)
   Accrued expenses and other liabilities ............      (6,546)      (9,149)
                                                         ---------    ---------
   Net cash provided by operating activities .........      76,588       82,357
                                                         ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to developments in progress .............     (12,977)      (9,732)
   Purchase of commercial real estate ................     (72,691)      (6,505)
   Additions to commercial real estate properties ....     (17,802)     (25,149)
   Additions to furniture, fixtures and equipment ....        (288)         (94)
   Payment of leasing costs ..........................      (8,677)      (8,765)
   Distributions (contributions) from investments
      in real estate joint ventures ..................        (150)         243
   Additions to mortgage notes and notes receivable ..     (15,619)          --
   Repayment of mortgage notes and notes receivable ..       2,691           --
   Proceeds from sales of real estate ................      57,056           --
                                                         ---------    ---------
   Net cash used in investing activities .............     (68,457)     (50,002)
                                                         ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Purchases of general partner common units .........          --       (4,538)
   Principal payments on secured borrowings ..........      (6,074)      (5,878)
   Payment of loan costs .............................      (2,635)         (29)
   Proceeds from issuance of senior unsecured notes ..     150,000           --
   Repayment of senior unsecured notes ...............    (100,000)          --
   Proceeds from unsecured credit facility ...........      90,000       55,000
   Repayment of unsecured credit facility ............    (169,000)          --
   Distributions to minority partners in
      consolidated partnerships ......................     (22,800)     (11,507)
   Contributions .....................................     176,695           --
   Distributions .....................................     (64,659)     (71,057)
                                                         ---------    ---------
   Net cash provided by (used in)
      financing activities ...........................     51,527       (38,009)
                                                         ---------    ---------

   Net increase in cash and cash equivalents .........      59,658       (5,654)
   Cash and cash equivalents at beginning of period ..      23,012       30,576
                                                         ---------    ---------
   Cash and cash equivalents at end of period ........   $  82,670    $  24,922
                                                         =========    =========


                (see accompanying notes to financial statements)

                                       4
<PAGE>


                       RECKSON OPERATING PARTNERSHIP, L.P.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2004
                                   (UNAUDITED)

1.    ORGANIZATION AND FORMATION OF THE OPERATING PARTNERSHIP

Reckson  Operating  Partnership,  L.P. (The "Operating  Partnership")  commenced
operations on June 2, 1995.  Reckson  Associates  Realty Corp. (the  "Company"),
which  serves as the sole general  partner of the  Operating  Partnership,  is a
fully  integrated,  self  administered  and self managed real estate  investment
trust  ("REIT").  The Operating  Partnership and the Company  (collectively  the
"Company")  were formed for the purpose of continuing the commercial real estate
business of Reckson  Associates,  the predecessor of the Operating  Partnership,
its affiliated partnerships and other entities.

The Operating  Partnership is engaged in the ownership,  management,  operation,
leasing and development of commercial real estate properties, principally office
and to a lesser  extent  industrial  buildings  and also  owns  land for  future
development  (collectively,  the  "Properties")  located  in the New  York  City
tri-state area (the "Tri-State Area").

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

The Company became the sole general  partner of Reckson  Operating  Partnership,
L.P. (the "Operating Partnership") by contributing  substantially all of the net
proceeds of the IPO in exchange for an approximate 73% interest in the Operating
Partnership.  At June  30,  2004,  the  Company's  ownership  percentage  in the
Operating  Partnership was approximately  94.8%. All Properties  acquired by the
Company are held by or through the Operating  Partnership.  In conjunction  with
the  IPO,  the  Operating  Partnership  executed  various  option  and  purchase
agreements whereby it issued common units of limited partnership interest in the
Operating  Partnership ("OP Units") to certain continuing  investors in exchange
for (i)  interests  in  certain  property  partnerships,  (ii)  fee  simple  and
leasehold  interests in properties  and  development  land,  (iii) certain other
business  assets  and (iv) 100% of the  non-voting  preferred  stock of  Reckson
Management Group, Inc. and Reckson Construction Group, Inc.

2.    BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  include the consolidated
financial  position of the Company,  the Operating  Partnership  and the Service
Companies  (as  defined  below) at June 30, 2004 and  December  31, 2003 and the
results of their operations for the three and six months ended June 30, 2004 and
2003, respectively, and, their cash flows for the six months ended June 30, 2004
and 2003,  respectively.  The Operating  Partnership's  investments  in majority
owned  and   controlled   real  estate  joint  ventures  are  reflected  in  the
accompanying  financial  statements on a consolidated basis with a reduction for
the minority partners' interest.  The Operating Partnership also invests in real
estate joint  ventures where it may own less than a controlling  interest.  Such
investments are reflected in the  accompanying  financial  statements  under the
equity method of accounting.  The Service  Companies  which provide  management,
development  and  construction   services  to  the  Company  and  the  Operating
Partnership are Reckson  Management Group,  Inc., RANY Management  Group,  Inc.,
Reckson  Construction Group New York, Inc., Reckson Construction Group, Inc. and
Reckson   Construction  &  Development  LLC  (the  "Service   Companies").   All
significant  intercompany  balances and transactions have been eliminated in the
consolidated financial statements.

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

Minority  partners'  interests  in  consolidated  partnerships  represent  a 49%
non-affiliated  interest in RT Tri-State LLC, owner of a seven property suburban
office portfolio, a 40% non-affiliated interest in Omni Partners, L.P., owner of
a 579,000 square foot suburban office property and a 49% non-affiliated interest
in  Metropolitan  919 Third Avenue,  LLC,  owner of the property  located at 919
Third Avenue, New York, NY.

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

                                       5
<PAGE>


The accompanying  interim unaudited  financial  statements have been prepared by
the Operating Partnership's  management pursuant to the rules and regulations of
the  Securities  and  Exchange  Commission.  Certain  information  and  footnote
disclosure normally included in the financial  statements prepared in accordance
with accounting  principles generally accepted in the United States ("GAAP") may
have been condensed or omitted pursuant to such rules and regulations,  although
management   believes  that  the  disclosures  are  adequate  to  not  make  the
information presented misleading.  The unaudited financial statements as of June
30,  2004 and for the three and six month  periods  ended June 30, 2004 and 2003
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, 2004. These financial statements should be read in conjunction with
the Operating  Partnership's  audited financial statements and the notes thereto
included in the Operating  Partnership's  Form 10-K for the year ended  December
31, 2003.

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

The Operating  Partnership  considers highly liquid investments with maturity of
six months or less when purchased to be cash equivalents.  Cash balances at June
30, 2004  include  approximately  $46.5  million of the  remaining  net proceeds
received  during the six month period  ended June 30, 2004  relating to property
sales,  issuance  of  the  Company's  equity  (see  Note  7) and  the  Operating
Partnership's January 2004 issuance of senior unsecured notes (see Note 4).

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

In  October  2001,  the FASB  issued  Statement  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets".  Statement  No. 144  provides
accounting guidance for financial accounting and reporting for the impairment or
disposal of long-lived assets.  Statement No. 144 supersedes  Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". It also  supersedes the accounting and reporting  provisions of
Accounting   Principles   Board  Opinion  No.  30,   Reporting  the  Results  of
Operations--Reporting  the Effects of  Disposal of a Segment of a Business,  and
Extraordinary,  Unusual  and  Infrequently  Occurring  Events  and  Transactions
related to the disposal of a segment of a business.  The  Operating  Partnership
adopted Statement No. 144 on January 1, 2002. The adoption of this statement did
not have a  material  effect  on the  results  of  operations  or the  financial
position of the  Operating  Partnership.  The adoption of Statement No. 144 does
not have an impact on net income allocable to common shareholders. Statement No.
144 only impacts the presentation of the results of operations and gain on sales
of  depreciable  real estate assets for those  properties  sold or held for sale
during the period within the consolidated statements of income.

On July 1, 2001 and January 1, 2002,  the  Operating  Partnership  adopted  FASB
Statement No.141,  "Business Combinations" and FASB Statement No. 142, "Goodwill
and Other Intangibles",  respectively. As part of the acquisition of real estate
assets,  the fair value of the real estate acquired is allocated to the acquired
tangible assets,  consisting of land,  building and building  improvements,  and
identified  intangible  assets  and  liabilities,  consisting  of the  value  of
above-market and below-market  leases, other value of in-place leases, and value
of tenant relationships,  based in each case on their fair values. The Operating
Partnership  assesses fair value based on estimated cash flow  projections  that
utilize  appropriate  discount and  capitalization  rates and  available  market
information.  Estimates  of future  cash  flows are based on a number of factors
including the historical  operating results,  known trends, and  market/economic
conditions  that  may  affect  the  property.   If  the  Operating   Partnership
incorrectly  estimates the values at acquisition or the undiscounted cash flows,
initial  allocation  of  purchase  price and future  impairment  charges  may be
different.

                                       6
<PAGE>


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

In January  2003,  the FASB  issued  Interpretation  No. 46,  "Consolidation  of
Variable Interest  Entities" ("FIN 46"), which explains how to identify variable
interest  entities  ("VIEs")  and how to  assess  whether  to  consolidate  such
entities.  The initial  determination  of whether an entity  qualifies  as a VIE
shall be made as of the date at which a  primary  beneficiary  becomes  involved
with the  entity  and  reconsidered  as of the date of a  triggering  event,  as
defined.  The provisions of this  interpretation  are immediately  effective for
VIEs formed after  January 31, 2003.  In December  2003 the FASB issued FIN 46R,
deferring  the  effective  date  until the  period  ending  March  31,  2004 for
interests  held by public  companies  in VIEs created  before  February 1, 2003,
which were non-special purpose entities.  The Operating  Partnership adopted FIN
46R during the period  ended  March 31,  2004.  The  Operating  Partnership  has
determined  that  its  consolidated  and  unconsolidated   subsidiaries  do  not
represent  VIEs requiring  consolidation  pursuant to such  interpretation.  The
Operating  Partnership  will  continue to monitor  any changes in  circumstances
relating to certain of its consolidated and unconsolidated  joint ventures which
could result in a change in the Operating Partnership's consolidation policy.

In May  2003,  the FASB  issued  Statement  No.  150,  "Accounting  for  Certain
Financial  Instruments  with  Characteristics  of both  Liabilities  and Equity"
("Statement No. 150").  Statement No. 150 is effective for financial instruments
entered into or modified  after May 15, 2003,  and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. It is to be
implemented  by reporting  the  cumulative  effect of a change in an  accounting
principle  for  financial  instruments  created  before the issuance date of the
statement and still existing at the beginning of the interim period of adoption.
The  adoption  of  Statement  No.  150 did not  have a  material  effect  on the
Operating Partnership's financial position or results of operations.

                                       7
<PAGE>


3.    MORTGAGE NOTES PAYABLE

As of June 30, 2004, the Operating  Partnership had approximately $965.6 million
of mortgage notes payable,  which mature at various times between 2004 and 2027.
The notes are  secured by 20  properties  with an  aggregate  carrying  value of
approximately $1.84 billion which are pledged as collateral against the mortgage
notes payable. In addition, approximately $43.5 million of the $965.6 million is
recourse to the Operating  Partnership and certain of the mortgage notes payable
are guaranteed by certain limited partners in the Operating Partnership and / or
the Company.

The  following  table  sets forth the  Operating  Partnership's  mortgage  notes
payable as of June 30, 2004, by scheduled maturity date (dollars in thousands):

<TABLE>
<CAPTION>
                                                       Principal         Interest          Maturity          Amortization
Property                                              Outstanding          Rate              Date            Term (Years)
------------------------------------------------    ----------------    ------------    ---------------    ------------------
<C>                                                   <C>                  <C>           <C>                  <C>
1185 Avenue of the Americas, NY, NY                   $   250,000          4.95%           August, 2004       Interest only
395 North Service Road, Melville, NY                       19,097          6.45%          October, 2005       $34 per month
200 Summit Lake Drive, Valhalla, NY                        18,704          9.25%          January, 2006            25
1350 Avenue of the Americas, NY, NY                        73,431          6.52%             June, 2006            30
Landmark Square, Stamford, CT (a)                          43,465          8.02%          October, 2006            25
100 Summit Lake Drive, Valhalla, NY                        16,981          8.50%            April, 2007            15
333 Earle Ovington Blvd, Mitchel Field, NY (b)             52,343          7.72%           August, 2007            25
810 Seventh Avenue, NY, NY (e)                             80,498          7.73%           August, 2009            25
100 Wall Street, NY, NY (e)                                34,883          7.73%           August, 2009            25
6900 Jericho Turnpike, Syosset, NY                          7,165          8.07%             July, 2010            25
6800 Jericho Turnpike, Syosset, NY                         13,576          8.07%             July, 2010            25
580 White Plains Road, Tarrytown, NY                       12,365          7.86%        September, 2010            25
919 Third Ave, NY, NY (c)                                 242,904          6.87%           August, 2011            30
One Orlando Center, Orlando, FL (d)                        37,439          6.82%         November, 2027            28
120 West 45th Street, NY, NY (d)                           62,710          6.82%         November, 2027            28
                                                    --------------

Total/Weighted Average                                $   965,561          6.65%
                                                    ==============
</TABLE>

------------------------

(a)   Encompasses six Class A office properties.

(b)   The Operating  Partnership has a 60% general partnership  interest in this
      property and its proportionate  share of the aggregate principal amount is
      approximately $31.4 million.

(c)   The Operating  Partnership has a 51% membership  interest in this property
      and  its  proportionate   share  of  the  aggregate  principal  amount  is
      approximately $123.9 million.

(d)   Subject to interest rate  adjustment on November 1, 2004 to the greater of
      8.82% per annum or the yield on  non-callable  U.S.  treasury  obligations
      with a term of fifteen years plus 2% per annum. The Operating  Partnership
      has the  ability to  pre-pay  the loan at that time.  In  addition,  these
      properties are cross-collateralized.

(e)   These properties are cross-collateralized.

(f)   Such  rate is based on the  greater  of one  month  LIBOR or 2.15%  plus a
      weighted  average spread of  approximately  2.80%.  An interest rate hedge
      agreement  was  acquired  to limit  exposure to  increases  in LIBOR above
      5.825%.


In addition,  the Operating  Partnership has a 60% interest in an unconsolidated
joint venture property.  The Operating  Partnership's share of the mortgage debt
at June 30, 2004 is approximately $7.6 million. This mortgage note payable bears
interest at 8.85% per annum and matures on  September  1, 2005 at which time the
Operating  Partnership's  share of the mortgage debt will be approximately  $6.9
million.

On March 19, 2004,  the  Operating  Partnership  entered  into two  anticipatory
interest rate hedge instruments,  which are scheduled to coincide with an August
2004 debt maturity, totaling $100 million, to protect itself against potentially
rising  interest  rates.  At June 30, 2004, the fair value of these  instruments
exceeded  their carrying value by  approximately  $5.2 million.  Such amount has
been reflected as accumulated  other  comprehensive  income with a corresponding
increase to prepaid expenses and other assets on the accompanying balance sheet.
In  addition,  on  July 1,  2004,  the  Operating  Partnership  entered  into an
additional anticipatory interest rate hedge instrument totaling $12.5 million to
coincide with the aforementioned August 2004 debt maturity.

                                       8
<PAGE>


4.    SENIOR UNSECURED NOTES

On January 22, 2004, the Operating Partnership issued $150 million of seven-year
5.15% (5.196%  effective rate) senior unsecured notes.  Prior to the issuance of
these notes the Operating Partnership entered into several anticipatory interest
rate hedge  instruments to protect itself against  potentially  rising  interest
rates.  At the time the notes were issued the Operating  Partnership  incurred a
net cost of approximately  $980,000 to settle these instruments.  Such costs are
being amortized over the term of the notes. Net proceeds of  approximately  $148
million  received from this issuance were used to repay  outstanding  borrowings
under the Credit Facility (as defined below) and to invest in short-term  liquid
investments.

On March  15,  2004,  the  Operating  Partnership  repaid  $100  million  of the
Operating Partnership's 7.4% senior unsecured notes at maturity.

As of June 30, 2004, the Operating  Partnership  had  outstanding  approximately
$549.1  million  (net of  issuance  discounts)  of senior  unsecured  notes (the
"Senior  Unsecured  Notes").  The  following  table  sets  forth  the  Operating
Partnership's  Senior Unsecured Notes and other related disclosures by scheduled
maturity date (dollars in thousands):

                          FACE
    ISSUANCE             AMOUNT     COUPON RATE        TERM          MATURITY
-----------------  --------------  --------------  -----------  ----------------
June 17, 2002       $   50,000        6.00%         5 years       June 15, 2007

August 27, 1997        150,000        7.20%         10 years     August 28, 2007

March 26, 1999         200,000        7.75%         10 years     March 15, 2009

January 22, 2004       150,000        5.15%         7 years     January 15, 2011
                    ----------
                    $  550,000
                    ==========

Interest on the Senior Unsecured Notes are payable  semi-annually with principal
and unpaid interest due on the scheduled maturity dates. In addition, certain of
the Senior  Unsecured Notes were issued at discounts  aggregating  approximately
$1.2 million.  Such  discounts are being  amortized  over the term of the Senior
Unsecured Notes to which they relate.

5.    UNSECURED CREDIT FACILITY

As of June 30, 2004,  the  Operating  Partnership  had a $500 million  unsecured
revolving  credit facility (the "Credit  Facility") from JPMorgan Chase Bank, as
administrative  agent, Wells Fargo Bank,  National  Association,  as syndication
agent, and Citicorp North America, Inc. and Wachovia Bank, National Association,
as  co-documentation  agents.  The Credit  Facility  was  scheduled to mature in
December 2005, contained options for a one-year extension subject to a fee of 25
basis points and, upon receiving  additional lender commitments,  increasing the
maximum revolving credit amount to $750 million. As of June 30, 2004, based on a
pricing grid of the Operating Partnership's  unsecured debt ratings,  borrowings
under the Credit  Facility  were  priced off LIBOR plus 90 basis  points and the
Credit  Facility  carried a facility  fee of 20 basis  points per annum.  In the
event of a change in the Operating  Partnership's  unsecured  credit ratings the
interest  rates and  facility fee are subject to change.  At June 30, 2004,  the
outstanding  borrowings  under the Credit  Facility  aggregated  $90 million and
carried a weighted average interest rate of 2.18%.

On August 6, 2004,  the  Operating  Partnership  amended and extended the Credit
Facility to mature in August 2007 with similar  terms and  conditions as existed
prior to the amendment and extension.

The Operating Partnership utilizes the Credit Facility primarily to finance real
estate investments,  fund its real estate development activities and for working
capital purposes.  At June 30, 2004, the Operating  Partnership had availability
under the Credit  Facility to borrow  approximately  an additional $410 million,
subject to compliance with certain financial covenants.

In connection with the acquisition of certain properties,  contributing partners
of such  properties  have provided  guarantees on  indebtedness of the Operating
Partnership.   As  a  result,  the  Operating   Partnership   maintains  certain
outstanding balances on its Credit Facility.

In  accordance  with the  provisions  of FASB  Statement  No. 144, the Operating
Partnership  allocated  approximately  $2.6  million  and  $5.2  million  of its
unsecured  corporate  interest expense to discontinued  operations for the three
and six month periods ended June 30, 2003.

                                       9
<PAGE>


COMMERCIAL REAL ESTATE INVESTMENTS

As of June 30,  2004,  the  Operating  Partnership  owned and operated 76 office
properties  (inclusive of nine office  properties  owned through joint ventures)
comprising  approximately  14.4  million  square  feet  and 9  industrial  / R&D
properties comprising approximately 955,000 square feet located in the Tri-State
Area.

In June, 2004 the Operating Partnership entered into a contract to sell a 92,000
square foot industrial  property located in Westchester for  approximately  $7.5
million.  The Operating  Partnership's  basis in this property is  approximately
$4.8 million and is included in properties  and related  assets held for sale on
the accompanying balance sheet.

As of June 30, 2004,  the Operating  Partnership  also owned  approximately  313
acres of land in 12 separate  parcels of which the  Operating  Partnership  can,
based on current  estimates,  develop  approximately  3.0 million square feet of
office space. The Operating Partnership is currently evaluating alternative land
uses for certain of the land  holdings to realize  the highest  economic  value.
These  alternatives may include rezoning certain land parcels from commercial to
residential  use for potential  disposition.  As of June 30, 2004, the Operating
Partnership  had  invested  approximately  $124.5  million in these  development
projects.  Management  has  made  subjective  assessments  as to the  value  and
recoverability of these  investments  based on current and proposed  development
plans,  market  comparable land values and alternative use values.  In addition,
during  the three and six month  periods  ended  June 30,  2004,  the  Operating
Partnership  has  capitalized  approximately  $2.3  million  and  $5.1  million,
respectively  related to real estate taxes,  interest and other  carrying  costs
related  to  these  development   projects.   In  October  2003,  the  Operating
Partnership  entered  into a contract to sell a 113 acre land parcel  located in
New Jersey.  The contract provides for a sales price ranging from $18 million to
$36 million. The sale is contingent upon obtaining zoning for residential use of
the land and other customary  approvals.  The proceeds  ultimately received from
such sale will be based upon the number of  residential  units  permitted by the
rezoning.  The cost basis of the land parcel at June 30, 2004 was  approximately
$5.7  million.  The closing is  scheduled to occur upon the  rezoning,  which is
anticipated to occur within 12 to 24 months. However, there can be no assurances
such rezoning will occur.  During  February 2004, a 3.9 acre land parcel located
on Long Island was condemned by the Town of Oyster Bay. As consideration for the
condemnation  the Operating  Partnership  anticipates it will initially  receive
approximately $1.8 million. The Operating  Partnership's cost basis in this land
parcel was approximately  $1.4 million.  The Operating  Partnership is currently
contesting this valuation and seeking payment of additional  consideration  from
the Town of  Oyster  Bay but  there  can be no  assurances  that  the  Operating
Partnership  will be successful in obtaining any such additional  consideration.
In July 2004, the Operating Partnership commenced the ground-up development of a
277,000 square foot Class A office building with a total anticipated  investment
cost of  approximately  $60  million.  This  development  is located  within the
Operating  Partnership's  existing  404,000 square foot executive office park in
Melville, NY.

In November 2003, the Operating  Partnership disposed of all but three of its 95
property,  5.9 million square foot, Long Island industrial building portfolio to
members of the  Rechler  family (the  "Disposition")  for  approximately  $315.5
million,  comprised of $225.1 million in cash and debt  assumption and 3,932,111
OP Units valued at approximately  $90.4 million.  Approximately  $204 million of
cash sales proceeds from the Disposition were used to repay borrowings under the
Credit Facility.  For information  concerning certain  litigation  pertaining to
this  transaction see Part II-Other  Information;  Item 1. Legal  Proceedings of
this Form 10-Q.

In January 2004,  the Operating  Partnership  sold a 104,000  square foot office
property located on Long Island for  approximately  $18.5 million.  Net proceeds
from the sale were used to repay  borrowings  under the  Credit  Facility.  As a
result,  the Operating  Partnership  recorded a net gain of  approximately  $5.5
million. In accordance with FASB Statement No. 144, such gain has been reflected
in  discontinued  operations  on the  accompanying  consolidated  statements  of
income.

In January 2004, the Operating Partnership acquired 1185 Avenue of the Americas,
a 42-story,  1.1 million square foot Class A office tower,  located between 46th
and 47th  Streets in New York,  NY for $321  million.  In  connection  with this
acquisition,  the Operating  Partnership assumed a $202 million mortgage and $48
million of mezzanine debt. The balance of the purchase price was paid through an
advance under the Credit Facility. The floating rate mortgage and mezzanine debt
both mature in August 2004 and presently have a weighted  average  interest rate
of 4.95%.  Such rate is based on the  greater of one month LIBOR or 2.15% plus a
weighted average spread of approximately 2.80%. An interest rate hedge agreement
was acquired to limit exposure to increases in LIBOR above 5.825%.  The property
is also encumbered by a ground lease which has a remaining term of approximately
40 years  with rent  scheduled  to be re-set at the end of 2005 and then  remain
constant for the balance of the term. Pursuant to the terms of the ground lease,
the  Operating  Partnership  and the ground  lessor have  commenced  arbitration
proceedings  relating to the  re-setting  of the ground  lease.  There can be no
assurances as to the outcome of the rent re-set process. In accordance with FASB
Statement No. 141, "Business Combinations",  the Operating Partnership allocated
and  recorded  net  deferred  intangible  lease  income of  approximately  $14.2
million,  representing  the net value of acquired above and below market leases,
assumed  lease  origination  costs and other value of in-place  leases.  The net
value of the above and below market leases is amortized over the remaining terms
of the respective  leases to rental income which amounted to approximately  $2.0
million  and $3.8  million  for the three and six month  periods  ended June 30,
2004. In addition,  amortization expense on the value of lease origination costs
was approximately  $746,000 and $1.3 million for the three and six month periods
ended June 30, 2004. At acquisition,  there were 31 in-place leases  aggregating
approximately  one million square feet with a weighted  average  remaining lease
term of approximately 6 years.

                                       10
<PAGE>


In April  2004,  the  Operating  Partnership  sold a 175,000  square foot office
building  located on Long Island for  approximately  $30  million,  of which the
Operating Partnership owned a 51% interest, and a wholly owned 9,000 square foot
retail  property for  approximately  $2.8  million.  In addition,  the Operating
Partnership completed the sale on two of the remaining three properties from the
Disposition for approximately $5.8 million.  Proceeds from the sale were used to
establish an escrow account with a qualified  intermediary for a future exchange
of real  property  pursuant  to  Section  1031  of the  Code  (a  "Section  1031
Exchange").  A Section 1031 Exchange allows for the deferral of taxes related to
the gain attributable to the sale of property if qualified  replacement property
is identified  within 45 days and such  qualified  replacement  property is then
acquired within 180 days from the initial sale.  There can be no assurances that
the  Operating  Partnership  will  meet  the  requirements  of  Section  1031 by
identifying and acquiring qualified replacement  properties in the required time
frame, in which case the Operating  Partnership would incur the tax liability on
the capital gain realized of approximately $1.5 million.  The disposition of the
other industrial property,  which is subject to certain environmental issues, is
conditioned  upon  the  approval  of the  buyer's  lender,  which  has not  been
obtained.  As a result,  the  Operating  Partnership  will not  dispose  of this
property  as part of the  Disposition.  Management  believes  that  the  cost to
remediate the  environmental  issues will not have a material  adverse effect on
the Operating Partnership, but there can be no assurance in this regard.

In July 2004, the Operating  Partnership  acquired a 141,000 square foot Class A
office  property,  located  in  Chatham  Township,  NJ for  approximately  $22.7
million.  The Operating  Partnership  made this  acquisition  through  available
cash-on-hand.

During February 2003, the Operating  Partnership,  through Reckson  Construction
Group,  Inc.,  entered into a contract  with an affiliate of First Data Corp. to
sell a 19.3-acre  parcel of land located in Melville,  New York and was retained
by the purchaser to develop a build-to-suit  195,000 square foot office building
for aggregate  consideration  of  approximately  $47 million.  This  transaction
closed on March 11, 2003 and development of the  aforementioned  office building
has been  completed.  In  accordance  with FASB  Statement No. 66, the Operating
Partnership  has  recognized a book gain,  before  taxes,  on this land sale and
build-to-suit  transaction of approximately $23.8 million, of which $400,000 and
$5.0 million and, $4.3 million and $10.1 million has been recognized  during the
three and six month periods ended June 30, 2004 and 2003,  respectively,  and is
included  in  investment  and  other  income  on the  accompanying  consolidated
statements of income.

The Operating  Partnership  holds a $17.0 million note  receivable,  which bears
interest at 12% per annum and is secured by a minority  partnership  interest in
Omni  Partners,  L.P.,  owner of the Omni, a 579,000  square foot Class A office
property  located  in  Uniondale,  New York (the  "Omni  Note").  The  Operating
Partnership currently owns a 60% majority partnership interest in Omni Partners,
L.P. and on March 14, 2007 may exercise an option to acquire the  remaining  40%
interest for a price based on 90% of the fair market value of the property.  The
Operating  Partnership  also holds a $30 million junior  mezzanine loan which is
secured by a pledge of an indirect  ownership  interest of an entity  which owns
the ground  leasehold  estate  under a 1.1 million  square  foot office  complex
located on Long  Island,  New York (the "Mezz  Note").  The Mezz Note matures in
September  2005,  currently  bears interest at 12.73%,  and the borrower has the
right to extend for three additional one-year periods. The Operating Partnership
also holds three other notes  receivable  aggregating  $19.0  million which bear
interest at rates  ranging from 10.5% to 12% per annum.  These notes are secured
in part  by a  minority  partner's  preferred  unit  interest  in the  Operating
Partnership,  an interest in real property and a personal  guarantee (the "Other
Notes"  and  collectively  with the  Omni  Note and the  Mezz  Note,  the  "Note
Receivable  Investments").  During April 2004, approximately $2.7 million of the
Other Notes,  including  accrued  interest,  were repaid by the minority partner
exchanging,  and  the  Operating  Partnership  redeeming,   approximately  3,081
preferred  units.  The  preferred  units  were  redeemed  at a par value of $3.1
million.  Approximately  $420,000 of the redemption  proceeds was used to offset
interest  due from the  minority  partner  under the Other Notes and for prepaid
interest.  In July 2004, the minority partner  delivered notice to the Operating
Partnership  stating his  intention  to repay  $15.5  million of the 10.5% Other
Notes.  When repaid,  the remaining  Other Notes will aggregate $3.5 million and
carry a weighted average interest rate of 11.57%. The Operating  Partnership has
also agreed to extend the maturity of $2.5 million of such debt through  January
31, 2005 and the remaining $1.0 million through January 31, 2010. As of June 30,
2004,  management has made subjective  assessments as to the underlying security
value  on  the  Operating  Partnership's  Note  Receivable  Investments.   These
assessments  indicate an excess of market value over the carrying  value related
to the  Operating  Partnership's  Note  Receivable  Investments.  Based on these
assessments  the  Operating  Partnership's   management  believes  there  is  no
impairment to the carrying  value related to the  Operating  Partnership's  Note
Receivable Investments.

The Operating  Partnership  also owns a 355,000  square foot office  building in
Orlando,  Florida. This non-core real estate holding was acquired in May 1999 in
connection  with the  Operating  Partnership's  initial New York City  portfolio
acquisition.  This  property  is  cross-collateralized  under a  $100.1  million
mortgage  note payable along with one of the  Operating  Partnership's  New York
City buildings.  The Operating  Partnership has the right to prepay this note in
November 2004, prior to its maturity.

The Operating Partnership also owns a 60% non-controlling  interest in a 172,000
square foot office  building  located at 520 White Plains Road in White  Plains,
New York (the  "520JV"),  which it manages.  As of June 30, 2004,  the 520JV had
total assets of $20.6  million,  a mortgage  note  payable of $11.7  million and
other liabilities of $582,000.  The Operating  Partnership's  allocable share of
the 520JV  mortgage note payable is  approximately  $7.6 million.  This mortgage
note payable bears interest at 8.85% per annum and matures on September 1, 2005.
The operating  agreement of the 520JV requires joint  decisions from all members
on all  significant  operating  and  capital  decisions  including  sale  of the
property,  refinancing of the property's mortgage debt, development and approval
of  leasing  strategy  and  leasing  of  rentable  space.  As a  result  of  the
decision-making  participation  relative to the operations of the property,  the
Operating  Partnership  accounts  for the  520JV  under  the  equity  method  of
accounting.  In accordance  with the equity  method of accounting  the

                                       11
<PAGE>


Operating  Partnership's  proportionate  share of the 520JV  income  (loss)  was
approximately $294,000 and $408,000 and $(270,000) and $($164,000) for the three
and six month periods ended June 30, 2004 and 2003, respectively.

During  September  2000, the Operating  Partnership  formed a joint venture (the
"Tri-State  JV") with Teachers  Insurance and Annuity  Association  ("TIAA") and
contributed nine Class A suburban office  properties  aggregating  approximately
1.5  million  square  feet  to the  Tri-State  JV for a 51%  majority  ownership
interest. TIAA contributed  approximately $136 million for a 49% interest in the
Tri-State JV which was then distributed to the Operating Partnership.  In August
2003,  the Operating  Partnership  acquired  TIAA's 49% interest in the property
located at 275 Broadhollow Road, Melville,  NY, for approximately $12.4 million.
In addition,  during  April 2004,  the  Tri-State JV sold a 175,000  square foot
office  building  located on Long  Island for  approximately  $30  million.  Net
proceeds from this sale were  distributed to the members of the Tri-State JV. As
a result of these  transactions,  the  Tri-State  JV owns seven Class A suburban
office  properties  aggregating  approximately  1.2  million  square  feet.  The
Operating  Partnership is responsible for managing the day-to-day operations and
business  affairs  of the  Tri-State  JV and has  substantial  rights  in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership  consolidates
the Tri-State JV.

On December 21, 2001, the Operating  Partnership formed a joint venture with the
New York State Teachers'  Retirement  Systems  ("NYSTRS") (the "919JV")  whereby
NYSTRS  acquired a 49% indirect  interest in the  property  located at 919 Third
Avenue,  New York, NY for $220.5  million which  included  $122.1 million of its
proportionate  share of secured mortgage debt and approximately $98.4 million of
cash which was then  distributed  to the  Operating  Partnership.  The Operating
Partnership is responsible  for managing the day-to-day  operations and business
affairs of the 919JV and has substantial  rights in making  decisions  affecting
the property such as developing a budget,  leasing and  marketing.  The minority
member has certain  rights  primarily  intended to protect its  investment.  For
purposes of its financial statements the Operating Partnership  consolidates the
919JV.

7.    STOCKHOLDERS' EQUITY

An OP Unit  and a share of  common  stock  have  essentially  the same  economic
characteristics  as they effectively share equally in the net income or loss and
distributions of the Operating Partnership.  Subject to certain holding periods,
OP Units may either be redeemed  for cash or, at the  election  of the  Company,
exchanged for shares of common stock of the Company on a one-for-one  basis. The
OP Units  currently  receive a quarterly  distribution of $.4246 per unit. As of
June 30, 2004, the Operating  Partnership had issued and  outstanding  3,084,713
Class A OP Units and 465,845 Class C OP Units.  The Class C OP Units were issued
in August  2003 in  connection  with the  contribution  of real  property to the
Operating  Partnership and currently receive a quarterly  distribution of $.4664
per unit

During  June,   2004,   the   Operating   Partnership   declared  the  following
distributions:

<TABLE>
<CAPTION>
                                                RECORD              PAYMENT            THREE MONTHS      ANNUALIZED
         SECURITY           DISTRIBUTION         DATE                DATE                  ENDED         DISTRIBUTION
         --------           ------------         ----                ----                  -----         ------------
<S>                           <C>           <C>                 <C>                   <C>                 <C>
Common unit                   $ .4246        July 7, 2004        July 20, 2004        June 30, 2004       $ 1.6984
Class C common unit           $ .4664        July 7, 2004        July 20, 2004        June 30, 2004       $ 1.8656
Series A preferred stock      $ .4766       July 15, 2004       August 2, 2004        July 31, 2004       $ 1.9063
</TABLE>

On November  25, 2003 the Company  exchanged  all of its  9,915,313  outstanding
shares of Class B common  stock for an equal  number of shares of the  Company's
common  stock.  The Board of  Directors  declared a final cash  dividend  on the
Company's  Class B common stock to holders of record on November 25, 2003 in the
amount of $.1758 per share  which was paid on January  12,  2004.  This  payment
covered the period from November 1, 2003 through November 25, 2003 and was based
on the  previous  quarterly  Class B common  stock  dividend  rate of $.6471 per
share. In order to align the regular quarterly  dividend payment schedule of the
former  holders of Class B common  stock  with the  schedule  of the  holders of
common stock for periods  subsequent to the exchange date for the Class B common
stock,  the Board of Directors  also declared a cash dividend with regard to the
common  stock to holders of record on October  14,  2003 in the amount of $.2585
per share which was paid on January 12, 2004.  This  payment  covered the period
from  October 1, 2003  through  November  25,  2003 and was based on the current
quarterly  common  stock  dividend  rate of $.4246 per share.  As a result,  the
Company  declared  dividends  through November 25, 2003 to all holders of common
stock and Class B common stock.  The Board of Directors also declared the common
stock cash dividend for the portion of the fourth quarter subsequent to November
25,  2003.  The  holders of record of common  stock on  January 2, 2004,  giving
effect to the exchange  transaction,  received a dividend on the common stock in
the amount of $.1661 per share on January 12,  2004.  This  payment  covered the
period from  November  26, 2003  through  December 31, 2003 and was based on the
current  quarterly common stock dividend rate of $.4246 per share. In connection
with  the  Company's  exchange  of its  Class  B  common  stock,  the  Operating
Partnership  exchanged its Class B common units held by the Company for an equal
number of OP Units.  Further,  with  respect to the  foregoing  declarations  on
dividends  on the  Company's  common  and Class B common  stock,  the  Operating
Partnership made  distributions on its OP Units and Class B common units in like
amounts on the same dates.

During the six month  period  ended June 30,  2004,  approximately  1.3  million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Company of  approximately  $27.2 million.  Such proceeds were
then contributed to the Operating Partnership in exchange for an equal number of
OP Units.

                                       12
<PAGE>


In March 2004, the Company completed an equity offering of 5.5 million shares of
its common stock raising  approximately  $149.5 million,  net of an underwriting
discount,  or $27.18 per share. Net proceeds received from this transaction were
used to repay  outstanding  borrowings  under the  Credit  Facility,  repay $100
million of the Operating Partnership's 7.4% senior unsecured notes and to invest
in short-term liquid investments.

The Board of Directors of the Operating  Partnership  authorized the purchase of
up to five million shares of the Company's common stock.  Transactions conducted
on the New York Stock Exchange have been,  and will continue to 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. Since the Board's initial
authorization,  the Company has purchased  3,318,600  shares of its common stock
for an aggregate  purchase price of approximately  $71.3 million.  In June 2004,
the Board of Directors re-set the Company's common stock repurchase program back
to five million shares.  No purchases were made during the six months ended June
30, 2004.

The  Board of  Directors  of the  Company  also  formed a pricing  committee  to
consider purchases of up to $75 million of the Company's  outstanding  preferred
securities.

On June 30, 2004,  the Company had issued and  outstanding  8,693,900  shares of
7.625% Series A Convertible  Cumulative Preferred Stock (the "Series A preferred
stock").  The Series A preferred  stock is redeemable by the Company on or after
April 13, 2004 at a price of $25.7625 per share with such price  decreasing,  at
annual intervals, to $25.00 per share on April 13, 2008. In addition, the Series
A preferred stock, at the option of the holder,  is convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company purchased and retired 140,600 shares of the Series A preferred stock for
approximately  $3.4 million or $24.45 per share. In addition,  during July 2004,
the  Company  exchanged  1,350,000  shares of the Series A  preferred  stock for
1,304,602 shares of its common stock. In connection with the Company  purchasing
and exchanging its Series A preferred stock, the Operating Partnership purchased
and  exchanged  its Series A preferred  units with the  Company.  As a result of
these transactions annual preferred distributions will decrease by approximately
$2.8 million.  In accordance  with the Emerging Issues Task Force ("EITF") Topic
D-42 the Operating  Partnership will incur an accounting charge during the third
quarter of 2004 of  approximately  $3.4 million in connection with the July 2004
exchange of the Company's Series A preferred stock.

On January 1, 2004, the Company had issued and outstanding two million shares of
Series B  Convertible  Cumulative  Preferred  Stock  (the  "Series  B  preferred
stock").  The Series B preferred stock was redeemable by the Company as follows:
(i) on or after June 3, 2003 to and including  June 2, 2004, at $25.50 per share
and (ii) on or after  June 3, 2004 and  thereafter,  at $25.00  per  share.  The
Series B preferred  stock,  at the option of the holder,  was convertible at any
time into the Company's  common stock at a price of $26.05 per share. On January
16, 2004,  the Company  exercised its option to redeem the two million shares of
outstanding  Series B preferred stock for approximately  1,958,000 shares of its
common stock. In connection with the Company exercising its option to redeem the
Series B  Preferred  Stock,  the  Operating  Partnership  redeemed  its Series B
preferred  units with the Company for  approximately  1,958,000  OP Units.  As a
result of this  redemption  annual  preferred  distributions  will  decrease  by
approximately $4.4 million.

On  April  1,  2004,  the  Operating  Partnership  had  issued  and  outstanding
approximately  19,662  preferred  units of limited  partnership  interest with a
liquidation  preference  value  of  $1,000  per unit  and a  current  annualized
distribution of $55.60 per unit (the "Preferred Units"). The Preferred Units are
held  by a  third  party  and  were  issued  in  1998  in  connection  with  the
contribution of real property to the Operating  Partnership.  On April 12, 2004,
the Operating  Partnership redeemed  approximately 3,081 Preferred Units, at the
election of the holder,  for approximately  $3.1 million,  including accrued and
unpaid  dividends  which is being  applied to amounts  owed from the unit holder
under  the  Other  Notes.   In  addition,   during  July  2004,  the  holder  of
approximately  15,381 of the outstanding  Preferred Units exchanged them into OP
Units.  The  Operating  Partnership  converted the  Preferred  Units,  including
accrued and unpaid dividends,  into  approximately  531,000 OP Units, which were
valued at approximately $14.7 million at the time of the conversion.  Subsequent
to the conversion,  the OP Units were exchanged for an equal number of shares of
the Company's  common  stock.  In  connection  with the July 2004  exchanges and
conversions,  the  preferred  unit  holder  delivered  notice  to the  Operating
Partnership of his intent to repay $15.5 million owed from the unit holder under
the Other Notes.

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions  of  the  Sarbanes  Oxley  legislation,   the  Operating  Partnership
discontinued  the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley  legislation  the Company made
stock loans to certain  executive and senior officers to purchase 487,500 shares
of its common stock at market prices ranging from $18.44 per share to $27.13 per
share.  The stock  loans were set to bear  interest at the  mid-term  Applicable
Federal  Rate and  were  secured  by the  shares  purchased.  Such  stock  loans
(including accrued interest) were scheduled to vest and be ratably forgiven each
year on the  anniversary  of the grant date based upon vesting  periods  ranging
from four to ten  years  based on  continued  service  and in part on  attaining
certain annual performance measures.  These stock loans had an initial aggregate
weighted  average  vesting period of  approximately  nine years.  As of June 30,
2004, there remains 222,429 shares of common stock subject to the original stock
loans  which  are  anticipated  to vest  between  2005 and  2011.  Approximately
$248,000 and $556,000 of compensation expense was recorded for the three and six
month  periods  ended June 30, 2004,  respectively  related to these LTIP.  Such
amount has been included in marketing,  general and  administrative  expenses on
the accompanying consolidated statements of income.

                                       13
<PAGE>


The  outstanding  stock loan  balances due from  executive  and senior  officers
aggregated  approximately  $4.7 million at June 30, 2004, and have been included
as a reduction of additional  paid in capital on the  accompanying  consolidated
balance sheets. Other outstanding loans to executive and senior officers at June
30, 2004 amounted to approximately $1.9 million primarily related to tax payment
advances  on stock  compensation  awards and life  insurance  contracts  made to
certain executive and non-executive officers.

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting  date.  The 2002  Rights  will vest in four  equal  annual  installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual  installments  beginning  on March 13, 2005 (and shall be fully vested on
March 13, 2007).  Dividends on the shares will be held by the Company until such
shares become  vested,  and will be  distributed  thereafter  to the  applicable
officer.  The 2002 Rights also  entitle the holder  thereof to cash  payments in
respect of taxes  payable  by the holder  resulting  from the  Rights.  The 2002
Rights aggregate 62,835 shares of the Company's common stock and the 2003 Rights
aggregate  26,042  shares of common  stock.  As of June 30, 2004,  there remains
47,126  shares of common stock  related to the 2002 Rights and 26,042  shares of
common stock related to the 2003 Rights.  During the three and six month periods
ended June 30, 2004 the Operating Partnership recorded approximately$100,000 and
$201,000,  respectively  of  compensation  expense  related to the Rights.  Such
amount has been included in marketing,  general and  administrative  expenses on
the accompanying consolidated statements of income.

In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
June 30, 2004,  there remains 620,832 shares of common stock reserved for future
issuance  under the core award of this LTIP.  With  respect to the core award of
this LTIP, the Operating  Partnership recorded  approximately  $699,000 and $1.4
million of  compensation  expense for the three and six month periods ended June
30, 2004, respectively.  Such amount has been included in marketing, general and
administrative  expenses on the accompanying  consolidated statements of income.
Further, no provision will be made for the special  outperformance award of this
LTIP  until  such  time as  achieving  the  requisite  performance  measures  is
determined to be probable.

As of June 30, 2004,  the Company had  approximately  4.3 million  shares of its
common  stock  reserved for issuance  under its stock option  plans,  in certain
cases subject to vested terms, at a weighted  average  exercise price of $ 23.32
per option.  In addition,  the Company has  approximately  815,000 shares of its
common stock reserved for future issuance under its stock option plans.

Net income per common  partnership  unit is determined by allocating  net income
after preferred  distributions and minority  partners'  interest in consolidated
partnerships income to the general and limited partners' based on their weighted
average  distribution  per  common  partnership  units  outstanding  during  the
respective periods presented.

Holders of  preferred  units of limited and  general  partnership  interest  are
entitled  to  distributions  based on the  stated  rates of return  (subject  to
adjustment) for those units.

The Operating  Partnership  issues additional units to the Company,  and thereby
increases  the  Company's   general   partnership   interest  in  the  Operating
Partnership,  with terms similar to the terms of any  securities  (i.e.,  common
stock or preferred stock) issued by the Company (including any securities issued
by the Company upon the exercise of stock options).  Any consideration  received
by the Company in respect of the issuance of its  securities is  contributed  to
the  Operating  Partnership.   In  addition,  the  Operating  Partnership  or  a
subsidiary  funds the  compensation of personnel,  including any amounts payable
under the Company's LTIP.

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

                                                              SIX MONTHS ENDED
                                                                  JUNE 30,
                                                              2004        2003
                                                            --------    --------

Cash paid during the period for interest ...............    $ 50,277    $ 47,304
                                                            ========    ========


Interest capitalized during the period .................    $  4,000    $  3,675
                                                            ========    ========

                                       14
<PAGE>


9.    SEGMENT DISCLOSURE

The  Operating  Partnership's  portfolio  consists of Class A office  properties
located within the New York City  metropolitan  area and Class A suburban office
properties   located  and  operated   within  the  Tri-State   Area  (the  "Core
Portfolio").  The  Operating  Partnership's  portfolio  also includes one office
property  located in  Orlando,  Florida.  The  Company  has formed an  Operating
Committee that reports directly to the President and Chief Financial Officer who
have been identified as the Chief  Operating  Decision Makers due to their final
authority over resource allocation, decisions and performance assessment.

The Operating  Partnership does not consider (i) interest incurred on its Credit
Facility and Senior  Unsecured  Notes,  (ii) the  operating  performance  of the
office property located in Orlando,  Florida, (iii) the operating performance of
those  properties   reflected  as  discontinued   operations  in  the  Operating
Partnership's  consolidated statements of income, and (iv) the operating results
of the Service  Companies  as part of its Core  Portfolio's  property  operating
performance for purposes of its component disclosure set forth below.

The  accounting  policies  of the  reportable  segments  are the  same as  those
described in the summary of significant account policies.  In addition,  amounts
reflected  have been  adjusted  to give  effect to the  Operating  Partnership's
discontinued operations in accordance with FASB Statement No. 144.

The following  table sets forth the  components  of the Operating  Partnership's
revenues and expenses and other related disclosures (in thousands):

<TABLE>
<CAPTION>
                                                                                   THREE MONTHS ENDED
                                                      ------------------------------------------------------------------------------
                                                                 JUNE 30, 2004                           JUNE 30, 2003
                                                      -------------------------------------   --------------------------------------
                                                         Core                  CONSOLIDATED      Core                   CONSOLIDATED
                                                      Portfolio      Other        TOTALS      Portfolio      Other          TOTALS
                                                      ---------    ---------   ------------   ---------    ---------    ------------
<S>                                                   <C>          <C>           <C>          <C>          <C>           <C>
REVENUES:
Base rents, tenant
   escalations and reimbursements ................... $ 125,324    $   1,919     $ 127,243    $ 106,041    $   2,007     $ 108,048
Interest, investment and other income ...............       562        2,761         3,323        1,097        3,791         4,888
                                                      ---------    ---------     ---------    ---------    ---------     ---------

Total Revenues ......................................   125,886        4,680       130,566      107,138        5,798       112,936
                                                      ---------    ---------     ---------    ---------    ---------     ---------

EXPENSES:
Property operating expenses .........................    49,785          841        50,626       41,426        1,012        42,438
Marketing, general and administrative ...............     4,076        3,298         7,374        3,987        4,808         8,795
Interest ............................................    15,847        8,760        24,607       10,054       10,091        20,145
Depreciation and amortization .......................    28,026        1,591        29,617       25,453        1,530        26,983
                                                      ---------    ---------     ---------    ---------    ---------     ---------
Total Expenses ......................................    97,734       14,490       112,224       80,920       17,441        98,361
                                                      ---------    ---------     ---------    ---------    ---------     ---------

Income (loss) before minority interests, preferred
   dividends and distributions, equity (loss) in
   earnings of real estate joint ventures and
   discontinued operations .......................... $  28,152    $  (9,810)    $  18,342    $  26,218    $ (11,643)    $  14,575
                                                      =========    =========     =========    =========    =========     =========
</TABLE>

                                       15
<PAGE>

<TABLE>
<CAPTION>
                                                                               SIX MONTHS ENDED OR AS OF
                                                      ------------------------------------------------------------------------------
                                                                 JUNE 30, 2004                           JUNE 30, 2003
                                                      -------------------------------------   --------------------------------------
                                                         Core                  CONSOLIDATED      Core                   CONSOLIDATED
                                                      Portfolio      Other        TOTALS      Portfolio      Other          TOTALS
                                                      ---------    ---------   ------------   ---------    ---------    ------------
<S>                                                   <C>          <C>           <C>          <C>          <C>           <C>
REVENUES:
Base rents, tenant
   escalations and reimbursements ..................  $  252,483   $   3,910     $  256,393   $  213,221   $   3,607     $  216,828
Interest, investment and other
income .............................................       1,986       7,000          8,986        1,797      10,350         12,147
                                                      ----------   ---------     ----------   ---------    ---------     ----------
Total Revenues .....................................     254,469      10,910        265,379      215,018      13,957        228,975
                                                      ----------   ---------     ----------   ---------    ---------     ----------
EXPENSES:
Property operating expenses ........................     100,608       1,483        102,091       83,962       1,856         85,818
Marketing, general and administrative ..............       8,280       6,161         14,441        7,963       8,401         16,364
Interest ...........................................      31,477      18,791         50,268       20,060      20,182         40,242
Depreciation and amortization ......................      55,516       3,222         58,738       52,634       3,129         55,763
                                                      ----------   ---------     ----------   ---------    ---------     ----------
Total Expenses .....................................     195,881      29,657        225,538      164,619      33,568        198,187
                                                      ----------   ---------     ----------   ---------    ---------     ----------
Income (loss) before minority interests, preferred
   dividends and distributions, equity (loss) in
   earnings of real estate joint ventures and
   discontinued operations .........................  $   58,588   $ (18,747)    $   39,841   $   50,399   $ (19,611)    $   30,788
                                                      ==========   =========     ==========   ==========   =========     ==========
Total Assets .......................................  $2,893,110   $ 239,744     $3,132,854   $2,425,189   $ 475,805     $2,900,994
                                                      ==========   =========     ==========   ==========   =========     ==========
</TABLE>

10.   NON-CASH INVESTING AND FINANCING ACTIVITIES

During January 2004, in connection with the Operating Partnership's  acquisition
of 1185 Avenue of the Americas,  New York, NY, the Operating Partnership assumed
a $202 million mortgage note payable and $48 million of mezzanine debt (see Note
6).

During January 2004, as a result of the Company redeeming its Series B preferred
stock,  the Operating  Partnership  redeemed its outstanding  Series B preferred
units for approximately 1,958,000 OP Units.

During  April 2004,  the  Operating  Partnership  redeemed  approximately  3,081
Preferred  Units,  which were valued at  approximately  $3.1  million  which was
applied to amounts owned from the unit holder under the Other Notes.

11.   RELATED PARTY TRANSACTIONS

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million.

In addition,  in April 2004, the Operating Partnership completed the sale to the
Rechler  family two of the three  properties  remaining in  connection  with the
Disposition.  The  third  property  has  subsequently  been  excluded  from  the
Disposition and will not be transferred to the Rechler family (see Note 6).

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code.  During the three and six month  periods ended June 30, 2004 and 2003,
Reckson  Construction  Group,  Inc. or its  successor,  Reckson  Construction  &
Development,  LLC billed  approximately  $217,000  and $678,000 and $105,000 and
$231,000,  respectively,  of market rate services and Reckson  Management Group,
Inc.  billed  approximately  $72,000 and  $138,000  and  $69,000  and  $140,000,
respectively, of market rate management fees to the Remaining Option Properties.

                                       16
<PAGE>


Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately  $750,000.  Reckson Management Group, Inc. had also entered into a
short term license  agreement at the property for 6,000 square feet of temporary
space which expired in January 2004.  Reckson Management Group, Inc. also leases
10,722  square  feet of  warehouse  space  used  for  equipment,  materials  and
inventory  storage at a property owned by certain  members of the Rechler family
at an annual base rent of approximately  $75,000. In addition,  commencing April
1, 2004,  Reckson  Construction  &  Development,  LLC ("RCD")  has been  leasing
approximately  17,000  square feet of space at the  Remaining  Option  Property,
located at 225 Broadhollow Road, Melville, New York, which was formerly occupied
by an affiliate  of First Data Corp.  through  September  30, 2006 (see Note 6).
Base rent of  approximately  $121,000  was paid by RCD during  the three  months
ended June 30,  2004.  RCD  anticipates  it will  mitigate  this  obligation  by
sub-letting the space to a third party. However, there can be no assurances that
RCD will be successful in sub-leasing  the  aforementioned  space and mitigating
its aggregate costs.

A company  affiliated with an Independent  Director of the Company leases 15,566
square feet in a property  owned by the Operating  Partnership at an annual base
rent of approximately $445,000.

During 1997, the Operating  Partnership formed FrontLine Capital Group, formerly
Reckson Service  Industries,  Inc.  ("FrontLine")  and Reckson Strategic Venture
Partners,  LLC  ("RSVP").  RSVP is a real  estate  venture  capital  fund  which
invested  primarily in real estate and real estate operating  companies  outside
the  Operating  Partnership's  core office and  industrial / R&D focus and whose
common equity is held indirectly by FrontLine.  In connection with the formation
and spin-off of FrontLine,  the Operating  Partnership  established an unsecured
credit facility with FrontLine (the "FrontLine  Facility") in the amount of $100
million for FrontLine to use in its investment activities,  operations and other
general corporate purposes. The Operating Partnership has advanced approximately
$93.4 million  under the FrontLine  Facility.  The  Operating  Partnership  also
approved the funding of investments of up to $100 million  relating to RSVP (the
"RSVP Commitment"),  through  RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine  Facility  (advances made
under the RSVP Facility and the FrontLine  Facility  hereafter,  the  "FrontLine
Loans").  During  March  2001,  the  Operating  Partnership  increased  the RSVP
Commitment to $110 million and as of June 30, 2004 approximately  $109.1 million
had been funded through the RSVP Commitment,  of which $59.8 million  represents
investments  by the Operating  Partnership in  RSVP-controlled  (REIT-qualified)
joint ventures and $49.3 million  represents  loans made to FrontLine  under the
RSVP Facility. As of June 30, 2004, interest accrued (net of reserves) under the
FrontLine Facility and the RSVP Facility was approximately $19.6 million.

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

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

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

In September 2003, RSVP completed the restructuring of its capital structure and
management arrangements. In connection with the restructuring, RSVP redeemed the
interest  of  the  preferred   equity  holders  of  RSVP  for  an  aggregate  of
approximately  $137  million in cash and the  transfer to the  preferred  equity
holders  of the  assets  that  comprised  RSVP's  parking  investment  valued at
approximately $28.5 million. RSVP also restructured its management  arrangements
whereby a management  company formed by its former  managing  directors has been
retained to manage RSVP pursuant to a management  agreement  and the  employment
contracts  of the  managing  directors  with  RSVP  have  been  terminated.  The
management agreement provides for an annual base management fee, and disposition
fees equal to 2% of the net proceeds  received by RSVP on asset sales. (The base
management  fee and  disposition  fees are subject to a maximum over the term of
the agreement of $7.5 million.) In addition,  the managing  directors retained a
one-third  residual  interest  in RSVP's  assets  which is  subordinated  to the
distribution of an aggregate  amount of $75 million to RSVP and/or the Operating
Partnership in respect of its joint ventures with RSVP. The management agreement
has a  three-year  term,  subject  to  early  termination  in the  event  of the
disposition of all of the assets of RSVP.

                                       17
<PAGE>


In  connection  with the  restructuring,  RSVP  and  certain  of its  affiliates
obtained a $60 million secured loan. In connection with this loan, the Operating
Partnership  agreed to  indemnify  the lender in  respect  of any  environmental
liabilities  incurred  with  regard  to  RSVP's  remaining  assets  in which the
Operating  Partnership has a joint venture interest  (primarily  certain student
housing  assets held by RSVP) and  guaranteed  the obligation of an affiliate of
RSVP to the lender in an amount up to $6 million plus  collection  costs for any
losses  incurred by the lender as a result of certain acts of malfeasance on the
part of RSVP and/or its affiliates.  The loan is scheduled to mature in 2006 and
is expected to be repaid  from  proceeds of assets  sales by RSVP and or a joint
venture between RSVP and a subsidiary of the Operating Partnership.

In April 2004,  American Campus  Communities,  Inc.  ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating  Partnership,  filed a  registration  statement  on Form S-11 with the
Securities and Exchange  Commission in connection with a proposed initial public
offering  ("IPO") of its common stock.  RSVP and the joint venture  between RSVP
and a subsidiary  of the Operating  Partnership  plan to liquidate the ownership
position in ACC in connection with the IPO transaction.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Operating
Partnership's  investments in the FrontLine Loans and joint venture  investments
with RSVP, inclusive of the Operating  Partnership's share of previously accrued
GAAP equity in earnings on those investments, is approximately $65 million which
was reassessed with no change by management as of June 30, 2004. Such amount has
been reflected in investments in service companies and affiliate loans and joint
ventures on the Operating Partnership's consolidated balance sheet.

Scott H.  Rechler,  who  serves  as Chief  Executive  Officer,  President  and a
director of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine and is its sole board member. Scott H. Rechler also serves as a member
of the  management  committee of RSVP and has agreed to serve as a member of the
board of ACC upon consummation of its initial public offering.

12.   SUBSEQUENT EVENTS

On August 9, 2004,  the Operating  Partnership  made an advance under its Credit
Facility in the amount of $222.5  million and along with  cash-on-hand  paid off
the $250 million  balance of the mortgage  debt on the property  located at 1185
Avenue of the Americas in New York City.

On August 10, 2004, the Operating Partnership priced an offering of $150 million
of 5.875% senior unsecured notes due August 15, 2014. Interest on the notes will
be payable  semi-annually on February 15 and August 15, commencing  February 15,
2005. The notes were priced at 99.151% of par value to yield 5.989%.  Settlement
is  scheduled  for August 13,  2004.  Prior to the  issuance  of these notes the
Operating  Partnership  entered into several  anticipatory  interest  rate hedge
instruments to protect itself against  potentially rising interest rates. At the
time the  notes are  issued  and  these  instruments  are  settled  the  Company
anticipates receiving a benefit of approximately $1.9 million. Such benefit will
be amortized  against interest expense over the term of the notes. The Operating
Partnership  intends  to use the net  proceeds  from  this  offering  to repay a
portion  of the  Credit  Facility  borrowings  used to pay  off the  outstanding
mortgage debt on 1185 Avenue of the Americas.

The Company is currently  evaluating the redemption of some or all of its Series
A preferred stock. In connection with the Company's  redemption,  if any, of its
Series A preferred stock, the Operating  Partnership will redeem an equal number
of Series A preferred units.

                                       18
<PAGE>


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

The  following  discussion  should be read in  conjunction  with the  historical
financial  statements of Reckson  Operating  Partnership,  L.P. (the  "Operating
Partnership") and related notes thereto.

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

CRITICAL ACCOUNTING POLICIES

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

REVENUE RECOGNITION AND ACCOUNTS RECEIVABLE

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

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

The Operating Partnership incurred  approximately $700,000 and $1.8 million, and
$1.6 million and $3.6 million of bad debt expense during the three and six month
periods  ended  June  30,  2004  and  2003,  respectively,   related  to  tenant
receivables  and deferred  rents  receivable  which  accordingly  reduced  total
revenues and reported net income during the periods presented.

                                       19
<PAGE>


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

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

Gain on sales of real estate are  recorded  when title is conveyed to the buyer,
subject to the buyer's financial commitment being sufficient to provide economic
substance  to the sale  and the  Operating  Partnership  having  no  substantial
continuing involvement with the buyer.

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

REAL ESTATE

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

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

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

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

On July 1, 2001 and January 1, 2002,  the  Operating  Partnership  adopted  FASB
Statement No.141,  "Business Combinations" and FASB Statement No. 142, "Goodwill
and Other Intangibles",  respectively. As part of the acquisition of real estate
assets,  the fair value of the real estate acquired is allocated to the acquired
tangible assets,  consisting of land,  building and building  improvements,  and
identified  intangible  assets  and  liabilities,  consisting  of the  value  of
above-market and below-market  leases, other value of in-place leases, and value
of tenant relationships,  based in each case on their fair values. The Operating
Partnership  assesses fair value based on estimated cash flow  projections  that
utilize  appropriate  discount and  capitalization  rates and  available  market
information.  Estimates  of future  cash  flows are based on a number of factors
including the historical  operating results,  known trends, and  market/economic
conditions  that  may  affect  the  property.   If  the  Operating   Partnership
incorrectly  estimates the values at acquisition or the undiscounted cash flows,
initial  allocation  of  purchase  price and future  impairment  charges  may be
different.

LONG LIVED ASSETS

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

                                       20
<PAGE>


The  Operating  Partnership  is required to make  subjective  assessments  as to
whether there are  impairments  in the value of its real estate  properties  and
other  investments.  These  assessments  have a direct  impact on the  Operating
Partnership's  net  income  because  recognizing  an  impairment  results  in an
immediate negative adjustment to net income. In determining impairment,  if any,
the Operating  Partnership  has adopted FASB Statement No. 144,  "Accounting for
the  Impairment  or  Disposal  of Long Lived  Assets."  In  accordance  with the
provisions   of  Statement  No.  144,  the   Operating   Partnership   allocated
approximately $2.6 million and $5.2 million of its unsecured  corporate interest
expense to  discontinued  operations for the three and six months ended June 30,
2003.

CASH AND CASH EQUIVALENTS

The Operating Partnership considers highly liquid investments with a maturity of
six months or less when purchased to be cash equivalents.  Cash balances at June
30, 2004  include  approximately  $46.5  million of the  remaining  net proceeds
received  during the six month period  ended June 30, 2004  relating to property
sales,  the issuance of the  Company's  equity and the  Operating  Partnership's
January 2004 issuance of senior unsecured notes.

OVERVIEW AND BACKGROUND

The  Operating  Partnership,  which  commenced  operations  on June 2, 1995,  is
engaged in the ownership, operation, acquisition, leasing, financing, management
and development of office and to a lesser extent industrial  properties and also
owns land for future  development  located in the commercial real estate markets
in and around the New York City tri-state area (the "Tri-State  Area").  Reckson
Associates  Realty Corp. ("the Company"),  is a self  administered  self managed
real estate  investment  trust ("REIT"),  and serves the sole general partner of
the Operating  Partnership.  The Operating  Partnership conducts its management,
leasing,  construction  and development  related  services through the Company's
taxable REIT  subsidiaries.  Reckson  Management  Group,  Inc.,  RANY Management
Group, Inc. and Reckson Construction & Development LLC (the "Service Companies")
currently  provide these  services.  The Operating  Partnership  and the Company
(collectively  the  "Company")  were  formed for the purpose of  continuing  the
commercial  real estate business of Reckson  Associates,  the predecessor of the
Operating Partnership, its affiliated partnerships and other entities.

As of June 30,  2004,  the  Operating  Partnership  owned and operated 76 office
properties  (inclusive of nine office  properties  owned through joint ventures)
comprising  approximately  14.4  million  square  feet  and 9  industrial  / R&D
properties comprising approximately 955,000 located in the Tri-State Area.

In June 2004, the Operating Partnership entered into a contract to sell a 92,000
square foot industrial  property located in Westchester for  approximately  $7.5
million.  The Operating  Partnership's  basis in this property is  approximately
$4.8 million and is included in properties  and related  assets held for sale on
the Operating Partnership's balance sheet.

As of June 30, 2004,  the Operating  Partnership  also owned  approximately  313
acres of land in 12  separate  parcels of which the  Operating  Partnership  can
develop  approximately  3.0 million  square feet of office space.  The Operating
Partnership  is currently  evaluating  alternative  land uses for certain of the
land holdings to realize the highest  economic  value.  These  alternatives  may
include  rezoning  certain land parcels from  commercial to residential  use for
potential  disposition.  As of June 30,  2004,  the  Operating  Partnership  had
invested approximately $124.5 million in these development projects.  Management
has made  subjective  assessments  as to the value and  recoverability  of these
investments based on current and proposed  development plans,  market comparable
land values and  alternative use values.  In addition,  during the three and six
month periods ended June 30, 2004,  the Operating  Partnership  has  capitalized
approximately $2.3 million and $5.1 million, respectively related to real estate
taxes,  interest and other carrying costs related to these development projects.
In October 2003, the Operating Partnership entered into a contract to sell a 113
acre land parcel located in New Jersey.  The contract provides for a sales price
ranging from $18 million to $36 million.  The sale is contingent  upon obtaining
zoning  for  residential  use of the land and  other  customary  approvals.  The
proceeds  ultimately  received  from such sale will be based  upon the number of
residential  units permitted by the rezoning.  The cost basis of the land parcel
at June 30, 2004 was  approximately  $5.7  million.  The closing is scheduled to
occur upon the rezoning,  which is  anticipated to occur within 12 to 24 months.
However,  there can be no assurances  such rezoning will occur.  During February
2004, a 3.9 acre land parcel located on Long Island was condemned by the Town of
Oyster Bay. As consideration  from the  condemnation  the Operating  Partnership
anticipates it will initially receive  approximately $1.8 million. The Operating
Partnership's cost basis in this land parcel was approximately $1.4 million. The
Operating Partnership is currently contesting this valuation and seeking payment
of  additional  consideration  from the Town of  Oyster  Bay but there can be no
assurances  that the Operating  Partnership  will be successful in obtaining any
such additional consideration. In July 2004, the Operating Partnership commenced
the ground-up  development of a 277,000 square foot Class A office building with
a  total  anticipated   investment  cost  of  approximately  $60  million.  This
development  is located  within the  Operating  Partnership's  existing  404,000
square foot executive office park in Melville, NY.

                                       21
<PAGE>


In November 2003, the Operating  Partnership disposed of all but three of its 95
property,  5.9 million square foot, Long Island industrial building portfolio to
members of the  Rechler  family (the  "Disposition")  for  approximately  $315.5
million,  comprised of $225.1 million in cash and debt  assumption and 3,932,111
common units of limited partnership  interest in the Operating  Partnership ("OP
Units") valued at  approximately  $90.4 million.  Approximately  $204 million of
cash sales proceeds from the Disposition were used to repay borrowings under the
Operating  Partnership's  unsecured credit facility.  For information concerning
certain  litigation  matters  pertaining to this  transaction  see Part II-Other
Information; Item 1. Legal Proceedings of this Form 10-Q.

In connection  with the  Disposition,  four of the five  remaining  options (the
"Remaining Option Properties")  granted to the Company at the time of the IPO to
purchase   interests  in  properties   owned  by  Rechler  family  members  were
terminated. In return the Company received an aggregate payment from the Rechler
family  members of $972,000.  Rechler  family members have also agreed to extend
the term of the  remaining  option on the  property  located at 225  Broadhollow
Road, Melville, New York (the Company's current headquarters) for five years and
to release the Company from approximately  15,500 square feet under its lease at
this property.  In connection with the restructuring of the remaining option the
Rechler  family  members paid the Company $1 million in return for the Company's
agreement not to exercise the option during the next three years. As part of the
agreement, the exercise price of the option payable by the Company was increased
by $1 million.

In January 2004,  the Operating  Partnership  sold a 104,000  square foot office
property located on Long Island for  approximately  $18.5 million.  Net proceeds
from the sale were used to repay  borrowings  under the Operating  Partnership's
unsecured credit facility. As a result, the Operating Partnership recorded a net
gain of approximately  $5.5 million.  In accordance with FASB Statement No. 144,
such  gain  has been  reflected  in  discontinued  operations  on the  Operating
Partnership's consolidated statements of income.

In January 2004, the Operating Partnership acquired 1185 Avenue of the Americas,
a 42-story,  1.1 million square foot Class A office tower,  located between 46th
and 47th  Streets in New York,  NY for $321  million.  In  connection  with this
acquisition,  the Operating  Partnership assumed a $202 million mortgage and $48
million of mezzanine debt. The balance of the purchase price was paid through an
advance under the Credit Facility. The floating rate mortgage and mezzanine debt
both mature in August 2004 and presently have a weighted  average  interest rate
of 4.95%.  Such rate is based on the  greater of one month LIBOR or 2.15% plus a
weighted average spread of approximately 2.80%. An interest rate hedge agreement
was acquired to limit exposure to increases in LIBOR above 5.825%.  The property
is also encumbered by a ground lease which has a remaining term of approximately
40 years  with rent  scheduled  to be re-set at the end of 2005 and then  remain
constant for the balance of the term. Pursuant to the terms of the ground lease,
the  Operating  Partnership  and the ground  lessor have  commenced  arbitration
proceedings  related  to the  re-setting  of the ground  lease.  There can be no
assurances as to the outcome of the rent re-set process. In accordance with FASB
Statement No. 141, "Business Combinations",  the Operating Partnership allocated
and  recorded  net  deferred  intangible  lease  income of  approximately  $14.2
million,  representing  the net value of acquired above and below market leases,
assumed  lease  origination  costs and other value of in-place  leases.  The net
value of the above and below market leases is amortized over the remaining terms
of the respective  leases to rental income which amounted to approximately  $2.0
million  and $3.8  million  for the three and six month  periods  ended June 30,
2004. In addition,  amortization expense on the value of lease origination costs
was approximately  $746,000 and $1.3 million for the three and six month periods
ended June 30, 2004, respectively. At acquisition, there were 31 in-place leases
aggregating  approximately  one  million  square  feet with a  weighted  average
remaining lease term of approximately 6 years.

During  February  2004, the Operating  Partnership  executed a lease with Nassau
County for the  entire  building  and  concourse  level at 60 Charles  Lindbergh
Blvd.,  Long Island,  comprising  approximately  200,000 square feet,  including
127,000 square feet previously  vacated by  WorldCom/MCI.  60 Charles  Lindbergh
Blvd. will be repositioned to satisfy Nassau County's use.

In April  2004,  the  Operating  Partnership  sold a 175,000  square foot office
building  located on Long Island for  approximately  $30  million,  of which the
Operating Partnership owned a 51% interest, and a wholly owned 9,000 square foot
retail  property for  approximately  $2.8  million.  In addition,  the Operating
Partnership completed the sale on two of the remaining three properties from the
Disposition for approximately $5.8 million.  Proceeds from the sale were used to
establish an escrow account with a qualified  intermediary for a future exchange
of real  property  pursuant  to  Section  1031  of the  Code  (a  "Section  1031
Exchange").  A Section 1031 Exchange allows for the deferral of taxes related to
the gain attributable to the sale of property if qualified  replacement property
is identified  within 45 days and such  qualified  replacement  property is then
acquired within 180 days from the initial sale.  There can be no assurances that
the  Operating  Partnership  will  meet  the  requirements  of  Section  1031 by
identifying and acquiring qualified replacement  properties in the required time
frame, in which case the Operating  Partnership would incur the tax liability on
the capital gain realized of approximately $1.5 million.  The disposition of the
other industrial property,  which is subject to certain environmental issues, is
conditioned  upon  the  approval  of the  buyer's  lender,  which  has not  been
obtained.  As a result,  the  Operating  Partnership  will not  dispose  of this
property  as part of the  Disposition.  Management  believes  that  the  cost to
remediate the  environmental  issues will not have a material  adverse effect on
the Operating Partnership, but there can be no assurance in this regard.

                                       22
<PAGE>


In July 2004, the Operating  Partnership  acquired a 141,000 square foot Class A
office  property,  located  in  Chatham  Township,  NJ for  approximately  $22.7
million.  The Operating  Partnership  made this  acquisition  through  available
cash-on-hand.

During February 2003, the Operating  Partnership,  through Reckson  Construction
Group,  Inc.,  entered into a contract  with an affiliate of First Data Corp. to
sell a 19.3-acre  parcel of land located in Melville,  New York and was retained
by the purchaser to develop a build-to-suit  195,000 square foot office building
for aggregate  consideration  of  approximately  $47 million.  This  transaction
closed on March 11, 2003 and development of the  aforementioned  office building
has been  completed.  In  accordance  with FASB  Statement No. 66, the Operating
Partnership  has  recognized a book gain,  before  taxes,  on this land sale and
build-to-suit  transaction of approximately $23.8 million, of which $400,000 and
$5.0 million and $4.3 million and $10.1 million has been  recognized  during the
three and six month periods ended June 30, 2004 and 2003,  respectively,  and is
included  in  investment  and  other  income  on  the  Operating   Partnership's
consolidated statements of income.

The Operating  Partnership  holds a $17.0 million note  receivable,  which bears
interest at 12% per annum and is secured by a minority  partnership  interest in
Omni  Partners,  L.P.,  owner of the Omni, a 579,000  square foot Class A office
property  located  in  Uniondale,  New York (the  "Omni  Note").  The  Operating
Partnership currently owns a 60% majority partnership interest in Omni Partners,
L.P. and on March 14, 2007 may exercise an option to acquire the  remaining  40%
interest for a price based on 90% of the fair market value of the property.  The
Operating  Partnership  also holds a $30 million junior  mezzanine loan which is
secured by a pledge of an indirect  ownership  interest of an entity  which owns
the ground  leasehold  estate  under a 1.1 million  square  foot office  complex
located on Long  Island,  New York (the "Mezz  Note").  The Mezz Note matures in
September  2005,  currently  bears interest at 12.73%,  and the borrower has the
right to extend for three additional one-year periods. The Operating Partnership
also holds three other notes  receivable  aggregating  $19.0  million which bear
interest at rates  ranging from 10.5% to 12% per annum.  These notes are secured
in part  by a  minority  partner's  preferred  unit  interest  in the  Operating
Partnership,  an interest in real property and a personal  guarantee (the "Other
Notes"  and  collectively  with the  Omni  Note and the  Mezz  Note,  the  "Note
Receivable  Investments").  During April 2004, approximately $2.7 million of the
Other Notes,  including  accrued  interest,  were repaid by the minority partner
exchanging,  and  the  Operating  Partnership  redeeming,   approximately  3,081
preferred  units.  The  preferred  units  were  redeemed  at a par value of $3.1
million.  Approximately  $420,000 of the redemption  proceeds was used to offset
interest  due from the  minority  partner  under the Other Notes and for prepaid
interest.  In July 2004, the minority partner  delivered notice to the Operating
Partnership  stating his  intention  to repay  $15.5  million of the 10.5% Other
Notes.  When repaid,  the remaining  Other Notes will aggregate $3.5 million and
carry a weighted average interest rate of 11.57%. The Operating  Partnership has
also agreed to extend the maturity of $2.5 million of such debt through  January
31, 2005 and the remaining $1.0 million through January 31, 2010. As of June 30,
2004,  management has made subjective  assessments as to the underlying security
value  on  the  Operating  Partnership's  Note  Receivable  Investments.   These
assessments  indicate an excess of market value over the carrying  value related
to the  Operating  Partnership's  Note  Receivable  Investments.  Based on these
assessments  the  Operating  Partnership's   management  believes  there  is  no
impairment to the carrying  value related to the  Operating  Partnership's  Note
Receivable Investments.

The Operating  Partnership  also owns a 355,000  square foot office  building in
Orlando,  Florida. This non-core real estate holding was acquired in May 1999 in
connection  with the  Operating  Partnership's  initial New York City  portfolio
acquisition.  This  property  is  cross-collateralized  under a  $100.1  million
mortgage  note payable along with one of the  Operating  Partnership's  New York
City buildings.  The Operating  Partnership has the right to prepay this note in
November 2004, prior to its maturity.

The Operating Partnership also owns a 60% non-controlling  interest in a 172,000
square foot office  building  located at 520 White Plains Road in White  Plains,
New York (the  "520JV"),  which it manages.  As of June 30, 2004,  the 520JV had
total assets of $20.6  million,  a mortgage  note  payable of $11.7  million and
other liabilities of $582,000.  The Operating  Partnership's  allocable share of
the 520JV  mortgage note payable is  approximately  $7.6 million.  This mortgage
note payable bears interest at 8.85% per annum and matures on September 1, 2005.
The operating  agreement of the 520JV requires joint  decisions from all members
on all  significant  operating  and  capital  decisions  including  sale  of the
property,  refinancing of the property's mortgage debt, development and approval
of  leasing  strategy  and  leasing  of  rentable  space.  As a  result  of  the
decision-making  participation  relative to the operations of the property,  the
Operating  Partnership  accounts  for the  520JV  under  the  equity  method  of
accounting.  In accordance  with the equity  method of accounting  the Operating
Partnership's  proportionate  share of the 520JV income (loss) was approximately
$294,000 and $408,000 and  $(270,000) and $(164,000) for the three and six month
periods ended June 30, 2004 and 2003, respectively.

As part of the Company's REIT structure it is provided  management,  leasing and
construction  related services  through taxable REIT  subsidiaries as defined by
the Code. During the three and six months ended June 30, 2004 and 2003,  Reckson
Construction Group, Inc. or its successor,  Reckson  Construction & Development,
LLC billed  approximately  $217,000 and  $678,000  and  $105,900  and  $231,000,
respectively,  of market rate services and Reckson Management Group, Inc. billed
approximately $72,000 and $138,000, and $69,000 and $140,000,  respectively,  of
market rate management fees to the Remaining Option Properties.

                                       23
<PAGE>


Reckson Management Group, Inc. leases approximately 26,000 square feet of office
space  at  the  Remaining  Option  Property  located  at 225  Broadhollow  Road,
Melville,  New  York  for  its  corporate  offices  at an  annual  base  rent of
approximately  $750,000.  Reckson Management Group, Inc. had also entered into a
short term license  agreement at the property for 6,000 square feet of temporary
space which expired in January 2004.  Reckson Management Group, Inc. also leases
10,722  square  feet of  warehouse  space  used  for  equipment,  materials  and
inventory  storage at a property owned by certain  members of the Rechler family
at an annual base rent of approximately  $75,000. In addition,  commencing April
1, 2004,  Reckson  Construction  &  Development,  LLC ("RCD")  has been  leasing
approximately  17,000  square feet of space at the  Remaining  Option  Property,
located at 225 Broadhollow Road, Melville, New York, which was formerly occupied
by an affiliate of First Data Corp.  through  September  30, 2006.  Base rent of
approximately  $121,000  was paid by RCD during the three  months ended June 30,
2004. RCD  anticipates it will mitigate this obligation by sub-letting the space
to a  third  party.  However,  there  can be no  assurances  that  RCD  will  be
successful in sub-leasing the aforementioned  space and mitigating its aggregate
costs.

A company  affiliated with an Independent  Director of the Company leases 15,566
square feet in a property  owned by the Operating  Partnership at an annual base
rent of approximately $445,000.

During July 1998, the Operating  Partnership formed Metropolitan  Partners,  LLC
("Metropolitan")  for the purpose of acquiring Class A office  properties in New
York City.  Currently the Company owns,  through  Metropolitan and the Operating
Partnership, six Class A office properties, located in the New York City borough
of Manhattan, aggregating approximately 4.5 million square feet.

During  September  2000, the Operating  Partnership  formed a joint venture (the
"Tri-State  JV") with Teachers  Insurance and Annuity  Association  ("TIAA") and
contributed nine Class A suburban office  properties  aggregating  approximately
1.5  million  square  feet  to the  Tri-State  JV for a 51%  majority  ownership
interest. TIAA contributed  approximately $136 million for a 49% interest in the
Tri-State JV which was then distributed to the Operating Partnership.  In August
2003,  the Operating  Partnership  acquired  TIAA's 49% interest in the property
located at 275 Broadhollow Road, Melville,  NY, for approximately $12.4 million.
In addition,  during  April 2004,  the  Tri-State JV sold a 175,000  square foot
office  building  located on Long  Island for  approximately  $30  million.  Net
proceeds from this sale were  distributed to the members of the Tri-State JV. As
a result of these  transactions,  the  Tri-State  JV owns seven Class A suburban
office  properties  aggregating  approximately  1.2  million  square  feet.  The
Operating  Partnership is responsible for managing the day-to-day operations and
business  affairs  of the  Tri-State  JV and has  substantial  rights  in making
decisions affecting the properties such as leasing, marketing and financing. The
minority member has certain rights primarily intended to protect its investment.
For purposes of its financial statements the Operating Partnership  consolidates
the Tri-State JV.

On December 21, 2001, the Operating  Partnership formed a joint venture with the
New York State Teachers'  Retirement  Systems  ("NYSTRS") (the "919JV")  whereby
NYSTRS  acquired a 49% indirect  interest in the  property  located at 919 Third
Avenue,  New York, NY for $220.5  million which  included  $122.1 million of its
proportionate  share of secured mortgage debt and approximately $98.4 million of
cash which was then  distributed  to the  Operating  Partnership.  The Operating
Partnership is responsible  for managing the day-to-day  operations and business
affairs of the 919JV and has substantial  rights in making  decisions  affecting
the property such as developing a budget,  leasing and  marketing.  The minority
member has certain  rights  primarily  intended to protect its  investment.  For
purposes of its financial statements the Operating Partnership  consolidates the
919JV.

The total market  capitalization  of the Operating  Partnership at June 30, 2004
was  approximately  $3.7  billion.  The  Operating  Partnership's  total  market
capitalization  is based  on the sum of (i) the  market  value of the  Operating
Partnership's OP Units (assuming  conversion) which for this purpose is based on
the closing price of the  Company's  common stock on June 30, 2004 of $27.46 per
unit,  (ii) the  liquidation  preference  value of the  Operating  Partnership's
preferred units and (iii) the approximately $1.5 billion (including its share of
consolidated and unconsolidated joint venture debt and net of minority partners'
interests share of consolidated  joint venture debt) of debt outstanding at June
30, 2004. As a result,  the Operating  Partnership's  total debt to total market
capitalization ratio at June 30, 2004 equaled approximately 40.3%.

During 1997, the Operating  Partnership formed FrontLine Capital Group, formerly
Reckson Service  Industries,  Inc.  ("FrontLine")  and Reckson Strategic Venture
Partners,  LLC  ("RSVP").  RSVP is a real estate  venture  capital  fund,  which
invested primarily in real estate and real estate,  operating  companies outside
the  Operating  Partnership's  core office and  industrial / R&D focus and whose
common equity is held indirectly by FrontLine.  In connection with the formation
and spin-off of FrontLine,  the Operating  Partnership  established an unsecured
credit facility with FrontLine (the "FrontLine  Facility") in the amount of $100
million for FrontLine to use in its investment activities,  operations and other
general corporate purposes. The Operating Partnership has advanced approximately
$93.4 million  under the FrontLine  Facility.  The  Operating  Partnership  also
approved the funding of investments of up to $100 million  relating to RSVP (the
"RSVP Commitment"),  through  RSVP-controlled joint ventures (for REIT-qualified
investments) or advances made to FrontLine under an unsecured loan facility (the
"RSVP Facility") having terms similar to the FrontLine  Facility  (advances made
under the RSVP Facility and the FrontLine  Facility  hereafter,  the  "FrontLine
Loans").  During  March  2001,  the  Operating  Partnership  increased  the RSVP
Commitment to $110 million and as of June 30, 2004, approximately $109.1 million
had been funded through the RSVP Commitment,  of which $59.8 million  represents
investments  by the Operating  Partnership in  RSVP-controlled  (REIT-qualified)
joint ventures and $49.3 million  represents  loans made to FrontLine  under the
RSVP Facility. As of June 30, 2004, interest accrued (net of reserves) under the
FrontLine Facility and the RSVP Facility was approximately $19.6 million.

                                       24
<PAGE>


In September 2003, RSVP completed the restructuring of its capital structure. In
connection with the  restructuring,  RSVP redeemed the interest of the preferred
equity holders of RSVP for an aggregate of $137 million in cash and the transfer
to the preferred  equity  holders of the assets that  comprised  RSVP's  parking
investments  valued  at  approximately  $28.5  million.  As  a  result  of  this
transaction amounts formerly invested in the privatization,  parking and medical
office platforms have been reinvested as part of the buyout transaction.

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

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

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

RSVP also restructured its management  arrangements whereby a management company
formed by its  former  managing  directors  has been  retained  to  manage  RSVP
pursuant to a management  agreement and the employment contracts of the managing
directors with RSVP have been terminated.  The management agreement provides for
an annual  base  management  fee,  and  disposition  fees equal to 2% of the net
proceeds  received  by  RSVP  on  asset  sales.  (The  base  management  fee and
disposition fees are subject to a maximum over the term of the agreement of $7.5
million.) In  addition,  the managing  directors  retained a one-third  residual
interest  in RSVP's  assets  which is  subordinated  to the  distribution  of an
aggregate  amount of $75 million to RSVP  and/or the  Operating  Partnership  in
respect  of its  joint  ventures  with  RSVP.  The  management  agreement  has a
three-year term, subject to early termination in the event of the disposition of
all of the assets of RSVP.

In  connection  with the  restructuring,  RSVP  and  certain  of its  affiliates
obtained a $60 million secured loan. In connection with this loan, the Operating
Partnership  agreed to  indemnify  the lender in  respect  of any  environmental
liabilities  incurred  with  regard  to  RSVP's  remaining  assets  in which the
Operating  Partnership has a joint venture interest  (primarily  certain student
housing  assets held by RSVP) and  guaranteed  the obligation of an affiliate of
RSVP to the lender in an amount up to $6 million plus  collection  costs for any
losses  incurred by the lender as a result of certain acts of malfeasance on the
part of RSVP and/or its affiliates.  The loan is scheduled to mature in 2006 and
is expected to be repaid  from  proceeds of assets  sales by RSVP and or a joint
venture between RSVP and a subsidiary of the Operating Partnership.

In April 2004,  American Campus  Communities,  Inc.  ("ACC"),  a student housing
company owned by RSVP and the joint venture between RSVP and a subsidiary of the
Operating  Partnership,  filed a  registration  statement  on Form S-11 with the
Securities and Exchange  Commission in connection with a proposed initial public
offering  ("IPO") of its common stock.  RSVP and the joint venture  between RSVP
and a subsidiary  of the Operating  Partnership  plan to liquidate the ownership
position in ACC in connection with the IPO transaction.

As a  result  of  the  foregoing,  the  net  carrying  value  of  the  Operating
Partnership's  investments in the FrontLine Loans and joint venture  investments
with RSVP, inclusive of the Operating  Partnership's share of previously accrued
GAAP equity in earnings on those  investments,  is  approximately  $65  million,
which was  reassessed  with no change by  management  as of June 30, 2004.  Such
amount has been  reflected in  investments  in service  companies  and affiliate
loans and joint  ventures on the Operating  Partnership's  consolidated  balance
sheet.

Scott H.  Rechler,  who  serves  as Chief  Executive  Officer,  President  and a
director of the Company, serves as CEO and Chairman of the Board of Directors of
FrontLine and is its sole board member. Scott H. Rechler also serves as a member
of the  management  committee of RSVP and has agreed to serve as a member of the
board of ACC upon consummation of its initial public offering.

                                       25
<PAGE>


RESULTS OF OPERATIONS

The following  table is a comparison of the results of operations  for the three
month  period  ended June 30, 2004 to the three month period ended June 30, 2003
(dollars in thousands):

<TABLE>
<CAPTION>
                                                          THREE MONTHS ENDED JUNE 30,
                                               -----------------------------------------------------
                                                                                    CHANGE
                                                                           -------------------------

                                                  2004          2003         DOLLARS        PERCENT
                                               ----------    ----------    ----------     ----------
<S>                                            <C>           <C>           <C>                  <C>
PROPERTY OPERATING REVENUES:
  Base rents ..............................    $  109,765    $   94,141    $   15,624           16.6%
  Tenant escalations and reimbursements ...        17,478        13,907         3,571           25.7%
                                               ----------    ----------    ----------

 TOTAL PROPERTY OPERATING REVENUES ........    $  127,243    $  108,048    $   19,195           17.8%
                                               ==========    ==========    ==========

PROPERTY OPERATING EXPENSES:
 Operating expenses .......................    $   30,532    $   25,351    $    5,181           20.4%
 Real estate taxes ........................        20,094        17,087         3,007           17.6%
                                               ----------    ----------    ----------

 TOTAL PROPERTY OPERATING EXPENSES ........    $   50,626    $   42,438    $    8,188           19.3%
                                               ==========    ==========    ==========

INVESTMENT AND OTHER INCOME ...............    $    3,323    $    4,888    $   (1,565)         (32.0)%
                                               ==========    ==========    ==========

OTHER EXPENSES:
 Interest expense .........................    $   24,607    $   20,145    $    4,462           22.1%
 Marketing, general and administrative ....         7,374         8,795        (1,421)         (16.2)%
                                               ----------    ----------    ----------

 TOTAL OTHER EXPENSES .....................    $   31,981    $   28,940    $    3,041           10.5%
                                               ==========    ==========    ==========
</TABLE>

The  Operating   Partnership's   property  operating  revenues,   which  include
base-rents  and  tenant  escalations  and  reimbursements  ("Property  Operating
Revenues")  increased by $19.2  million for the three months ended June 30, 2004
as compared to the 2003 period.  Property  Operating  Revenues  increased  $14.6
million  attributable  to  lease  up of  redeveloped  properties  and  from  the
acquisitions  of 1185 Avenue of the Americas in January 2004 and 1055 Washington
Avenue in August 2003. In addition,  Property  Operating  Revenues  increased by
$1.3 million from  built-in  rent  increases  for existing  tenants in our "same
store"  properties  and by an $800,000  increase in termination  fees.  Property
Operating  Revenues  also  increased  by  approximately  $1.6 million due to the
reduction in tenant  receivable  write-offs and to a weighted average  occupancy
increase in our "same store"  properties.  Tenant escalations and reimbursements
increased  $2.3 million  attributable  to increased  operating  expense and real
estate  tax costs  being  passed  through to tenants as base years for 2002 take
effect.  These  increases  were  offset by  $500,000  in same space  rental rate
decreases and $800,000 of free rent concessions.

The Operating  Partnership's property operating expenses,  real estate taxes and
ground rents ("Property  Expenses")  increased by approximately $8.2 million for
the three  months  ended  June 30,  2004 as  compared  to the 2003  period.  The
increase is primarily attributable the Operating  Partnership's  acquisitions of
1185  Avenue  of  the  Americas  and  1055   Washington   Avenue   amounting  to
approximately  $7.6  million.  The  remaining  increase  in  property  operating
expenses  is  attributable  to $ 600,000  in real  estate  taxes  and  operating
expenses from the Operating Partnership's "same store" properties.  Increases in
real estate taxes is attributable to the significant increases levied by certain
municipalities,  particularly in New York City and Nassau County, New York which
have experienced fiscal budget issues.

Investment and other income decreased by $1.6 million or 32.0%. This decrease is
primarily  attributable  to the decrease in the gain recognized of the Operating
Partnership's  land sale and  build-to-suit  transaction of  approximately  $3.9
million.  This  decrease was off-set by cost savings  achieved by the  Operating
Partnership's service companies related to the November 2003 restructuring.

Interest  expense   increased  by  $4.5  million  or  22.1%.  This  increase  is
attributable to  approximately  $3.4 million of interest expense incurred on the
mortgage debt on 1185 Avenue of the Americas  which was acquired in January 2004
and  approximately  $2.8  million of  corporate  interest  expense  allocable to
discontinued  operations  for the three month period ended June 30, 2003 with no
such allocation in the current period.  These increases were offset by decreases
in interest  expense of  approximately  $400,000  incurred  under the  Operating
Partnership's "same store" mortgage portfolio and a decrease in interest expense
of  approximately  $1.7  million  incurred  under  the  Operating  Partnership's
unsecured  credit  facility  as a result of a decrease in the  weighted  average
balance  outstanding.   The  weighted  average  balance  outstanding  under  the
Operating  Partnership's unsecured credit facility was $90 million for the three
months  ended June 30, 2004 as compared to $319.9  million for the three  months
ended June 30, 2003.

                                       26
<PAGE>


Marketing,  general and  administrative  expenses  decreased  by $1.4 million or
16.2%.  This overall  decrease is attributable to the efficiencies the Operating
Partnership  achieved as a result of its  November  2003  restructuring  and the
related  termination  of certain  employees  and  settlement  of the  employment
contracts of certain former executive officers of the Operating Partnership.

Discontinued operations,  net of minority interests,  increased by approximately
$122,000.  This net  increase is  attributable  to the gain on sales  related to
those properties sold during the current period of  approximately  $3.8 million,
which was offset by the decrease of the  operations  for those  properties  sold
between July 1, 2003 and March 31, 2004.

The following  table is a comparison  of the results of  operations  for the six
month  period  ended June 30, 2004 to the six month  period  ended June 30, 2003
(dollars in thousands):

<TABLE>
<CAPTION>
                                                            SIX MONTHS ENDED JUNE 30,
                                               -----------------------------------------------------
                                                                                    CHANGE
                                                                           -------------------------

                                                  2004          2003         DOLLARS        PERCENT
                                               ----------    ----------    ----------     ----------
<S>                                            <C>           <C>           <C>                  <C>
PROPERTY OPERATING REVENUES:
 Base rents ...............................    $  220,800    $  188,885    $   31,915           16.9%
 Tenant escalations and reimbursements ....        35,593        27,943         7,650           27.4%
                                               ----------    ----------    ----------

 TOTAL PROPERTY OPERATING REVENUES ........    $  256,393    $  216,828    $   39,565           18.2%
                                               ==========    ==========    ==========

PROPERTY OPERATING EXPENSES:
 Operating expenses .......................    $   61,406    $   51,789    $    9,617           18.6%
 Real estate taxes ........................        40,685        34,029         6,656           19.6%
                                               ----------    ----------    ----------

 TOTAL PROPERTY OPERATING EXPENSES ........    $  102,091    $   85,818    $   16,273           19.0%
                                               ==========    ==========    ==========

INVESTMENT AND OTHER INCOME ...............    $    8,986    $   12,147    $   (3,161)         (26.0)%
                                               ==========    ==========    ==========

OTHER EXPENSES:
 Interest expense .........................    $   50,268    $   40,242    $   10,026           24.9%
 Marketing, general and
 administrative ...........................        14,441        16,364        (1,923)         (11.8)%
                                               ----------    ----------    ----------

 TOTAL OTHER EXPENSES .....................    $   64,709    $   56,606    $    8,103           14.3%
                                               ==========    ==========    ==========
</TABLE>

The  Operating  Partnership's  Property  Operating  Revenues  increased by $39.6
million for the six months  ended June 30, 2004 as compared to the 2003  period.
Property Operating Revenues increased $27.3 million  attributable to lease up of
redeveloped  properties and from the acquisitions of 1185 Avenue of the Americas
in January 2004 and 1055 Washington Avenue in August 2003. In addition, Property
Operating  Revenues  increased by $2.6 million from built-in rent  increases for
existing  tenants in our "same store"  properties and by a $5.0 million increase
in termination fees. Property Operating Revenues also increased by approximately
$2.8  million due to the  reduction  in tenant  receivable  write-offs  and to a
weighted  average  occupancy  increase in our "same  store"  properties.  Tenant
escalations and reimbursements  increased $4.3 million attributable to increased
operating  expense and real estate tax costs being passed  through to tenants as
base years for 2002 take effect. These increases were offset by $800,000 in same
space rental rate decreases and $1.5 million of free rent concessions.

The Operating  Partnership's  Property Expenses increased by approximately $16.3
million for the six months  ended June 30, 2004 as compared to the 2003  period.
The increase is primarily attributable the Operating Partnership's  acquisitions
of  1185  Avenue  of the  Americas  and  1055  Washington  Avenue  amounting  to
approximately  $12.7  million.  The remaining  increase in Property  Expenses is
attributable  to  approximately  $3.6 million in real estate taxes and operating
expenses from the Operating Partnership's "same store" properties.  Increases in
real estate taxes is attributable to the significant increases levied by certain
municipalities,  particularly in New York City and Nassau County, New York which
have experienced fiscal budget issues.

Investment  and other  income  decreased  by $3.2 million or 26.0 % from the six
month  period  ended June 30, 2003 as compared to the same  quarterly  period of
2004.  The  decrease  is  primarily  attributable  to a  decrease  in  the  gain
recognized  on  the  Operating   Partnership's   land  sale  and   build-to-suit
transaction  of  approximately  $5.1  million.  This decrease was off-set by net
increases  in  interest  income  on  mortgage  notes  and  notes  receivable  of
approximately $403,000, net increases in real estate tax recoveries,  related to
prior  periods,  of  approximately  $600,000  and cost  savings  achieved by the
Operating   Partnership's   service  companies  related  to  the  November  2003
restructuring.

                                       27
<PAGE>


Interest expense  increased by $10.0 million or 24.9 % from the six month period
ended  June 30,  2003 as  compared  to the same  quarterly  period of 2004.  The
increase is  attributable  to the net  increase of $50 million in the  Operating
Partnership's  senior  unsecured  notes which  resulted in  approximately  $ 1.3
million  of  additional  interest  expense  and  approximately  $6.5  million of
interest  expense  incurred on the mortgage  debt on 1185 Avenue of the Americas
which was acquired in January  2004.  In  addition,  during the six month period
ended June 30, 2003,  the Operating  Partnership  allocated  approximately  $5.5
million of its interest  expense to  discontinued  operations in accordance with
FASB  Statement  No. 144 with no such  allocation  in the current  period.  This
allocation   resulted  in  an  additional  increase  in  interest  expense  from
continuing  operations.  These  increases  were offset by  decreases in interest
expense of  approximately  $691,000  incurred under the Operating  Partnership's
"same  store"   mortgage   portfolio,   in  capitalized   interest   expense  of
approximately $326,000 attributable to a decrease in development projects and in
interest  expense of  approximately  $2.3 million  incurred  under the Operating
Partnership's  unsecured  credit  facility  as a  result  of a  decrease  in the
weighted average balance  outstanding.  The weighted average balance outstanding
under the Operating  Partnership's  unsecured credit facility was $104.9 million
for the six months ended June 30, 2004 as compared to $303.0 million for the six
months ended June 30, 2003.

Marketing,  general and  administrative  expenses  decreased  by $1.9 million or
11.8% from the six month  period  ended June 30,  2003 as  compared  to the same
quarterly  period  of  2004.  This  overall  decrease  is  attributable  to  the
efficiencies the Operating Partnership achieved as a result of its November 2003
restructuring and the related termination of certain employees and settlement of
the employment  contracts of certain former executive  officers of the Operating
Partnership.

Discontinued operations,  net of minority interests,  increased by approximately
$2.8  million.  This net increase is  attributable  to the gain on sales of real
estate for those properties sold during the current period of approximately $9.3
million,  which  was  off-set  by the  decrease  of  the  operations  for  those
properties sold between July 1, 2003 and January 1, 2004.

LIQUIDITY AND CAPITAL RESOURCES

Historically,  rental  revenue  has been the  principal  source  of funds to pay
operating  expenses,  debt  service and  non-incremental  capital  expenditures,
excluding  incremental capital  expenditures of the Operating  Partnership.  The
Operating  Partnership  expects to meet its  short-term  liquidity  requirements
generally  through its net cash provided by operating  activities along with its
unsecured credit facility  described below. The credit facility contains several
financial  covenants with which the Operating  Partnership must be in compliance
in order to borrow  funds  thereunder.  During  recent  quarterly  periods,  the
Operating  Partnership  has incurred  significant  leasing  costs as a result of
increased  market  demands from tenants and high levels of leasing  transactions
that result from the re-tenanting of scheduled expirations or early terminations
of leases.  The Operating  Partnership is currently  experiencing high tenanting
costs including tenant improvement costs,  leasing  commissions and free rent in
all of its markets. For the three and six month periods ended June 30, 2004, the
Operating  Partnership  paid $11.5 million and $21.6 million,  respectively  for
tenanting costs including tenant improvement costs and leasing commissions. As a
result of these and / or other operating  factors,  the Operating  Partnership's
cash  flow  from  operating  activities  was not  sufficient  to pay 100% of the
distributions  paid  on  its  common  stock.  To  meet  the  short-term  funding
requirements relating to these leasing costs, the Operating Partnership has used
proceeds of property sales or borrowings under its credit facility. Based on the
Operating Partnership's  forecasted leasing for 2004 it anticipates that it will
incur similar shortfalls.  The Operating  Partnership  currently intends to fund
any shortfalls with proceeds from non-income producing asset sales or borrowings
under its credit facility.  The Operating  Partnership  periodically reviews its
distribution   policy  to  determine  the   appropriateness   of  the  Operating
Partnership's  distribution  rate relative to the Operating  Partnership's  cash
flows. The Operating  Partnership  adjusts its  distribution  rate based on such
factors as leasing  activity,  market  conditions and  forecasted  increases and
decreases in its cash flow as well as required  distributions  of the  Company's
taxable income to maintain its status as a REIT.  There can be no assurance that
the Operating Partnership will maintain the current quarterly distribution level
on its common units.

The Operating Partnership expects to meet certain of its financing  requirements
through long-term secured and unsecured  borrowings and the issuance of debt and
equity securities of the Operating Partnership. During the six months ended June
30, 2004,  the Company  issued $150 million of common equity  securities and the
Operating  Partnership  issued $150 million of senior unsecured debt securities.
There can be no assurance  that there will be adequate  demand for the Operating
Partnership's  equity  at the  time  or at the  price  in  which  the  Operating
Partnership  desires to raise  capital  through the sale of  additional  equity.
Similarly, there can be no assurance that the Operating Partnership will be able
to access the unsecured debt markets at the time when the Operating  Partnership
desires to sell its unsecured notes. In addition, when valuations for commercial
real estate  properties  are high, the Operating  Partnership  will seek to sell
certain  land  inventory  to realize  value and profit  created.  The  Operating
Partnership  will then seek  opportunities to reinvest the capital realized from
these dispositions back into value-added  assets in the Operating  Partnership's
core  Tri-State  Area  markets.  However,  there can be no  assurances  that the
Operating  Partnership will be able to identify such opportunities that meet the
Operating  Partnership's  underwriting  criteria. The Operating Partnership will
refinance existing mortgage indebtedness, senior unsecured notes or indebtedness
under its credit  facility at maturity or retire such debt  through the issuance
of additional debt  securities or additional  equity  securities.  The Operating
Partnership  anticipates  that the current balance of cash and cash  equivalents
and cash flows from  operating  activities,  together with cash  available  from
borrowings,  equity  offerings  and proceeds  from sales of land and  non-income
producing   assets,   will  be  adequate  to  meet  the  capital  and  liquidity
requirements of the Operating  Partnership in both the short and long-term.  The
Operating  Partnership's  senior  unsecured  debt is  currently  rated "BBB-" by
Fitch,  "BBB-" by  Standard & Poors and "Ba1" by  Moody's.  The rating  agencies
review the

                                       28
<PAGE>


ratings  assigned to an issuer such as the Operating  Partnership  on an ongoing
basis.  Negative changes in the Operating  Partnership's ratings would result in
increases in the Operating  Partnership's  borrowing costs, including borrowings
under the Operating Partnership's unsecured credit facility.

As a result of current  economic  conditions,  certain  tenants  have either not
renewed their leases upon  expiration or have paid the Operating  Partnership to
terminate their leases. In addition,  a number of U.S.  companies have filed for
protection under federal bankruptcy laws. Certain of these companies are tenants
of the Operating  Partnership.  The Operating Partnership is subject to the risk
that other companies that are tenants of the Operating  Partnership may file for
bankruptcy protection.  This may have an adverse impact on the financial results
and condition of the Operating Partnership. Our results reflect vacancy rates in
our markets that are at the higher end of the range of historical  cycles and in
some  instances our asking rents in our markets have trended lower and landlords
have been  required to grant  greater  concessions  such as free rent and tenant
improvements.  Our markets have also been experiencing  higher real estate taxes
and utility rates. However, our markets have begun to recover as evidenced by an
increased level of leasing activity,  increased occupancy rates in our portfolio
and decreases in vacancy rates in certain of our markets.

The  Operating  Partnership  carries  comprehensive  liability,  fire,  extended
coverage  and  rental  loss  insurance  on  all of  its  properties.  Six of the
Operating Partnership's  properties are located in New York City. As a result of
the events of September 11, 2001, insurance companies were limiting coverage for
acts of terrorism in "all risk"  policies.  In November 2002, the Terrorism Risk
Insurance Act of 2002 was signed into law, which,  among other things,  requires
insurance companies to offer coverage for losses resulting from defined "acts of
terrorism" through 2004. The Operating  Partnership's current insurance coverage
provides for full  replacement  cost of its  properties,  including  for acts of
terrorism up to $500  million on a per  occurrence  basis,  except for one asset
which is insured up to $393 million.

The  potential  impact of terrorist  attacks in the New York City and  Tri-State
Area may adversely  affect the value of the Operating  Partnership's  properties
and its ability to generate cash flow.  As a result,  there may be a decrease in
demand for office space in  metropolitan  areas that are  considered at risk for
future   terrorist   attacks,   and  this  decrease  may  reduce  the  Operating
Partnership's revenues from property rentals.

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

As of June 30, 2004,  the  Operating  Partnership  had a $500 million  unsecured
revolving  credit facility (the "Credit  Facility") from JPMorgan Chase Bank, as
administrative  agent, Wells Fargo Bank,  National  Association,  as syndication
agent, and Citicorp North America, Inc. and Wachovia Bank, National Association,
as  co-documentation  agents.  The Credit  Facility  was  scheduled to mature in
December 2005, contained options for a one-year extension subject to a fee of 25
basis points and, upon receiving  additional lender commitments,  increasing the
maximum revolving credit amount to $750 million. As of June 30, 2004, based on a
pricing grid of the Operating Partnership's  unsecured debt ratings,  borrowings
under the Credit  Facility  were  priced off LIBOR plus 90 basis  points and the
Credit  Facility  carried a facility  fee of 20 basis  points per annum.  In the
event of a change in the Operating  Partnership's  unsecured  credit ratings the
interest  rates and  facility fee are subject to change.  At June 30, 2004,  the
outstanding  borrowings  under the Credit  Facility  aggregated  $90 million and
carried a weighted average interest rate of 2.18%.

On August 6, 2004,  the  Operating  Partnership  amended and extended the Credit
Facility to mature in August 2007 with similar  terms and  conditions as existed
prior to the amendment and extension.

The Operating Partnership utilizes the Credit Facility primarily to finance real
estate investments,  fund its real estate development activities and for working
capital purposes.  At June 30, 2004, the Operating  Partnership had availability
under the Credit  Facility  to borrow an  additional  $410  million,  subject to
compliance with certain financial covenants.

In connection with the acquisition of certain properties,  contributing partners
of such  properties  have provided  guarantees on  indebtedness of the Operating
Partnership.   As  a  result,  the  Operating   Partnership   maintains  certain
outstanding balances on its Credit Facility.

On August 9, 2004,  the Operating  Partnership  made an advance under its Credit
Facility in the amount of $222.5  million and along with  cash-on-hand  paid off
the $250 million  balance of the mortgage  debt on the property  located at 1185
Avenue of the Americas in New York City.

On January 22, 2004, the Operating Partnership issued $150 million of seven-year
5.15% (5.196%  effective rate) senior unsecured notes.  Prior to the issuance of
these senior  unsecured  notes the  Operating  Partnership  entered into several
anticipatory   interest  rate  hedge   instruments  to  protect  itself  against
potentially  rising  interest  rates.  At the time the  notes  were  issued  the
Operating  Partnership  incurred a net cost of approximately  $980,000 to settle
these  instruments.  Such costs are being  amortized over the term of the senior
unsecured  notes.  During  March 2004,  the  Company  also  completed  an equity
offering of 5.5 million shares of its common stock raising  approximately $149.5
million,  net of an  underwriting  discount,  or $27.18 per share.  Net proceeds
received from these transactions were used to repay

                                       29
<PAGE>


outstanding  borrowings  under the Credit  Facility,  repay $100  million of the
Operating  Partnership's 7.4% senior unsecured notes and to invest in short-term
liquid investments.

On August 10, 2004, the Operating Partnership priced an offering of $150 million
of 5.875% senior unsecured notes due August 15, 2014. Interest on the notes will
be payable  semi-annually on February 15 and August 15, commencing  February 15,
2005. The notes were priced at 99.151% of par value to yield 5.989%.  Settlement
is  scheduled  for August 13,  2004.  Prior to the  issuance  of these notes the
Operating  Partnership  entered into several  anticipatory  interest  rate hedge
instruments to protect itself against  potentially rising interest rates. At the
time the  notes are  issued  and  these  instruments  are  settled  the  Company
anticipates receiving a benefit of approximately $1.9 million. Such benefit will
be amortized  against interest expense over the term of the notes. The Operating
Partnership  intends  to use the net  proceeds  from  this  offering  to repay a
portion  of the  Credit  Facility  borrowings  used to pay  off the  outstanding
mortgage debt on 1185 Avenue of the Americas.

The Operating Partnership continues to seek opportunities to acquire real estate
assets in its markets.  The Operating  Partnership  has  historically  sought to
acquire  properties  where it could  use its real  estate  expertise  to  create
additional  value  subsequent to  acquisition.  As a result of increased  market
values for the  Operating  Partnership's  commercial  real  estate  assets,  the
Operating  Partnership  has sold certain  non-core assets or interests in assets
where significant value has been created. During 2003, the Operating Partnership
sold assets or interests in assets with aggregate sales prices of  approximately
$350.6  million.  In addition,  during the six months  ended June 30, 2004,  the
Operating  Partnership  has sold assets or  interests  in assets with  aggregate
sales prices of  approximately  $44.1 million,  net of minority  partner's joint
venture interest.  The Operating  Partnership used the proceeds from these sales
primarily  to pay  down  borrowings  under  the  Credit  Facility,  for  general
corporate  purposes and to invest in short-term  liquid  investments  until such
time as alternative real estate investments can be made.

An OP Unit  and a share of  common  stock  have  essentially  the same  economic
characteristics  as they effectively share equally in the net income or loss and
distributions of the Operating Partnership.  Subject to certain holding periods,
OP Units may either be redeemed  for cash or, at the  election  of the  Company,
exchanged for shares of common stock of the Company on a one-for-one  basis. The
OP Units  currently  receive a quarterly  distribution of $.4246 per unit. As of
June 30, 2004, the Operating  Partnership had issued and  outstanding  3,084,708
Class A OP Units and 465,845 Class C OP Units.  The Class C OP Units were issued
in August  2003 in  connection  with the  contribution  of real  property to the
Operating  Partnership and currently receive a quarterly  distribution of $.4664
per unit.

On November 25, 2003,  the Company  exchanged all of its  9,915,313  outstanding
shares  of Class B common  stock for an equal  number  of shares of the  Company
common  stock.  The Board of  Directors  declared a final cash  dividend  on the
Company's  Class B common stock to holders of record on November 25, 2003 in the
amount of $.1758 per share  which was paid on January  12,  2004.  This  payment
covered the period from November 1, 2003 through November 25, 2003 and was based
on the  previous  quarterly  Class B common  stock  dividend  rate of $.6471 per
share. In order to align the regular quarterly  dividend payment schedule of the
former  holders of Class B common  stock  with the  schedule  of the  holders of
common stock for periods  subsequent to the exchange date for the Class B common
stock,  the Board of Directors  also declared a cash dividend with regard to the
common  stock to holders of record on October  14,  2003 in the amount of $.2585
per share which was paid on January 12, 2004.  This  payment  covered the period
from  October 1, 2003  through  November  25,  2003 and was based on the current
quarterly  common  stock  dividend  rate of $.4246 per share.  As a result,  the
Company  declared  dividends  through November 25, 2003 to all holders of common
stock and Class B common stock.  The Board of Directors also declared the common
stock cash dividend for the portion of the fourth quarter subsequent to November
25,  2003.  The  holders of record of common  stock on  January 2, 2004,  giving
effect to the exchange  transaction,  received a dividend on the common stock in
the amount of $.1661 per share on January 12,  2004.  This  payment  covered the
period from  November  26, 2003  through  December 31, 2003 and was based on the
current  quarterly common stock dividend rate of $.4246 per share. In connection
with  the  Company's  exchange  of its  Class  B  common  stock,  the  Operating
Partnership  exchanged its Class B common units held by the Company for an equal
number of OP Units.  Further,  with  respect to the  foregoing  declarations  on
dividends  on the  Company's  common  and Class B common  stock,  the  Operating
Partnership made  distributions on its OP Units and Class B common units in like
amounts on the same dates.

During the six month  period  ended June 30,  2004,  approximately  1.3  million
shares of the Company's  common stock was issued in connection with the exercise
of outstanding  options to purchase stock under its stock option plans resulting
in proceeds to the Operating Partnership of approximately $27.2 million.

The Board of  Directors  of the Company  authorized  the  purchase of up to five
million shares of the Company's common stock.  Transactions conducted on the New
York Stock Exchange have, and will continue to 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. Since the Board's initial  authorization,
the Company has purchased  3,318,600 shares of its common stock for an aggregate
purchase  price of  approximately  $71.3  million.  In June  2004,  the Board of
Directors  re-set the  Company's  common stock  repurchase  program back to five
million  shares.  No  purchases  were made during the six months  ended June 30,
2004.

The  Board of  Directors  of the  Company  also  formed a pricing  committee  to
consider purchases of up to $75 million of the Company's  outstanding  preferred
securities.

                                       30
<PAGE>


The Company is currently  evaluating the redemption of some or all of its Series
A preferred stock. In connection with the Company's  redemption,  if any, of its
Series A preferred stock, the Operating  Partnership will redeem an equal number
of Series A preferred units.

On June 30, 2004,  the Company had issued and  outstanding  8,693,900  shares of
7.625% Series A Convertible  Cumulative Preferred Stock (the "Series A preferred
stock").  The Series A preferred  stock is redeemable by the Company on or after
April 13, 2004 at a price of $25.7625 per share with such price  decreasing,  at
annual intervals, to $25.00 per share on April 13, 2008. In addition, the Series
A preferred stock, at the option of the holder,  is convertible at any time into
the Company's  common stock at a price of $28.51 per share. On May 13, 2004, the
Company purchased and retired 140,600 shares of the Series A preferred stock for
approximately  $3.4 million or $24.45 per share. In addition,  during July 2004,
the  Company  exchanged  1,350,000  shares of the Series A  preferred  stock for
1,304,602 shares of its common stock. In connection with the Company  purchasing
and exchanging its Series A preferred stock, the Operating Partnership purchased
and  exchanged  its Series A preferred  units with the  Company.  As a result of
these transactions annual preferred distributions will decrease by approximately
$2.8 million.  In accordance  with the Emerging Issues Task Force ("EITF") Topic
D-42 the Operating  Partnership will incur an accounting charge during the third
quarter of 2004 of  approximately  $3.4 million in connection with the July 2004
exchange of the Company's Series A preferred stock.

On January 1, 2004, the Company had issued and outstanding two million shares of
Series B  Convertible  Cumulative  Preferred  Stock  (the  "Series  B  preferred
stock").  The Series B preferred stock was redeemable by the Company as follows:
(i) on or after June 3, 2003 to and including  June 2, 2004, at $25.50 per share
and (ii) on or after  June 3, 2004 and  thereafter,  at $25.00  per  share.  The
Series B preferred  stock,  at the option of the holder,  was convertible at any
time into the Company's  common stock at a price of $26.05 per share. On January
16, 2004,  the Company  exercised its option to redeem the two million shares of
outstanding  Series B preferred stock for approximately  1,958,000 shares of its
common stock. In connection with the Company exercising its option to redeem the
Series B  Preferred  Stock,  the  Operating  Partnership  redeemed  its Series B
preferred  units with the Company for  approximately  1,958,000  OP Units.  As a
result of this  redemption,  annual  preferred  distributions  will  decrease by
approximately $4.4 million.

On  April  1,  2004,  the  Operating  Partnership  had  issued  and  outstanding
approximately  19,662  preferred  units of limited  partnership  interest with a
liquidation  preference  value  of  $1,000  per unit  and a  current  annualized
distribution of $55.60 per unit (the "Preferred Units"). The Preferred Units are
held  by a  third  party  and  were  issued  in  1998  in  connection  with  the
contribution of real property to the Operating  Partnership.  On April 12, 2004,
the Operating  Partnership redeemed  approximately 3,081 Preferred Units, at the
election of the holder,  for approximately  $3.1 million,  including accrued and
unpaid  dividends  which is being  applied to amounts  owed from the unit holder
under  the  Other  Notes.   In  addition,   during  July  2004,  the  holder  of
approximately  15,381 of the outstanding  Preferred Units exchanged them into OP
Units.  The  Operating  Partnership  converted the  Preferred  Units,  including
accrued and unpaid dividends,  into  approximately  531,000 OP Units, which were
valued at approximately $14.7 million at the time of the conversion.  Subsequent
to the conversion,  the OP Units were exchanged for an equal number of shares of
the Company's  common  stock.  In  connection  with the July 2004  exchanges and
conversions,  the  preferred  unit  holder  delivered  notice  to the  Operating
Partnership of his intent to repay $15.5 million owed from the unit holder under
the Other Notes.

The Operating Partnership's  indebtedness at June 30, 2004 totaled approximately
$1.5 billion  (including  its share of  consolidated  and  unconsolidated  joint
venture debt and net of minority partners' interests share of consolidated joint
venture  debt) and was  comprised  of $90 million  outstanding  under the Credit
Facility,   approximately   $549.1  million  of  senior   unsecured   notes  and
approximately  $833.2 million of mortgage  indebtedness.  Based on the Operating
Partnership's total market  capitalization of approximately $3.7 billion at June
30, 2004  (calculated  based on the sum of (i) the market value of the OP Units,
assuming  conversion (which, for this purpose is based upon the closing price of
the  Company's  common  stock on June 30,  2004 of $27.46  per  unit),  (ii) the
liquidation preference value of the Operating  Partnership's preferred units and
(iii) the $1.5 billion of debt),  the Operating  Partnership's  debt represented
approximately 40.3% of its total market capitalization.

                                       31
<PAGE>


CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The  following  table  sets  forth  the  Operating   Partnership's   significant
consolidated  debt  obligations,  by scheduled  principal cash flow payments and
maturity date, and its commercial  commitments by scheduled maturity at June 30,
2004 (in thousands):

<TABLE>
<CAPTION>
                                                                    MATURITY DATE
                                 ----------------------------------------------------------------------------------
                                   2004           2005          2006           2007           2008       THEREAFTER      TOTAL
                                 ----------    -----------    ----------     ----------    ----------    ----------    ----------
<S>                              <C>            <C>           <C>            <C>             <C>          <C>          <C>
Mortgage notes payable (1)       $   6,779      $  13,887     $  13,478      $  10,969       $ 9,989      $105,178     $  160,280
Mortgage notes payable (2) (3)     250,000         18,553       129,920         60,539           ---       346,269        805,281
Senior unsecured notes                 ---            ---           ---        200,000           ---       350,000        550,000
Unsecured credit facility              ---         90,000           ---            ---           ---           ---         90,000
Land lease obligations (4)           3,737          3,776         3,828          3,753         3,753        78,672         97,519
Operating leases                     1,119          1,282         1,198            844           359           ---          4,802
Air rights lease                       333            333           333            333           333         3,680          5,345
obligations
                                 ----------     ----------    ----------     ----------    ----------    ----------    -----------
                                 $ 261,968      $ 127,831     $ 148,757      $ 276,438       $14,434      $883,799     $1,713,227
                                 ==========     ==========    ==========     ==========    ==========    ==========    ===========
</TABLE>

(1)   Scheduled principal amortization payments.

(2)   Principal payments due at maturity.

(3)   In  addition,   the  Operating  Partnership  has  a  60%  interest  in  an
      unconsolidated joint venture property.  The Operating  Partnership's share
      of the mortgage debt at March 31, 2004 is approximately $7.6 million. This
      mortgage  note bears  interest at 8.85% per annum and matures on September
      1, 2005 at which time the  Operating  Partnership's  share of the mortgage
      debt will be approximately $6.9 million.

(4)   The Operating  Partnership  leases,  pursuant to noncancellable  operating
      leases,  the land on which twelve of its buildings were  constructed.  The
      leases,  certain of which contain  renewal options at the direction of the
      Operating  Partnership,  expire  between 2006 and 2090.  The leases either
      contain  provisions  for  scheduled  increases  in  the  minimum  rent  at
      specified  intervals or for adjustments to rent based upon the fair market
      value of the  underlying  land or other  indices at  specified  intervals.
      Minimum ground rent is recognized on a straight-line  basis over the terms
      of the leases.

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

During  August 2004 the mortgage note payable and  mezzanine  debt,  aggregating
$250 million, on the property located at 1185 Avenue of the Americas,  New York,
NY,  matures.  On March 19, 2004,  the  Operating  Partnership  entered into two
anticipatory  interest  rate hedge  instruments  which are scheduled to coincide
with an August 2004 debt  maturity,  totaling  $100 million,  to protect  itself
against  potentially  rising interest rates. At June 30, 2004, the fair value of
these instruments  exceeded their carrying value by approximately  $5.2 million.
Such amount has been reflected as accumulated other comprehensive  income with a
corresponding  increase to prepaid  expenses and other  assets on the  Operating
Partnership's  balance sheet. On July 1, 2004, the Operating Partnership entered
into an additional  anticipatory  interest rate hedge instrument  totaling $12.5
million to coincide with the aforementioned August 2004 debt maturity.

At June 30,  2004,  the  Operating  Partnership  had  approximately  $940,000 in
outstanding  undrawn standby letters of credit issued under the Credit Facility.
In  addition,   approximately   $43.5   million,   or  4.5%,  of  the  Operating
Partnership's mortgage debt is recourse to the Operating Partnership.

OTHER MATTERS

Seven of the Operating  Partnership's  office  properties which were acquired by
the  issuance  of OP Units are  subject to  agreements  limiting  the  Operating
Partnership's  ability to transfer  them prior to agreed upon dates  without the
consent of the limited partner who  transferred  the respective  property to the
Operating  Partnership.  In the event the Operating Partnership transfers any of
these  properties  prior to the expiration of these  limitations,  the Operating
Partnership may be required to make a payment  relating to taxes incurred by the
limited partner. These limitations expire between 2007 and 2013.

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

With the recent appointment of Messrs. Crocker, Steinberg, Ruffle and Ms. McCaul
as additional  independent  directors and the retirement of Mr.  Kevenides,  the
Company's Board of Directors  currently consists of seven independent  directors
and two insiders.  Mr. Peter Quick serves as the Lead Director of the Board.  In
addition,  each  of  the  Audit,  Compensation  and  Nominating  and  Governance
Committees is comprised solely of independent directors.

In May 2003, the Company  revised its policy with respect to compensation of its
independent  directors to provide that a substantial  portion of the independent
director's  compensation  shall be in the form of common  stock of the  Company.
Such common stock may not be sold until such time as the director is no longer a
member of the Company's Board.

                                       32
<PAGE>


Recently,  the  Company  has taken  certain  additional  actions to enhance  its
corporate governance policies. These actions included opting out of the Maryland
Business  Combination  Statute,  de-staggering the Board of Directors to provide
that each director is subject to election by shareholders on an annual basis and
modifying  the  Company's  "five or fewer"  limitation  on the  ownership of its
common stock so that such  limitation  may only be used to protect the Company's
REIT status and not for anti-takeover purposes.

The Company  has also  adopted a policy  which  requires  that each  independent
director  acquire  $100,000 of common  stock of the  Company and a policy  which
requires that at least one  independent  director be rotated off the Board every
three years.

The Company had historically  structured long term incentive  programs  ("LTIP")
using  restricted  stock and stock loans.  In July 2002,  as a result of certain
provisions  of  the  Sarbanes  Oxley  legislation,   the  Operating  Partnership
discontinued  the use of stock loans in its LTIP. In connection with LTIP grants
made prior to the enactment of the Sarbanes Oxley  legislation  the Company made
stock loans to certain  executive and senior officers to purchase 487,500 shares
of its common stock at market prices ranging from $18.44 per share to $27.13 per
share.  The stock  loans were set to bear  interest at the  mid-term  Applicable
Federal  Rate and  were  secured  by the  shares  purchased.  Such  stock  loans
(including accrued interest) were scheduled to vest and be ratably forgiven each
year on the  anniversary  of the grant date based upon vesting  periods  ranging
from four to ten  years  based on  continued  service  and in part on  attaining
certain annual performance measures.  These stock loans had an initial aggregate
weighted  average  vesting period of  approximately  nine years.  As of June 30,
2004, there remains 222,429 shares of common stock subject to the original stock
loans  which  are  anticipated  to vest  between  2005 and  2011.  Approximately
$248,000 and $556,000 of compensation expense was recorded for the three and six
month  periods  ended June 30, 2004,  respectively  related to these LTIP.  Such
amount has been included in marketing,  general and  administrative  expenses on
the Operating Partnership's consolidated statements of income.

The  outstanding  stock loan  balances due from  executive  and senior  officers
aggregated  approximately  $4.7 million at June 30, 2004, and have been included
as a reduction  of  additional  paid in capital on the  Operating  Partnership's
consolidated  balance sheets.  Other  outstanding  loans to executive and senior
officers  at June 30, 2004  amounted to  approximately  $1.9  million  primarily
related to tax payment advances on stock compensation  awards and life insurance
contracts made to certain executive and non-executive officers.

In  November  2002 and March  2003 an award of rights  was  granted  to  certain
executive  officers  of the  Company  (the  "2002  Rights"  and  "2003  Rights",
respectively,  and collectively,  the "Rights"). Each Right represents the right
to receive, upon vesting, one share of common stock if shares are then available
for grant under one of the Company's stock option plans or, if shares are not so
available,  an  amount  of cash  equivalent  to the  value of such  stock on the
vesting  date.  The 2002  Rights  will vest in four  equal  annual  installments
beginning on November 14, 2003 (and shall be fully vested on November 14, 2006).
The 2003 Rights will be earned as of March 13, 2005 and will vest in three equal
annual  installments  beginning  on March 13, 2005 (and shall be fully vested on
March 13, 2007).  Dividends on the shares will be held by the Company until such
shares become  vested,  and will be  distributed  thereafter  to the  applicable
officer.  The 2002 Rights also  entitle the holder  thereof to cash  payments in
respect of taxes  payable  by the holder  resulting  from the  Rights.  The 2002
Rights aggregate 62,835 shares of the Company's common stock and the 2003 Rights
aggregate  26,042  shares of common  stock.  As of June 30, 2004,  there remains
47,126  shares of common stock  related to the 2002 Rights and 26,042  shares of
common stock related to the 2003 Rights.  During the three and six month periods
ended June 30, 2004 the Operating  Partnership recorded  approximately  $100,000
and $201,000,  respectively  compensation  expense  related to the Rights.  Such
amount has been included in marketing,  general and  administrative  expenses on
the Operating Partnership's consolidated statements of income.

In March 2003,  the Company  established a new LTIP for its executive and senior
officers.  The four-year plan has a core award,  which provides for annual stock
based  compensation  based upon continued service and in part based on attaining
certain annual performance measures.  The plan also has a special outperformance
award,  which provides for  compensation  to be earned at the end of a four-year
period if the Company attains certain four-year cumulative performance measures.
Amounts  earned  under the special  outperformance  award may be paid in cash or
stock at the discretion of the Compensation Committee of the Board.  Performance
measures  are based on total  shareholder  returns  on a relative  and  absolute
basis.  On March 13, 2003,  the Company  made  available  827,776  shares of its
common stock under one of its existing stock option plans in connection with the
core award of this LTIP for eight of its executive and senior officers. On March
13,  2004,  the Company met its annual  performance  measure with respect to the
prior annual period. As a result, the Company issued to the participants 206,944
shares of its common stock  related to the core  component  of this LTIP.  As of
June 30, 2004,  there remains 620,832 shares of common stock reserved for future
issuance  under the core award of this LTIP.  With  respect to the core award of
this LTIP, the Operating  Partnership recorded  approximately  $699,000 and $1.4
million of  compensation  expense for the three and six month periods ended June
30, 2004, respectively.  Such amount has been included in marketing, general and
administrative expenses on the Operating  Partnership's  consolidated statements
of income.  Further,  no provision  will be made for the special  outperformance
award of this  LTIP  until  such time as  achieving  the  requisite  performance
measures is determined to be probable.

                                       33
<PAGE>


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

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

Soil,  sediment and groundwater  contamination,  consisting of volatile  organic
compounds ("VOCs") and metals, has been identified at the property at 32 Windsor
Place,  Central Islip, New York. The contamination is associated with industrial
activities  conducted  by a tenant at the property  over a number of years.  The
contamination,  which was  identified  through  an  environmental  investigation
conducted on behalf of the Operating  Partnership,  has been reported to the New
York State Department of Environmental  Conservation.  The Operating Partnership
has notified  the tenant of the  findings and has demanded  that the tenant take
appropriate actions to fully investigate and remediate the contamination.  Under
applicable environmental laws, both the tenant and the Operating Partnership are
liable for the cost of investigation and remediation.  The Operating Partnership
does not believe that the cost of investigation and remediation will be material
and the Operating  Partnership has recourse against the tenant.  However,  there
can be no assurance that the Operating Partnership will not incur liability that
would have a material adverse effect on the Operating Partnership's business.

In March 2004, the Operating Partnership received notification from the Internal
Revenue  Service  indicating  that they have selected the 2001 tax return of the
Operating  Partnership for examination.  The examination process is currently on
going.

                                       34
<PAGE>


FUNDS FROM OPERATIONS

Management  believes that Funds from Operations  ("FFO") is a widely  recognized
and  appropriate  measure of  performance  of an equity REIT.  Although FFO is a
non-GAAP  financial  measure,  the  Operating  Partnership  believes it provides
useful  information  to the  Company's  shareholders,  potential  investors  and
management.  The  Operating  Partnership  computes  FFO in  accordance  with the
standards  established  by the National  Association  of Real Estate  Investment
Trusts  ("NAREIT").  FFO is defined  by NAREIT as net income or loss,  excluding
gains  or  losses  from  sales  of  depreciable   properties  plus  real  estate
depreciation  and  amortization,   and  after  adjustments  for   unconsolidated
partnerships  and joint  ventures.  FFO does not represent  cash  generated from
operating  activities  in  accordance  with GAAP and is not  indicative  of cash
available to fund cash needs.  FFO should not be considered as an alternative to
net income as an indicator of the Operating  Partnership's operating performance
or as an alternative to cash flow as a measure of liquidity.

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

The  following  table  presents  the  Operating  Partnership's  FFO  calculation
(unaudited and in thousands):

<TABLE>
<CAPTION>
                                                                                         THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                                              JUNE 30,                JUNE 30,
                                                                                       ---------------------   ---------------------
                                                                                          2004        2003        2004        2003
                                                                                       ---------   ---------   ---------   ---------
<S>                                                                                    <C>         <C>         <C>         <C>
Net income allocable to common unit holders ........................................   $  13,744   $   8,459   $  30,644   $  18,118
Adjustments for basic funds from operations:
   Add:
      Real estate depreciation and amortization ....................................      28,854      29,127      57,411      60,454
      Minority partners' interests in consolidated partnerships ....................       6,811       4,335      13,136       9,025
   Less:
      Gain on sales of depreciable real estate......................................       6,174          --      11,330          --
      Amounts distributable to minority partners in consolidated partnerships ......       6,411       6,769      14,915      13,576
                                                                                       ---------   ---------   ---------   ---------

Funds From Operations ("FFO") ......................................................   $  36,824   $  35,152   $  74,946   $  74,021
                                                                                       =========   =========   =========   =========

Weighted average units outstanding .................................................      70,443      65,192      67,679      65,292
                                                                                       =========   =========   =========   =========
</TABLE>

INFLATION

The office  leases  generally  provide for fixed base rent  increases or indexed
escalations.  In addition, the office leases provide for separate escalations of
real estate taxes, operating expenses and electric costs over a base amount. The
industrial / R&D leases generally provide for fixed base rent increases,  direct
pass  through  of  certain  operating  expenses  and  separate  real  estate tax
escalations  over  a  base  amount.  The  Operating  Partnership  believes  that
inflationary  increases in expenses will be offset by contractual rent increases
and expense escalations described above. As a result of the impact of the events
of  September  11,  2001,  the  Operating  Partnership  has  realized  increased
insurance costs,  particularly relating to property and terrorism insurance, and
security  costs.  The Operating  Partnership has included these costs as part of
its escalatable expenses. The Operating Partnership has billed these escalatable
expense items to its tenants  consistent with the terms of the underlying leases
and believes they are  collectible.  To the extent the  Operating  Partnership's
properties  contain  vacant  space,  the  Operating  Partnership  will bear such
inflationary increases in expenses.

The Credit Facility,  $250 million of the Operating Partnership's mortgage notes
payable  and the Mezz Note,  bear  interest  at  variable  rates,  which will be
influenced  by  changes in  short-term  interest  rates,  and are  sensitive  to
inflation.

                                       35
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

The Operating Partnership will recognize all derivatives on the balance sheet at
fair  value.  Derivatives  that are not hedges  will be  adjusted  to fair value
through  income.  If a  derivative  is a hedge,  depending  on the nature of the
hedge, changes in the fair value of the derivative will either be offset against
the change in fair  value of the hedged  asset,  liability,  or firm  commitment
through earnings,  or recognized in other comprehensive  income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. On March 19, 2004, the
Operating   Partnership  entered  into  two  anticipatory  interest  rate  hedge
instruments  which are scheduled to coincide with an August 2004 debt  maturity,
totaling $100 million,  to protect itself against  potentially  rising  interest
rates.  At June 30, 2004,  the fair value of these  instruments  exceeded  their
carrying  value by  approximately  $5.2 million.  On July 1, 2004, the Operating
Partnership  entered  into  an  additional   anticipatory  interest  rate  hedge
instrument  totaling  $12.5 million to coincide with the  aforementioned  August
2004 debt maturity.

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

The  following  table  sets forth the  Operating  Partnership's  long-term  debt
obligations  by  scheduled  principal  cash flow  payments  and  maturity  date,
weighted  average  interest rates and estimated FMV at June 30, 2004 (dollars in
thousands):

<TABLE>
<CAPTION>
                                           For the Year Ended December 31,
                           ----------------------------------------------------------------
                                 2004        2005         2006         2007         2008      Thereafter    Total (1)       FMV
                           --------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>          <C>           <C>
Long term debt:
   Fixed rate .............  $    6,779   $   32,440   $  143,398   $  271,508   $    9,989   $  801,447   $ 1,265,561   $1,340,918
   Weighted average
      interest rate .......       7.47%        6.90%        7.37%        7.14%        7.23%        7.40%         7.33%

   Variable rate ..........  $  250,000   $   90,000   $       --   $       --   $       --   $       --   $   340,000   $  340,000
   Weighted average
      interest rate .......       4.95%        2.18%           --           --           --           --         4.22%
</TABLE>

(1)   Includes  aggregate   unamortized   issuance  discounts  of  approximately
      $868,000  on  certain  of the  senior  unsecured  notes  which  are due at
      maturity.

In  addition,  a one  percent  increase  in the LIBOR rate would have a $900,000
annual increase in interest expense on the $90 million of variable rate debt due
in 2005.  A one  percent  increase  in LIBOR  would  have no impact to  interest
expense  on the $250  million of  variable  rate debt due in 2004,  as  interest
reported in the current period is calculated using a LIBOR rate in excess of one
percent over the LIBOR rate at June 30, 2004.

The following  table sets forth the Operating  Partnership's  mortgage notes and
note receivables by scheduled maturity date, weighted average interest rates and
estimated FMV at June 30, 2004 (dollars in thousands):

<TABLE>
<CAPTION>
                                             For the Year Ended December 31,
                            ---------------------------------------------------------------

                                2004         2005         2006         2007         2008      Thereafter    Total (1)       FMV
                            --------------------------------------------------------------------------------------------------------
<S>                          <C>          <C>          <C>          <C>          <C>          <C>          <C>           <C>
Mortgage notes and
   notes receivable:

Fixed rate ................  $   19,000   $       --   $       --   $   16,990   $       --   $       --   $    35,990   $   39,239
   Weighted average
      interest rate .......      10.70%           --           --       12.00%           --           --        11.31%

Variable rate .............  $       --   $   30,000   $       --   $       --   $       --   $       --   $    30,000   $   30,000
   Weighted average
      interest rate .......          --       12.73%           --           --           --           --        12.73%
</TABLE>

(1)   Excludes   interest   receivables   and  unamortized   acquisition   costs
      aggregating approximately $2.4 million dollars.

                                       36
<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES


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


There were no changes in our internal  control  over  financial  reporting  that
occurred during our most recent fiscal quarter that have materially affected, or
are reasonably likely to materially  affect, our internal control over financial
reporting.

                                       37
<PAGE>


SELECTED PORTFOLIO INFORMATION

The following table sets forth the Operating  Partnership's  schedule of its top
25 tenants based on base rental revenue as of June 30, 2004:

<TABLE>
<CAPTION>
                                  WTD. AVG.                            PERCENT OF PRO-RATA     PERCENT OF CONSOLIDATED
                               TERM REMAINING          TOTAL           SHARE OF ANNUALIZED         ANNUALIZED BASE
 TENANT NAME (1) (2)               (YEARS)          SQUARE FEET        BASE RENTAL REVENUE          RENTAL REVENUE
 ----------------------------- ---------------- -------------------- ------------------------- -------------------------
<S>                                 <C>               <C>                      <C>                       <C>
*Debevoise & Plimpton               17.5              465,420                  3.3%                      5.6%
 King & Spalding                     7.8              176,204                  2.3%                      2.0%
*Verizon Communications Inc.         2.7              263,569                  1.9%                      1.7%
*American Express                    9.2              129,818                  1.9%                      1.7%
*Schulte Roth & Zabel               16.4              279,746                  1.6%                      2.7%
*Fuji Photo Film USA                 8.4              186,484                  1.3%                      1.2%
 Dun & Bradstreet Corp.              8.3              123,000                  1.2%                      1.0%
 United Distillers                   0.7              137,918                  1.2%                      1.0%
*Bank of America/Fleet Bank          6.7              125,903                  1.2%                      1.0%
*WorldCom/MCI                        2.6              244,730                  1.1%                      1.1%
 Arrow Electronics                   9.5              163,762                  1.1%                      1.0%
 Amerada Hess Corporation            8.5              127,300                  1.1%                      1.0%
 T.D. Waterhouse                     3.1              103,381                  1.0%                      0.9%
 Westdeutsche Landesbank            11.8               53,000                  1.0%                      0.9%
 D.E. Shaw                          11.5               79,515                  0.9%                      0.8%
 Practicing Law Institute            9.7               77,500                  0.9%                      0.8%
*Banque Nationale De Paris          12.1              145,834                  0.9%                      1.5%
 North Fork Bank                    11.5              126,770                  0.9%                      0.8%
 Vytra Healthcare                    3.5              105,613                  0.9%                      0.8%
*Kramer Levin Nessen Kamin           0.8              158,144                  0.9%                      1.5%
 Heller Ehrman White                 0.9               64,526                  0.9%                      0.7%
 P.R. Newswire Associates            3.9               67,000                  0.8%                      0.7%
*JP Morgan Chase/ Bank One           5.6               87,737                  0.8%                      0.8%
*HQ Global                           4.3              126,487                  0.8%                      0.8%
 Laboratory Corp. Of America         2.9              108,000                  0.8%                      0.7%
</TABLE>

(1)   Ranked by pro-rata share of annualized  base rental  revenue  adjusted for
      pro rata share of joint venture interests.

(2)   Excludes One Orlando Centre in Orlando, Florida.

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

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

The  following  table sets forth  annual  and per  square  foot  non-incremental
revenue-generating  capital expenditures in which the Operating Partnership paid
or accrued,  during the respective periods,  to retain revenues  attributable to
existing  leased space (at 100% of cost) for the years 2000 through 2003 and for
the six  month  period  ended  June  30,  2004 for the  Operating  Partnership's
consolidated  office and  industrial  / R&D  properties  other than One  Orlando
Center in Orlando, FL:

<TABLE>
<CAPTION>
                                                                                             Average          YTD
                                2000           2001           2002           2003           2000-2003        2004
                            -----------    -----------    -----------    -----------       -----------    -----------
<S>                         <C>            <C>            <C>            <C>               <C>            <C>
Suburban Office Properties
   Total                    $ 3,289,116    $ 4,606,069    $ 5,283,674    $ 6,791,336       $ 4,992,549    $ 2,835,587
   Per Square Foot          $      0.33    $      0.45    $      0.53    $      0.67       $      0.49    $      0.28

NYC Office Properties
   Total                    $   946,718    $ 1,584,501    $ 1,939,111    $ 1,922,209       $ 1,598,135    $ 1,210,758
   Per Square Foot          $      0.38    $      0.45    $      0.56    $      0.55       $      0.48    $      0.27

Industrial Properties
   Total                    $   813,431    $   711,666    $ 1,881,627    $ 1,218,401(1)    $ 1,156,281    $    22,923
   Per Square Foot          $      0.11    $      0.11    $      0.28    $      0.23       $      0.18    $      0.02

TOTAL PORTFOLIO
                            -----------    -----------    -----------    -----------       -----------    -----------
     Total                  $ 5,049,265    $ 6,902,236    $ 9,104,412    $ 9,931,946       $ 7,746,965    $ 4,069,268
     Per Square Foot        $      0.25    $      0.34    $      0.45    $      0.52       $      0.39    $      0.26
</TABLE>

(1)   Excludes  non-incremental capital expenditures of $435,140 incurred during
      the fourth  quarter  2003 for the  industrial  properties  which were sold
      during the period.

                                       38
<PAGE>


The  following  table sets forth  annual  and per  square  foot  non-incremental
revenue-generating tenant improvement costs and leasing commissions in which the
Operating  Partnership  committed to perform,  during the respective periods, to
retain revenues attributable to existing leased space for the years 2000 through
2003  and for the six  month  period  ended  June  30,  2004  for the  Operating
Partnership's consolidated office and industrial / R&D properties other than One
Orlando Center in Orlando, FL:

<TABLE>
<CAPTION>
                                                                                                            Average       YTD
                              2000       2001         2002          2003       2000-2003     2004(1)         New       Renewal
                          --------------------------------------------------------------------------------------------------------
<S>                       <C>         <C>         <C>            <C>           <C>          <C>            <C>         <C>
Long Island
Office Properties
 Tenant Improvements      $2,853,706  $2,722,457  $ 1,917,466    $ 3,774,722   $ 2,817,088  $ 2,394,114    $1,327,529  $1,066,585
 Per Square Foot Improved $     6.99  $     8.47  $      7.81    $      7.05   $      7.58  $      9.05    $    12.67  $     6.67
 Leasing Commissions      $2,208,604  $1,444,412  $ 1,026,970    $ 2,623,245   $ 1,825,808  $ 1,333,976    $  529,537  $  804,439
 Per Square Foot Leased   $     4.96  $     4.49  $      4.18    $      4.90   $      4.63  $      5.04    $     5.05  $     5.03
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $    11.95  $    12.96  $     11.99    $     11.95   $     12.21  $     14.09    $    17.72  $    11.70
                          ========================================================================================================

Westchester
Office Properties
 Tenant Improvements      $1,860,027  $2,584,728  $ 6,391,589(2) $ 3,732,370   $ 3,642,178  $ 4,937,356    $4,216,913  $  720,443
 Per Square Foot Improved $     5.72  $     5.91  $     15.05    $     15.98   $     10.66  $     14.64    $    21.48  $     5.12
 Leasing Commissions      $  412,226  $1,263,012  $ 1,975,850(2) $   917,487   $ 1,142,144  $ 2,003,752    $1,571,958  $  431,794
 Per Square Foot Leased   $     3.00  $     2.89  $      4.65    $      3.93   $      3.62  $      5.94    $     8.01  $     3.07
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $     8.72  $     8.80  $     19.70    $     19.91   $     14.28  $     20.58    $    29.49  $     8.19
                          ========================================================================================================

Connecticut
Office Properties
 Tenant Improvements      $  385,531  $  213,909  $   491,435   $   588,087    $   419,740  $ 2,400,708    $1,047,111  $1,353,597
 Per Square Foot Improved $     4.19  $     1.46  $      3.81   $      8.44    $      4.47  $     14.13    $    29.54  $    10.06
 Leasing Commissions      $  453,435  $  209,322  $   307,023   $   511,360    $   370,285  $ 1,382,615    $  347,634  $1,034,981
 Per Square Foot Leased   $     4.92  $     1.43  $      2.38   $      7.34    $      4.02  $      8.14    $     9.81  $     7.69
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $     9.11  $     2.89  $      6.19   $     15.78    $      8.49  $     22.27    $    39.35  $    17.75
                          ========================================================================================================

New Jersey
Office Properties
 Tenant Improvements      $1,580,323  $1,146,385  $ 2,842,521   $ 4,327,295    $ 2,474,131  $   710,890    $  665,124  $   45,766
 Per Square Foot Improved $     6.71  $     2.92  $     10.76   $     11.57    $      7.99  $      7.50    $    13.42  $     1.01
 Leasing Commissions      $1,031,950  $1,602,962  $ 1,037,012   $ 1,892,635    $ 1,391,140  $   252,534    $  232,829  $   19,705
 Per Square Foot Leased   $     4.44  $     4.08  $      3.92   $      5.06    $      4.38  $      2.66    $     4.70  $     0.44
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $    11.15  $     7.00  $     14.68   $     16.63    $     12.37  $     10.16    $    18.12  $     1.45
                          ========================================================================================================

New York City
Office Properties
 Tenant Improvements      $   65,267  $  788,930  $ 4,350,106   $ 5,810,017(3) $ 2,753,580  $ 3,497,494(4) $2,393,044  $1,104,450(4)
 Per Square Foot Improved $     1.79  $    15.69  $     18.39   $     32.84    $     17.18  $     21.01    $    27.11  $    14.12
 Leasing Commissions      $  418,185  $1,098,829  $ 2,019,837   $ 2,950,330(3) $ 1,621,795  $ 1,041,336(4) $  470,445  $  570,891(4)
 Per Square Foot Leased   $    11.50  $    21.86  $      8.54   $     16.68    $     14.64  $      6.25    $     5.33  $     7.30
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $    13.29  $    37.55  $     26.93   $     49.52    $     31.82  $     27.26    $    32.44  $    21.42
                          ========================================================================================================

Industrial Properties
 Tenant Improvements      $  650,216  $1,366,488  $ 1,850,812   $ 1,249,200    $ 1,279,179  $   205,104    $  157,661  $   47,443
 Per Square Foot Improved $     0.95  $     1.65  $      1.97   $      2.42    $      1.75  $      2.11    $     1.73  $     7.46
 Leasing Commissions      $  436,506  $  354,572  $   890,688   $   574,256    $   564,005  $   225,539    $  225,539  $        0
 Per Square Foot Leased   $     0.64  $     0.43  $      0.95   $      1.11    $      0.78  $      2.32    $     2.48  $     0.00
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $     1.59  $     2.08  $      2.92   $      3.53    $      2.53  $      4.43    $     4.21  $     7.46
                          ========================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
TOTAL PORTFOLIO
 Tenant Improvements      $7,395,070  $8,822,897  $17,843,929   $19,481,691    $13,385,896  $14,145,666    $9,807,382  $4,338,284
 Per Square Foot Improved $     4.15  $     4.05  $      7.96   $     10.22    $      6.66  $     12.51    $    17.35  $     7.68
 Leasing Commissions      $4,960,906  $5,973,109  $ 7,257,380   $ 9,469,313    $ 6,915,177  $ 6,239,752    $3,377,942  $2,861,810
 Per Square Foot Leased   $     3.05  $     2.75  $      3.24   $      4.97    $      3.54  $      5.52    $     5.97  $     5.07
                          --------------------------------------------------------------------------------------------------------
  Total Per Square Foot   $     7.20  $     6.80  $     11.20   $     15.19    $     10.20  $     18.03    $    23.32  $    12.75
                          ========================================================================================================
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Excludes  $2.8 million of deferred  leasing  costs  attributable  to space
      marketed but not yet leased.

(2)   Excludes tenant  improvements and leasing commissions related to a 163,880
      square  foot  leasing  transaction  with Fuji  Photo Film  U.S.A.  Leasing
      commissions  on this  transaction  amounted  to $5.33 per square  foot and
      tenant improvement allowance amounted to $40.88 per square foot.

(3)   Excludes $5.8 million of tenant  improvements  and $2.2 million of leasing
      commissions related to a new 121,108 square foot lease to Debevoise with a
      lease commencement date in 2005. Also excludes tenant improvements of $0.2
      million for Sandler O'Neil & Partners  (7,446 SF) for expansion space with
      a lease commencement date in 2004.

(4)   Excludes 86,800 square foot Westpoint Stevens early renewal. There were no
      tenant improvement or leasing costs associated with this transaction. Also
      excludes $1.4 million of tenant  improvements  and $1.2 million of leasing
      commissions  related  to a 74,293  square  foot  lease to  Harper  Collins
      Publishers     with    a    lease     commencement     date    in    2006.

--------------------------------------------------------------------------------

                                       39
<PAGE>


The following  table sets forth the  Operating  Partnership's  lease  expiration
table, as adjusted for pre-leased space, at July 1, 2004 for its Total Portfolio
of properties, its Office Portfolio and its Industrial / R&D Portfolio:

                               TOTAL PORTFOLIO (1)
--------------------------------------------------------------------------------
                          Number of     Square     % of Total      Cumulative
Year of                     Leases       Feet       Portfolio      % of Total
Expiration                 Expiring    Expiring       Sq Ft      Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          92         545,148     3.5%             3.5%
2005                         185       1,523,110     9.9%            13.4%
2006                         184       1,692,820    11.0%            24.4%
2007                         109       1,140,838     7.4%            31.8%
2008                         109         959,655     6.2%            38.1%
2009                         102       1,131,680     7.4%            45.4%
2010 and thereafter          315       7,327,050    47.6%            93.0%
--------------------------------------------------------------------------------
Total/Weighted Average      1,096     14,320,301    93.0%
--------------------------------------------------------------------------------
Total Portfolio Square Feet           15,396,244
--------------------------------------------------------------------------------

                              OFFICE PORTFOLIO (1)
--------------------------------------------------------------------------------
                          Number of     Square     % of Total      Cumulative
Year of                     Leases       Feet        Office        % of Total
Expiration                 Expiring    Expiring       Sq Ft      Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          89         513,528     3.6%             3.6%
2005                         182       1,383,960     9.6%            13.1%
2006                         180       1,595,854    11.1%            24.2%
2007                         105       1,071,346     7.4%            31.6%
2008                         106         916,812     6.3%            38.0%
2009                         101       1,086,699     7.5%            45.5%
2010 and thereafter          310       6,981,186    48.3%            93.8%
--------------------------------------------------------------------------------
Total/Weighted Average      1,073     13,549,385    93.8%
--------------------------------------------------------------------------------
Total Office Portfolio Square Feet    14,440,849
--------------------------------------------------------------------------------

                            INDUSTRIAL/R&D PORTFOLIO
--------------------------------------------------------------------------------
                          Number of     Square     % of Total      Cumulative
Year of                     Leases       Feet    Industrial/R&D    % of Total
Expiration                 Expiring    Expiring       Sq Ft      Portfolio Sq Ft
--------------------------------------------------------------------------------
2004                          3          31,620      3.3%             3.3%
2005                          3         139,150     14.6%            17.9%
2006                          4          96,966     10.1%            28.0%
2007                          4          69,492      7.3%            35.3%
2008                          3          42,843      4.5%            39.8%
2009                          1          44,981      4.7%            44.5%
2010 and thereafter           5         345,864     36.2%            80.7%
--------------------------------------------------------------------------------
Total/Weighted Average        23        770,916     80.7%
--------------------------------------------------------------------------------
Total Industrial/R&D Portfolio
  Square Feet                           955,395
--------------------------------------------------------------------------------

(1)   Excludes One Orlando Centre in Orlando, Florida

                                       40
<PAGE>


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

                                                             SIX MONTHS ENDED
                                                                 JUNE 30,
                                                         -----------------------
                                                            2004          2003
                                                         ---------     ---------
Capital expenditures:
   Non-incremental ...................................   $   4,069     $   4,297
   Incremental .......................................       1,085           899
Tenant improvements:
   Non-incremental ...................................       9,671        19,901
   Incremental .......................................       2,976            52
                                                         ---------     ---------
Additions to commercial real estate properties .......   $  17,801     $  25,149
                                                         =========     =========

Leasing costs:
   Non-incremental ...................................   $   6,764     $   6,554
   Incremental .......................................       1,913         2,211
                                                         ---------     ---------
Payment of deferred leasing costs ....................   $   8,677     $   8,765
                                                         =========     =========

Acquisition and development costs ....................   $ 335,668     $  16,237
                                                         =========     =========

                                       41
<PAGE>


PART II - OTHER INFORMATION

Item 1. Legal Proceedings

A number of shareholder  derivative  actions have been commenced  purportedly on
behalf  of the  Operating  Partnership  against  the Board of  Directors  in the
Supreme Court of the State of New York, County of Nassau (Lowinger v. Rechler et
al.,  Index No. 01 4162/03  (9/16/03)),  the  Supreme  Court of the State of New
York, County of Suffolk (Steiner v. Rechler et al., Index No. 03 32545 (10/2/03)
and Lighter v. Rechler et al., Index No. 03 23593 (10/3/03)),  the United States
District Court, Eastern District of New York (Tucker v. Rechler et al., Case No.
cv 03 4917 (9/26/03), Clinton Charter Township Police and Fire Retirement System
v. Rechler et al., Case No. cv 03 5008 (10/1/03) and Teachers' Retirement System
of Louisiana v. Rechler et al., Case No. cv 03 5178  (10/14/03)) and the Circuit
Court for  Baltimore  County (Sekuk Global  Enterprises  Profit  Sharing Plan v.
Rechler et al., Civil No. 24-C- 03007496 (10/16/03),  Hoffman v. Rechler et al.,
24-C-03-007876   (10/27/03)  and  Chirko  v.  Rechler  et  al.,   24-C-03-008010
(10/30/03)),  relating to the sale of the Long Island  Industrial  Portfolio  to
certain  members of the  Rechler  family.  The  complaints  allege,  among other
things,  that the process by which the directors  agreed to the  transaction was
not  sufficiently  independent  of the  Rechler  family and did not  involve a "
market  check"  or third  party  auction  process  and as a  result  was not for
adequate  consideration.   The  Plaintiffs  seek  similar  relief,  including  a
declaration that the directors  violated their fiduciary  duties,  an injunction
against the transaction  and damages.  The Operating  Partnership  believes that
complaints are without merit.

Kramer Levin Naftalis & Frankel commenced an action against Metropolitan 919 3rd
Avenue  LLC in the  Supreme  Court of the State of New York,  County of New York
(Kramer Levin Naftalis & Frankel LLP v.  Metropolitan  919 3rd Avenue LLC, Index
No.  604512/2002  (12/16/02))  relating to alleged  overcharges of approximately
$700,000  with  respect  to its  lease at 919 3rd  Avenue,  New York,  NY.  Such
overcharges  were  primarily  incurred  during the period prior to the Operating
Partnership's  ownership  of  the  property.  Subsequent  to the  filing  of the
complaint,  the parties agreed to pursue private mediation.  As of May 2004, the
mediation effort was discontinued and the parties have resumed  litigation.  The
Operating Partnership believes that the complaint is without merit.

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

Item 2. Changes in  Securities,  Use of Proceeds and Issuer  Purchases of Equity
Securities- None

Item 3. Defaults Upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Securities Holders - None

Item 5. Other information

      a)    None

      b)    There  have been no  material  changes  to the  procedures  by which
            stockholders  may  recommend  nominees  to the  Company's  Board  of
            Directors.

Item 6. Exhibits and Reports on Form 8-K

      a)    Exhibits

            10.1  Third amended and restated  credit  agreement  dated August 6,
                  2004 between Reckson Operating Partnership,  L.P., as Borrower
                  and  the  institutions  from  time to time  party  thereto  as
                  Lenders.

            31.1  Certification of Scott H. Rechler, Chief Executive Officer and
                  President of Reckson Associates Realty Corp., the sole general
                  partner  of the  Registrant,  pursuant  to Rule 13a - 14(a) or
                  Rule 15(d) - 14(a).

            31.2  Certification  of Michael  Maturo,  Executive Vice  President,
                  Treasurer and Chief  Financial  Officer of Reckson  Associates
                  Realty  Corp.,  the sole  general  partner of the  Registrant,
                  pursuant to Rule 13a - 14(a) or Rule 15(d) - 14(a).

            32.1  Certification of Scott H. Rechler, Chief Executive Officer and
                  President of Reckson Associates Realty Corp., the sole general
                  partner of the Registrant, pursuant to Section 1350 of Chapter
                  63 of Title 18 of the United States Code.

            32.2  Certification  of Michael  Maturo,  Executive Vice  President,
                  Treasurer and Chief  Financial  Officer of Reckson  Associates
                  Realty  Corp.,  the sole  general  partner of the  Registrant,
                  pursuant  to  Section  1350 of  Chapter  63 of Title 18 of the
                  United States Code.

      b)    During the three months ended June 30, 2004,  the  Registrant  filed
            the following reports on Form 8-K:

            On May 6, 2004, the Registrant  submitted a report on Form 8-K under
            Items 7 and 12 thereof in order to file a press  release  announcing
            the Company's  consolidated  financial results for the quarter ended
            March 31, 2004.

                                       42
<PAGE>


SIGNATURES

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

RECKSON OPERATING PARTNERSHIP, L.P.

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

DATE: August 9, 2004

                                       43