**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

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| x          | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|------------|------------|------------------------------------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                                                     |
|       |       |                                                                                           | **For the quarterly period ended September 30,  2007** |   |
|       |       |                                                                                           |
| o          | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|       |       |                                                                                           |
|       |       |                                                                                           | **For the  transition period from              to            .** |   |
|       |       |                                                                                           |

 

**Commission File Number: 1-13762**

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**RECKSON OPERATING PARTNERSHIP,L.P.**

(Exact name of registrantas specified in its charter)

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| **Maryland**                     | ** ** | **11-3233647**      |
|----------------------------------|------------|---------------------|
| (State or other  jurisdiction of |       | (I.R.S. Employer    |
| incorporation or  organization)  |       | Identification No.) |

 

**420 Lexington Avenue, New York,New York 10170**

(Address of principalexecutive offices) (Zip Code)

 

**(212) 594-2700**

(Registrant’s telephonenumber, including area code)

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.  YES x     NO o

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act.

 
| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). YES o    NO x

 

As of September 30, 2007, no common units of limitedpartnership interest of the Registrant were held by non-affiliates of theRegistrant.  There is no establishedtrading market for such units.

 

 

 

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**RECKSON OPERATING PARTNERSHIP,L.P.**

 

**INDEX**

 

 
| **PART I.**    | **FINANCIAL INFORMATION**                                                                                                                                                                                                                                                                                                      |   |
|----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 1.**    | **FINANCIAL STATEMENTS**                                                                                                                                                                                                                                                                                                       |   |
|           |                                                                                                                                                                                                                                                                                                                           |
|           | **PAGE**                                                                                                                                                                                                                                                                                                                       |
| ** **     | ** **                                                                                                                                                                                                                                                                                                                     |
|           | Condensed  Consolidated Balance Sheets as of September 30, 2007 (Successor) (unaudited)  andDecember 31, 2006 (Predecessor)                                                                                                                                                                                                    | 3      |
|           |                                                                                                                                                                                                                                                                                                                           |   |
|           | Condensed  Consolidated Statements of Operations for the three months ended September  30, 2007 (Successor) and the period January 26, 2007 to September 30, 2007  (Successor), the period January 1, 2007 to January 25, 2007 (Predecessor) and  the three and nine months ended September 30, 2006 (Predecessor) (unaudited) | 4      |
|           |                                                                                                                                                                                                                                                                                                                           |   |
|           | Condensed  Consolidated Statements of Cash Flows for the nine months ended September 30,  2007 (Successor) and the nine months ended September 30, 2006 (Predecessor)  (unaudited)                                                                                                                                             | 5      |
|           |                                                                                                                                                                                                                                                                                                                           |   |
|           | Notes to  Condensed Consolidated Financial Statements (unaudited)                                                                                                                                                                                                                                                              | 6      |
|           |                                                                                                                                                                                                                                                                                                                           |
| **ITEM 2.**    | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**                                                                                                                                                                                                                                | 16     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 3.**    | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**                                                                                                                                                                                                                                                                | 25     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 4T.**   | **CONTROLS AND PROCEDURES**                                                                                                                                                                                                                                                                                                    | 25     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **PART II.**   | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                          | 26     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 1.**    | **LEGAL PROCEEDINGS**                                                                                                                                                                                                                                                                                                          | 26     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 1A.**   | **RISK FACTORS**                                                                                                                                                                                                                                                                                                               | 26     |
|           |                                                                                                                                                                                                                                                                                                                           |   |
| **ITEM 2.**    | **UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**                                                                                                                                                                                                                                                               | 32     |
| ** **     | ** **                                                                                                                                                                                                                                                                                                                     |   |
| **ITEM 3.**    | **DEFAULTS UPON  SENIOR SECURITIES**                                                                                                                                                                                                                                                                                           | 32     |
| ** **     | ** **                                                                                                                                                                                                                                                                                                                     |   |
| **ITEM 4.**    | **SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS**                                                                                                                                                                                                                                                                       | 32     |
| ** **     | ** **                                                                                                                                                                                                                                                                                                                     |   |
| **ITEM 5.**    | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                          | 32     |
| ** **     | ** **                                                                                                                                                                                                                                                                                                                     |   |
| **ITEM 6.**    | **EXHIBITS**                                                                                                                                                                                                                                                                                                                   | 32     |
| ** **     |                                                                                                                                                                                                                                                                                                                           |
| **Signatures** | 34                                                                                                                                                                                                                                                                                                                             |

 

2

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**PART I.****                                                   ****FINANCIAL INFORMATION**

###### **ITEM 1.**                                                     FinancialStatements

 

**Reckson OperatingPartnership, L.P.**

**Condensed Consolidated Balance Sheets**

**(Amounts in thousands)**

 

| ** **                                                                                      | ** **      | **September  30,  2007** | ** **    | ** ** | **December  31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------|-----------------|--------------------------|---------------|------------|-------------------------|------------|
| ** **                                                                                      | ** **      | **(Successor)**          | ** **    | ** ** | **(Predecessor)**       | ** ** |
| **Assets**                                                                                      | **(Unaudited)** | ** **               | ** **    | ** ** | ** **              |
| Commercial real  estate properties, at cost:                                                    |            |                     |          |       |                    |       |
| Land and land  interests                                                                        | ** **      | **$**                    | **654,461**   |       |                    | $          | 559,325 |   |
| Building and  improvements                                                                      | ** **      | **3,080,667**            |          |       | 3,090,549               |       |
| ** **                                                                                      | ** **      | **3,735,128**            |          |       | 3,649,874               |       |
| Less:  accumulated depreciation                                                                 | ** **      | **(52,102**              | )             |       | (644,771                | )          |
| ** **                                                                                      | ** **      | **3,683,026**            |          |       | 3,005,103               |       |
| Cash and cash  equivalents                                                                      | ** **      | **10,304**               |          |       | 51,192                  |       |
| Restricted cash                                                                                 | ** **      | **8,449**                |          |       | 19,982                  |       |
| Tenant and other  receivables, net of allowance of $168 and none in 2007 and 2006, respectively | ** **      | **11,768**               |          |       | 13,611                  |       |
| Deferred rents  receivable                                                                      | ** **      | **14,606**               |          |       | 155,256                 |       |
| Structured  finance investments                                                                 | ** **      | **108,314**              |          |       | 198,454                 |       |
| Investments in  unconsolidated joint ventures                                                   | ** **      | **62,475**               |          |       | 53,390                  |       |
| Deferred costs,  net                                                                            | ** **      | **2,150**                |          |       | 88,089                  |       |
| Other assets                                                                                    | ** **      | **54,009**               |          |       | 161,754                 |       |
| Total assets                                                                                    | ** **      | **$**                    | **3,955,101** |       |                    | $          | 3,746,831 |   |
|                                                                                            |            |                     |          |       |                    |       |
| **Liabilities  and Partners’ Capital**                                                     |            |                     |          |       |                    |       |
| Mortgage notes  payable                                                                         | ** **      | **$**                    | **232,835**   |       |                    | $          | 418,613 |   |
| Revolving credit  facility                                                                      | ** **      | **—**               |          |       | 269,000                 |       |
| Unsecured notes                                                                                 | ** **      | **1,056,841**            |          |       | 1,255,187               |       |
| Accrued interest  payable and other liabilities                                                 | ** **      | **28,543**               |          |       | 20,585                  |       |
| Accounts payable  and accrued expenses                                                          | ** **      | **44,848**               |          |       | 142,093                 |       |
| Deferred  revenue/gain                                                                          | ** **      | **—**               |          |       | 53,590                  |       |
| Deferred land  leases payable                                                                   | ** **      | **—**               |          |       | 10,457                  |       |
| Dividend and  distributions payable                                                             | ** **      | **—**               |          |       | 36,839                  |       |
| Security  deposits                                                                              | ** **      | **5,829**                |          |       | 19,217                  |       |
| Total  liabilities                                                                              | ** **      | **1,368,896**            |          |       | 2,225,581               |       |
|                                                                                            |            |                     |          |       |                    |       |
| Commitments and  Contingencies                                                                  | ** **      | **—**               |          |       | **—**              |       |
| Minority  interests in other partnerships                                                       | ** **      | **396,385**              |          |       | 259,736                 |       |
|                                                                                            |            |                     |          |       |                    |       |
| **Partners’  Capital**                                                                     | ** **      | ** **               | ** **    | ** ** | ** **              | ** ** |
| Preferred  Capital                                                                              | ** **      | **—**               |          |       | 1,200                   |       |
| General Partner  Capital                                                                        | ** **      | **2,189,820**            |          |       | 1,241,985               |       |
| Limited Partner  Capital                                                                        | ** **      | **—**               |          |       | 16,513                  |       |
| Accumulated  other comprehensive income                                                         | ** **      | **—**               |          |       | 1,816                   |       |
| Total Partners’  Capital                                                                   | ** **      | **2,189,820**            |          |       | 1,261,514               |       |
| Total  Liabilities and Partners’ Capital                                                   | ** **      | **$**                    | **3,955,101** |       |                    | $          | 3,746,831 |   |

 

The accompanying notes are anintegral part of these financial statements.

 

3

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** **

**Reckson OperatingPartnership, L.P.**

**CondensedConsolidated Statements of Operations**

**(Unaudited, and amounts in thousands)**

 

| ** **                                                                                                                                                            | ** ** | **Three  months   ended   September 30,** | ** ** | **Period    January 26 to   September 30,** | ** ** | ** ** | **Period    January 1 to   January 25,** | ** ** | **Three  months   ended   September 30,** | ** ** | **Nine  months   ended   September 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------|------------|------------|------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                                                                            | ** ** | **2007**                                  | ** ** | **2007**                                    | ** ** | ** ** | **2007**                                 | ** ** | **2006**                                  | ** ** | **2006**                                 | ** ** |
| **Revenues**                                                                                                                                                          | ** ** | **(Successor)**                           | ** ** | **(Successor)**                             | ** ** | ** ** | **(Predecessor)**                        | ** ** | **(Predecessor)**                         | ** ** | **(Predecessor)**                        | ** ** |
| Rental revenue, net                                                                                                                                                   |       | $                                         | 64,879     |                                        | $          | 176,001    |                                     |       | $                                         | 21,821     |                                     | $          | 66,932 |   | $ | 200,956 |   |
| Escalation and  reimbursement                                                                                                                                         |       | 13,735                                    |       | 36,267                                      |       |       | 3,728                                    |       | 15,134                                    |       | 41,262                                   |       |
| Investment  income                                                                                                                                                    |       | 4,487                                     |       | 14,433                                      |       |       | 1,201                                    |       | 5,982                                     |       | 16,312                                   |       |
| Other income                                                                                                                                                          |       | 262                                       |       | 730                                         |       |       | **—**                               |       | 3,543                                     |       | 17,450                                   |       |
| Total revenues                                                                                                                                                        |       | 83,363                                    |       | 227,431                                     |       |       | 26,750                                   |       | 91,591                                    |       | 275,980                                  |       |
| **Expenses**                                                                                                                                                          |       |                                      |       |                                        |       |       |                                     |       |                                      |       |                                     |       |
| Operating  expenses                                                                                                                                                   |       | 20,321                                    |       | 51,209                                      |       |       | 6,921                                    |       | 22,017                                    |       | 58,914                                   |       |
| Real estate  taxes                                                                                                                                                    |       | 12,634                                    |       | 35,477                                      |       |       | 4,744                                    |       | 15,104                                    |       | 43,416                                   |       |
| Ground rent                                                                                                                                                           |       | 2,556                                     |       | 6,973                                       |       |       | 699                                      |       | 2,135                                     |       | 6,242                                    |       |
| Interest                                                                                                                                                              |       | 15,963                                    |       | 48,491                                      |       |       | 6,728                                    |       | 24,651                                    |       | 74,200                                   |       |
| Amortization of  deferred financing costs                                                                                                                             |       | **—**                                |       | **—**                                  |       |       | 152                                      |       | 1,071                                     |       | 3,210                                    |       |
| Depreciation and  amortization                                                                                                                                        |       | 19,628                                    |       | 52,119                                      |       |       | 5,311                                    |       | 19,553                                    |       | 57,845                                   |       |
| Merger related  costs                                                                                                                                                 |       | **—**                                |       | **—**                                  |       |       | 8,814                                    |       | **—**                                |       | **—**                               |       |
| Marketing,  general and administrative                                                                                                                                |       | 206                                       |       | 488                                         |       |       | 5,347                                    |       | 9,340                                     |       | 29,750                                   |       |
| Total expenses                                                                                                                                                        |       | 71,308                                    |       | 194,757                                     |       |       | 38,716                                   |       | 93,871                                    |       | 273,577                                  |       |
| Income (loss)  from continuing operations before equity in net income from unconsolidated joint  venture, gain on sale, minority interest and discontinued operations |       | 12,055                                    |       | 32,674                                      |       |       | (11,966                                  | )          | (2,280                                    | )          | 2,403                                    |       |
| Equity in net  income from unconsolidated joint venture                                                                                                               |       | 355                                       |       | 887                                         |       |       | 8                                        |       | 678                                       |       | 2,889                                    |       |
| Income (loss)  from continuing operations before minority interest, gain on sale and  discontinued operations                                                         |       | 12,410                                    |       | 33,561                                      |       |       | (11,958                                  | )          | (1,602                                    | )          | 5,292                                    |       |
| Gain on sale of  real estate                                                                                                                                          |       | **—**                                |       | **—**                                  |       |       | **—**                               |       | **—**                                |       | 35,393                                   |       |
| Minority  interest in other partnerships                                                                                                                              |       | (2,558                                    | )          | (6,725                                      | )          |       | (1,665                                   | )          | (2,904                                    | )          | (10,935                                  | )          |
| Income (loss)  from continuing operations                                                                                                                             |       | 9,852                                     |       | 26,836                                      |       |       | (13,623                                  | )          | (4,506                                    | )          | 29,750                                   |       |
| Income from  discontinued operations, net                                                                                                                             |       | **—**                                |       | **—**                                  |       |       | 2,520                                    |       | 13,236                                    |       | 49,037                                   |       |
| Gain on sale of  real estate from discontinued operations                                                                                                             |       | **—**                                |       | **—**                                  |       |       | **—**                               |       | 757                                       |       | 10,275                                   |       |
| Net income  (loss) available to common unitholders                                                                                                                    |       | $                                         | 9,852      |                                        | $          | 26,836     |                                     |       | $                                         | (11,103    | )                                        | $          | 9,487 |   | $ | 89,062 |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

 

4

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**Reckson Operating Partnership,L.P.**

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited, and amounts in thousands)**

 

| ** **                                                                         | ** ** | **Nine  months Ended   September 30,** | ** ** | **Nine  months Ended   September 30,** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                         | ** ** | **2007**                               | ** ** | **2006**                               | ** ** |
| ** **                                                                         | ** ** | **(Successor)**                        | ** ** | **(Predecessor)**                      | ** ** |
| **Operating  Activities**                                                          | ** ** | ** **                             | ** ** | ** **                             | ** ** |
| Net income                                                                         |       | $                                      | 15,733     |                                   | $          | 89,062 |   |
| Adjustment to  reconcile net income to net cash provided by operating activities:  |       |                                   |       |                                   |       |
| Non-cash  adjustments related to income from discontinued operations               |       | 4,032                                  |       | 45,024                                 |       |
| Depreciation and  amortization                                                     |       | 57,430                                 |       | 61,055                                 |       |
| Gain on sale of  real estate                                                       |       | **—**                             |       | (45,747                                | )          |
| Equity in net  income from unconsolidated joint venture                            |       | (895                                   | )          | (1,636                                 | )          |
| Distributions of  cumulative earnings from unconsolidated joint venture            |       | 895                                    |       | **—**                             |       |
| Sale of option  to acquire joint venture interest                                  |       | **—**                             |       | (9,016                                 | )          |
| Minority  interest in other partnerships                                           |       | 8,390                                  |       | 10,935                                 |       |
| Deferred rents  receivable                                                         |       | (15,301                                | )          | (13,342                                | )          |
| Other non-cash  adjustments                                                        |       | 4,769                                  |       | 940                                    |       |
| Changes in  operating assets and liabilities:                                      |       |                                   |       |                                   |       |
| Restricted cash  — operations                                                 |       | 11,533                                 |       | (5,302                                 | )          |
| Tenant and other  receivables                                                      |       | 1,675                                  |       | 2,386                                  |       |
| Deferred lease  costs                                                              |       | (2,055                                 | )          | (15,996                                | )          |
| Other assets                                                                       |       | 91,703                                 |       | 1,162                                  |       |
| Accounts  payable, accrued expenses and other liabilities                          |       | (96,013                                | )          | (21,617                                | )          |
| Net cash  provided by operating activities                                         |       | 81,896                                 |       | 97,908                                 |       |
| **Investing  Activities**                                                          |       |                                   |       |                                   |       |
| Additions to  land, buildings and improvements                                     |       | (25,953                                | )          | (92,814                                | )          |
| Distributions in  excess of cumulative earnings from unconsolidated joint ventures |       | 8,182                                  |       | 3,551                                  |       |
| Proceeds from  disposition of real estate/ partial interest in property            |       | **—**                             |       | 193,500                                |       |
| Proceeds from  the Asset Sale                                                      |       | 1,978,764                              |       | **—**                             |       |
| Structured  finance and other investments net of repayments/participations         |       | 32,582                                 |       | (21,740                                | )          |
| Net cash  provided by investing activities                                         |       | 1,993,575                              |       | 82,497                                 |       |
| **Financing  Activities**                                                          |       |                                   |       |                                   |       |
| Repayments of  mortgage notes payable                                              |       | (185,778                               | )          | (120,712                               | )          |
| Proceeds from  revolving credit facilities, term loans and unsecured notes         |       | 12,000                                 |       | 679,819                                |       |
| Repayments of  revolving credit facilities, term loans and unsecured notes         |       | (481,000                               | )          | (621,000                               | )          |
| Contributions                                                                      |       | 305,773                                |       | 2,677                                  |       |
| Minority  interest in other partnerships — distributions                      |       | (13,686                                | )          | (12,950                                | )          |
| Minority  interest in other partnerships — contributions                      |       | **—**                             |       | 1,878                                  |       |
| Other financing  activities                                                        |       | **—**                             |       | (830                                   | )          |
| Distributions                                                                      |       | (1,753,668                             | )          | (110,383                               | )          |
| Net cash used in  financing activities                                             |       | (2,116,359                             | )          | (181,501                               | )          |
| Net decrease in  cash and cash equivalents                                         |       | (40,888                                | )          | (1,096                                 | )          |
| Cash and cash  equivalents at beginning of period                                  |       | 51,192                                 |       | 17,468                                 |       |
| Cash and cash  equivalents at end of period                                        |       | $                                      | 10,304     |                                   | $          | 16,372 |   |

 

Theaccompanying notes are an integral part of these financial statements.

** **

5

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** **

**Reckson Operating Partnership, L.P.**

**Notes to Condensed Consolidated FinancialStatements**

**(Unaudited)**

**September 30, 2007**

 

**1.  Organization and Basis of Presentation**

 

**Reckson Operating Partnership, L.P., or ROP, commencedoperations on June 2, 1995.  RecksonAssociates Realty Corp., or RARC, is the sole general partner of ROP.  RARC is a wholly-owned subsidiary of SL GreenRealty Corp., or SL Green.  The solelimited partner of ROP is SL Green Operating Partnership, L.P., or theoperating partnership.**

** **

**ROP is engaged in the ownership, management, operation anddevelopment of commercial real estate properties, principally office propertiesand also owns land for future development located in the New York City,Westchester and Connecticut, which collectively is also known as the GreaterNew York Area.  At September 30, 2007,our inventory of development parcels aggregated approximately 81 acres of landin 4 separate parcels on which we can, based on estimates at September 30,2007, develop approximately 1.1 million square feet of office space and inwhich we had invested approximately $64.0 million.  In addition, ROP also held approximately$108.3 million of structured finance investments.**

** **

SLGreen and the operating partnership were formed in June 1997.  SL Green has qualified, and expects toqualify in the current fiscal year as a real estate investment trust, or REIT,under the Internal Revenue Code of 1986, as amended, or the Code, and operatesas a self-administered, self-managed REIT. A REIT is a legal entity that holds real estate interests and, throughpayments of dividends to stockholders, is permitted to reduce or avoid thepayment of Federal income taxes at the corporate level.  Unless the context requires otherwise, allreferences to “we,” “our” and “us” means ROP and all entities owned orcontrolled by ROP.

 

On January 25, 2007, SLGreen completed the acquisition of all of the outstanding shares of commonstock of RARC pursuant to the terms of the Agreement and Plan of Merger, datedas of August 3, 2006, as amended, the Merger Agreement, among SL Green, WyomingAcquisition Corp., or Wyoming, Wyoming Acquisition GP LLC, Wyoming AcquisitionPartnership LP, RARC and ROP. Pursuant to the terms of the Merger Agreement,each of the issued and outstanding shares of common stock of RARC was convertedinto (i) $31.68 in cash, (ii) 0.10387 of a share of the common stock, par value$0.01 per share, of SL Green and (iii) a pro-rated dividend in an amount equalto approximately $0.0977 in cash. SL Green also assumed an aggregate ofapproximately $226.3 million of ROP mortgage debt, approximately $287.5 millionof ROP convertible public debt and approximately $967.8 million of ROP publicunsecured notes.  This transaction isreferred to herein as the Merger.

On January 25, 2007, SLGreen completed the sale, or Asset Sale, of certain assets of ROP to aninvestment group led by certain of RARC’s former executive management, or theBuyer, for a total consideration of approximately $2.0 billion. SL Green causedROP to transfer the following assets to the Buyer in the Asset Sale: (1)certain real property assets and/or entities owning such real property assets,in either case, of ROP and 100% of certain loans secured by real property, allof which are located in Long Island, New York; (2) certain real property assetsand/or entities owning such real property assets, in either case, of ROPlocated in White Plains and Harrison, New York; (3) all of the real propertyassets and/or entities owning 100% of the interests in such real propertyassets, in either case, of ROP located in New Jersey; (4) the entity owning a25% interest in Reckson Australia Operating Company LLC, RARC’s formerAustralian management company (including its former Australian licensedresponsible entity), and other related entities, and ROP and ROP subsidiaries’rights to and interests in, all related contracts and assets, including,without limitation, property management and leasing, construction services andasset management contracts and services contracts; (5) the direct or indirectinterest of RARC in Reckson Asset Partners, LLC, an affiliate of RSVP and allof ROP’s rights in and to certain loans made by ROP to Frontline Capital Group,the bankrupt parent of RSVP, and other related entities, which will bepurchased by a 50/50 joint venture with an affiliate of SL Green; (6) a 50%participation interest in certain loans made by a subsidiary of ROP that aresecured by four real property assets located in Long Island, New York; and (7)100% of certain loans secured by real property located in White Plains and NewRochelle, New York.

 

As a result of thesubstantial change in ownership from the Merger, SL Green has recorded theMerger in accordance with the provisions of Emerging Issues Task Force TopicD-97, “Push-Down Accounting.”  The effectof applying “push-down accounting” was to restate the assets and liabilities ofROP to fair value in the same manner as ROP’s assets and liabilities wererecorded by SL Green subsequent to the Merger (See Note 2).

 

** **

** **

**6**

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** **

**Reckson Operating Partnership, L.P.**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

**September 30, 2007**

**(Continued)**

 

As of September 30, 2007, we owned the following interests incommercial office properties primarily located in midtown Manhattan, a boroughof New York City, or Manhattan, as well as Long Island City, Westchester Countyand Connecticut, which are collectively known as the Suburban assets:

 

| **Location** | ** ** | **Ownership**           | ** ** | **Number of Properties** | ** ** | **Square Feet** | ** ** | **Weighted Average  Occupancy****(1)** | ** ** |
|--------------|------------|-------------------------|------------|--------------------------|------------|-----------------|------------|----------------------------------------|------------|
| Manhattan    |       | Consolidated properties |       | 4                        |       | 3,770,000       |       | 95.4                                   | %          |
|         |       |                    |       |                     |       |            |       |                                   |       |
| Suburban     |       | Consolidated properties |       | 19                       |       | 2,889,900       |       | 90.1                                   | %          |
|         |       |                    |       |                     |       |            |       |                                   |       |
| Suburban     |       | Unconsolidated property |       | 1                        |       | 1,402,000       |       | 100.0                                  | %          |
|         |       |                    |       | 24                       |       | 8,061,900       |       |                                   |       |

----

(1)  The weighted average occupancy representsthe total leased square feet divided by total available square feet.

 

#### **Basisof Quarterly Presentation**

The accompanying consolidated financial statements include the consolidatedfinancial position of ROP and the Service Companies (as defined below) atSeptember 30, 2007 (Successor) and December 31, 2006 (Predecessor), theconsolidated results of their operations for the three months ended September30, 2007 (Successor) and for each of the periods January 26, 2007 to September30, 2007 (Successor), January 1, 2007 to January 25, 2007 (Predecessor) and thethree and nine months ended September 30, 2006 (Predecessor) and their cashflows for the period January 1, 2007 to January 25, 2007 (Predecessor) andJanuary 26, 2007 to September 30, 2007 (Successor) (presented on a combinedbasis for the nine months ended September 30, 2007) and for the nine monthsended September 30, 2006 (Predecessor). ROP’s investments in majority-owned and controlled real estate jointventures are reflected in the accompanying financial statements on aconsolidated basis with a reduction for the minority partners’ interests.  ROP investments in real estate jointventures, where it owns less than a controlling interest, are reflected in theaccompanying financial statements on the equity method of accounting.  The Service Companies, which providemanagement, development and construction services to ROP and to third parties,include Reckson Management Group, Inc., RANY Management Group, Inc., RecksonConstruction & Development LLC and Reckson Construction Group New York,Inc. (collectively, the “Service Companies”). All significant intercompany balances and transactions have beeneliminated in the consolidated financial statements.

 

Theaccompanying unaudited condensed consolidated financial statements have beenprepared in accordance with accounting principles generally accepted in theUnited States for interim financial information and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notesrequired by accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for fair presentation have been included.  The 2007 operating results for the periodspresented are not necessarily indicative of the results that may be expectedfor the year ending December 31, 2007. These financial statements should be read in conjunction with thefinancial statements and accompanying notes included in our annual report onForm 10-K for the year ended December 31, 2006.

 

Thebalance sheet at December 31, 2006 has been derived from the audited financialstatements at that date but does not include all the information and footnotesrequired by accounting principles generally accepted in the United States forcomplete financial statements.

 

Thefinancial position as of December 31, 2006 and the results of operations forthe period from January 1, 2007 to January 25, 2007 (Predecessor) and for thethree and nine months ended September 30, 2006 (Predecessor), have beenrecorded based on the historical values of the assets and liabilities of ROPprior to the Merger.  The financialposition as of September 30, 2007 (Successor) and theresults of operations for the three months ended September 30, 2007 (Successor)and the period from January 26, 2007 toSeptember 30, 2007 (Successor) have been recorded based on the fair valuesassigned to the assets and liabilities of ROP in connection with theMerger.  As such, the informationpresented may not be comparable.

 

**2.  Significant AccountingPolicies**

 

**Principlesof Consolidation**

The consolidatedfinancial statements include our accounts and those of our subsidiaries, whichare wholly-owned or controlled by us or entities which are variable interestentities in which we are the primary beneficiary under the Financial AccountingStandards Board, or FASB, Interpretation No. 46R, or FIN 46R, “Consolidation ofVariable Interest Entities - an Interpretation of ARB No. 51.” Entities whichwe do not control and entities which are variable interest entities, or VIEs,but where we are not the primary beneficiary are accounted for under the equitymethod.  We consolidate VIEs in which weare determined to be the primary beneficiary. The interest that we do not own is included in Minority Interest inOther Partnerships on the balance sheet. All

 

 

7

----

 

**RecksonOperating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements**

**(Unaudited)**

**September 30, 2007**

**(Continued)**

 

significant intercompanybalances and transactions have been eliminated.

 

In June 2005, the FASBratified the consensus in EITF Issue No. 04-5, “Determining Whether a GeneralPartner, or the General Partners as a Group, Controls a Limited Partnership orSimilar Entity When the Limited Partners Have Certain Rights,” which providesguidance in determining whether a general partner controls a limitedpartnership.  EITF 04-5 states that thegeneral partner in a limited partnership is presumed to control that limitedpartnership.  The presumption may beovercome if the limited partners have either (1) the substantive ability todissolve the limited partnership or otherwise remove the general partnerwithout cause or (2) substantive participating rights, which provide thelimited partners with the ability to effectively participate in significantdecisions that would be expected to be made in the ordinary course of thelimited partnership and thereby preclude the general partner from exercisingunilateral control over the partnership. Our adoption of EITF 04-5 did not have any effect on net income orpartners’ capital.

 

**Investmentin Commercial Real Estate Properties**

Inaccordance with SFAS No. 141, “Business Combinations,” we allocate the purchaseprice of real estate to land and building and, if determined to be material, intangibles,such as the value of above-below-and at-market leases and origination costsassociated with the in-place leases.  Wedepreciate the amount allocated to building and other intangible assets overtheir estimated useful lives, which generally range from three to 40years.  The values of theabove-and-below-market leases are amortized and recorded as either an increase(in the case of below-market leases) or a decrease (in the case of above-marketleases) to rental income over the remaining term of the associated lease.  The value associated with in-place leases andtenant relationships are amortized over the expected term of the relationship,which includes an estimated probability of the lease renewal, and its estimatedterm.  If a tenant vacates its spaceprior to the contractual termination of the lease and no rental payments arebeing made on the lease, any unamortized balance of the related intangible willbe written off.  The tenant improvementsand origination costs are amortized as an expense over the remaining life ofthe lease (or charged against earnings if the lease is terminated prior to itscontractual expiration date).  We assessfair value of the leases based on estimated cash flow projections that utilizeappropriate discount and capitalization rates and available marketinformation.  Estimates of future cashflows are based on a number of factors including the historical operatingresults, known trends, and market/economic conditions that may affect theproperty.

 

SLGreen has not yet obtained all the information necessary to finalize itsestimates to complete the purchase price allocations in accordance with SFASNo. 141 related to our assets in connection with the Merger.  The purchase price allocations will befinalized once the information we identified has been received, which shouldnot be longer than one year from the date of acquisition.

 

**FiniteLife Joint Venture Agreements**

In May 2003, the FASB issued SFAS No. 150, or SFAS No. 150, “Accountingfor Certain Financial Instruments with Characteristics of both Liabilities andEquity.” SFAS No. 150 establishes standards for classifying and measuringas liabilities certain financial instruments that embody obligations of theissuer and have characteristics of both liabilities and equity. We adoptedStatement No. 150 on July 1, 2003, which had no effect on ourfinancial statements. SFAS No. 150 also requires the disclosure of theestimated settlement values of non-controlling interests in joint ventures thathave finite lives.  Two of ourconsolidated joint ventures are subject to finite life joint ventureagreements. In accordance with SFAS No. 150, we have estimated the settlementvalue of these non-controlling interests at September 30, 2007 andDecember 31, 2006 to be approximately $94.2 million and $175.0 million,respectively. The carrying value of these non-controlling interests, which isincluded in minority interests in other partnerships on our consolidatedbalance sheets, was approximately $76.6 million and $134.3 million at September30, 2007 and December 31, 2006, respectively.

 

**IncomeTaxes**

No provision has been made for income taxes in the accompanyingconsolidated financial statements since such taxes, if any, are theresponsibility of the individual partners.

 

**EarningsPer Unit**

Earnings per unit was notcomputed in 2007 as there were no outstanding common units at September 30,2007.  Basic earnings per unit, or EPU,excludes dilution and is computed by dividing net income available to commonunitholders by the weighted average number of common units outstanding duringthe period.  Basic EPU was $0.11 and$1.04 for the three and nine months ended September 30, 2006, respectively.

 

** **

** **

**8**

----

** **

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements**

**(Unaudited)**

**September30, 2007**

**(Continued)**

 

**Use ofEstimates**

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States requires management to make estimates andassumptions that affect the amounts reported in the financial statements andaccompanying notes. Actual results could differ from those estimates.

 

**Concentrations of CreditRisk**

Financialinstruments that potentially subject us to concentrations of credit riskconsist primarily of cash investments, structured finance investments andaccounts receivable.  We place our cashinvestments in excess of insured amounts with high quality financialinstitutions.  The collateral securingour structured finance investments is primarily located in the Greater New YorkArea. See Note 4. We perform ongoing credit evaluations of our tenants andrequire certain tenants to provide security deposits or letters of credit.  Though these security deposits and letters ofcredit are insufficient to meet the total value of a tenant’s lease obligation,they are a measure of good faith and a source of funds to offset the economiccosts associated with lost rent and the costs associated with re-tenanting thespace.  Although the properties in ourreal estate portfolio are primarily located in Manhattan, we also have Suburbanproperties located in Westchester County, Connecticut and Long IslandCity.  The tenants located in our buildingsoperate in various industries.  Otherthan two tenants who contributed approximately 7.3% and 7.0% of our annualizedrent, no other tenant in the portfolio contributed more than 3.7% of ourannualized rent, including our share of joint venture annualized rent, atSeptember 30, 2007.  Approximately 15%,16%, 23% and 12% of our annualized rent, including our share of joint ventureannualized rent, was attributable to 810 Seventh Avenue, 919 Third Avenue, 1185Avenue of the Americas and 1350 Avenue of the Americas, respectively, for thequarter ended September 30, 2007.  Fourborrowers accounted for more than 10.0% of the revenue earned on structuredfinance investments during the three months ended September 30, 2007.

 

**Reclassification**

Certain prior yearbalances have been reclassified to conform with the current year presentation.

 

**New Accounting Pronouncements**

In July 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertaintyin Income Taxes,” or FIN 48. Thisinterpretation, among other things, creates a two-step approach for evaluatinguncertain tax positions. Recognition (step one) occurs when an enterpriseconcludes that a tax position, based solely on its technical merits, ismore-likely-than-not to be sustained upon examination. Measurement (step two)determines the amount of benefit that more-likely-than-not will be realizedupon settlement. Derecognition of a tax position that was previously recognizedwould occur when a company subsequently determines that a tax position nolonger meets the more-likely-than-not threshold of being sustained. FIN 48specifically prohibits the use of a valuation allowance as a substitute forderecognition of tax positions, and it has expanded disclosurerequirements.  We adopted FIN 48 onJanuary 1, 2007.  The adoption had noimpact on our consolidated financial statements.

 

**3.  Property Dispositions**

 

OnJanuary 25, 2007, we sold the interests in various properties as part of theAsset Sale for approximately $2.0 billion, excluding closing costs.  Due to the application of “push-downaccounting,” no gain on sale was recognized. Simultaneous with the Merger, the properties located at 120 West 45thStreet, NY, and Landmark Square 1-6, Connecticut, were assigned by ROP to theoperating partnership.

 

AtSeptember 30, 2007, discontinued operations included the results of operationsof real estate assets sold prior to that date. This included the assets sold as part of the Asset Sale.

 

** **

**9**

----

** **

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements (Continued)**

**(Unaudited)**

**September 30, 2007**

 

Thefollowing table summarizes income from discontinued operations (net of minorityinterest) and the related realized gain on sale of discontinued operations (netof minority interest) for the period January 1, 2007 to January 25, 2007(Predecessor) and the three and nine months ended September 30, 2006(Predecessor) (in thousands).  No assetswere considered as held for sale during the Successor period.

 
| ** **                                                     | ** ** | **Period  January 1  to January 25,** | ** ** | **Three  months  Ended  September 30,** | ** ** | **Nine  months  Ended  September 30,** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                                                     | ** ** | **2007**                              | ** ** | **2006**                                | ** ** | **2006**                               | ** ** |
|                                                           |       | **(Predecessor**                      | **)**      | **(Predecessor**                        | **)**      | **(Predecessor**                       | **)**      |
| Revenues                                                       |       |                                  |       |                                    |       |                                   |       |
| Rental revenue                                                 | ** ** | **$**                                 | **14,344** | ** **                              | **$**      | 51,660                                 |       | $ | 164,393 |   |
| Escalation and  reimbursement revenues                         | ** ** | **346**                               |       | 7,176                                   |       | 19,617                                 |       |
| Investment and  other income                                   | ** ** | **—**                            |       | 370                                     |       | 1,548                                  |       |
| Total revenues                                                 | ** ** | **14,690**                            |       | 59,206                                  |       | 185,558                                |       |
| Operating  expenses                                            | ** ** | **3,731**                             |       | 16,273                                  |       | 43,553                                 |       |
| Real estate  taxes                                             | ** ** | **2,658**                             |       | 10,421                                  |       | 30,846                                 |       |
| Ground rent                                                    | ** ** | **134**                               |       | 577                                     |       | 1,725                                  |       |
| Interest                                                       | ** ** | **465**                               |       | 2,880                                   |       | 8,539                                  |       |
| Marketing,  general and administrative                         | ** ** | **1,150**                             |       | 2,293                                   |       | 6,834                                  |       |
| Depreciation and  amortization                                 | ** ** | **3,524**                             |       | 13,224                                  |       | 44,242                                 |       |
| Total expenses                                                 | ** ** | **11,662**                            |       | 45,668                                  |       | 135,739                                |       |
| Income from  discontinued operations                           | ** ** | **3,028**                             |       | 13,538                                  |       | 49,819                                 |       |
| Gain on  disposition of discontinued operations                | ** ** | **—**                            |       | 757                                     |       | 10,275                                 |       |
| Minority  interest in other partnerships                       | ** ** | **(508**                              | )          | (302                                    | )          | (782                                   | )          |
| Income from  discontinued operations, net of minority interest | ** ** | **$**                                 | **2,520**  | ** **                              | ** ** | **13,993**                             |       |   | 59,312 |   |

 

**4.  Structured Finance Investments**

 

Asof September 30, 2007 (Successor) and December 31, 2006 (Predecessor), we heldthe following structured finance investments, with an aggregate weightedaverage current yield of approximately 12.5% (in thousands):

 
| **Loan**

**Type**      | ** ** | **Gross  Investment** | ** ** | **Senior  Financing** | ** ** | **2007  Principal  Outstanding** | ** ** | **2006  Principal  Outstanding** | ** **  | **Initial  Maturity  Date** | ** ** |
|-------------------------|------------|-----------------------|------------|-----------------------|------------|----------------------------------|------------|----------------------------------|-------------|-----------------------------|------------|
| Mezzanine Loan (1)  (2) |       | $                     | 55,250     |                  | $          | 225,000                          | ** ** | **$**                            | **59,478**  |                        | $          | 57,990 |   | December 2020 |   |
| Mezzanine Loan (1)  (3) |       | 10,000                |       | 4,500                 | ** ** | **10,000**                       |       | 10,000                           |        | October 2007                |       |
| Mezzanine Loan  (1) (4) |       | **—**            |       | **—**            | ** ** | **—**                       |       | 30,000                           |        | **—**                  |       |
| Mezzanine Loan (1)  (2) |       | 25,000                |       | 314,830               | ** ** | **27,398**                       |       | 26,389                           |        | November 2009               |       |
| Other Loan (1)          |       | 1,000                 |       | **—**            | ** ** | **1,000**                        |       | 1,000                            |        | January 2010                |       |
| Other Loan (1)          |       | 500                   |       | **—**            | ** ** | **500**                          |       | 500                              |        | December 2009               |       |
| Mezzanine Loan (1)      |       | 14,189                |       | 15,661                | ** ** | **9,938**                        |       | 14,188                           |        | April 2008                  |       |
| Mezzanine Loans (5)     |       | **—**            |       | **—**            | ** ** | **—**                       |       | 58,387                           |        | **—**                  |       |
|                    |       | $                     | 105,939    |                  | $          | 559,991                          | ** ** | **$**                            | **108,314** |                        | $          | 198,454 |   |   |   |
|                         |            |                       |            |                       |            |                                  |            |                                  |             |                             |            |  |  |  |  |  |  |  |

----

| (1) |   | This is a fixed rate  loan.                                                                                         |
|-----|--------|---------------------------------------------------------------------------------------------------------------------|
| (2) |   | The difference between  the pay and accrual rates is included as an addition to the principal balance  outstanding. |
| (3) |   | This loan was redeemed  in October 2007.                                                                            |
| (4) |   | This loan was redeemed  in May 2007.                                                                                |
| (5) |   | These loans have been  aggregated and were sold as part of the Asset Sale.                                          |

 

AtSeptember 30, 2007 and December 31, 2006, all loans were performing inaccordance with the terms of the loan agreements.

 

**5. Investments in Unconsolidated Joint Venture**

 

In May 2005, we acquired a 1.4 million square foot, 50-story, Class Aoffice tower located at One Court Square, Long Island City, NY, forapproximately $471.0 million, inclusive of transfer taxes and transactionalcosts.  One Court Square is 100% leasedto the seller, Citibank N.A., under a 15-year net lease.  The lease contains partial cancellationoptions effective during 2011 and 2012 for up to 20% of the leased space and in2014 and 2015 for up to an additional 20% of the originally leased space,subject to notice and the payment of early termination penalties. On November30, 2005, we sold a 70% joint venture interest in One Court Square to certaininstitutional funds advised by JPMorgan Investment Management, or the JPMInvestors, for approximately $329.7 million, including

 

 

10

----

 

**Reckson Operating Partnership,L.P.**

**Notes toCondensed Consolidated Financial Statements (Continued)**

**(Unaudited)**

**September30, 2007**

 

the assumption of $220.5 million of the property’s mortgage debt.   The operating agreement of the Court SquareJV requires approvals from members on certain decisions including annualbudgets, sale of the property, refinancing of the property’s mortgage debt andmaterial renovations to the property. In addition, after September 20, 2009 themembers each have the right to recommend the sale of the property, subject tothe terms of the mortgage debt, and to dissolve the Court Square JV. We haveevaluated the impact of FIN 46R on our accounting for the Court Square JV andhave concluded that the Court Square JV is not a VIE.  We account for the Court Square JV under theequity method of accounting. We have also evaluated, under EITF 04-5, that theJPM Investors have substantive participating rights in the ordinary course ofthe Court Square JV’s business.

 

**6.  Mortgage Notes Payable**

 

The first mortgage notespayable collateralized by the respective properties and assignment of leases atSeptember 30, 2007 and December 31, 2006, respectively, were as follows (inthousands):

 
| **Property**                                       | ** ** | ** ** | ** ** | **Interest  Rate**** ****(1)** | ** ** | **Maturity Date** | ** ** | **2007**   | ** **  | **2006** | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------------------------------|------------|-------------------|------------|------------|-------------|----------|------------|
| 919 Third Avenue  New York, NY (2)                 |       |       |       | 6.87                                | %          | 7/2018            |       | **$**      | **232,835** |     | $          | 235,113 |   |
| 100 Summit Road,  Westchester, NY (3)              |       |       |       | **—**                          | ** ** | **—**        |       | **—** |        | 12,788   |       |
| 333 Earle Ovington Blvd., Mitchel Field, NY (4)(7) |       | **—** |       | **—**                          | ** ** | **—**        |       | 49,377     |        |
| 810 Seventh Avenue, New York, NY (5)(7)            |       | **—** |       | **—**                          | ** ** | **—**        |       | 75,913     |        |
| 275 Broadhollow Road, Melville, NY(5)(7)           |       | **—** |       | **—**                          | ** ** | **—**        |       | 14,774     |        |
| 90 Merrick Avenue, Merrick, NY(5)(7)               |       | **—** |       | **—**                          | ** ** | **—**        |       | 18,123     |        |
| 711 Westchester Avenue, White Plains, NY (6)(6)    |       | **—** |       | **—**                          | ** ** | **—**        |       | 12,525     |        |
|                                               |       |       |       |                                |       |              | ** ** | ** ** |        |     |       |
| Total mortgage  notes payable                      | ** ** | ** ** |       |                                |       |              |       | **$**      | **232,835** |     | $          | 418,613 |   |

----

| (1) |   | Effective interest rate for the three months ended  September 30, 2007.                                                                                                                           |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | We own a 51% interest in the joint venture that is  the borrower on this loan. This loan is non-recourse to us. We consolidate  this joint venture.                                               |
| (3) |   | This mortgage was repaid in May 2007 upon maturity.                                                                                                                                               |
| (4) |   | At December 31, 2006, we had a 60% general  partnership interest in this property and our proportionate share of the  aggregate principal amount of the mortgage was approximately $29.6 million. |
| (5) |   | These mortgages were cross-collateralized.                                                                                                                                                        |
| (6) |   | This mortgage note was interest only through January  2007 and then amortized over a 30-year period.                                                                                              |
| (7) |   | These mortgages were satisfied or assigned in  connection with the Merger and the Asset Sale.                                                                                                     |

 

AtSeptember 30, 2007, the gross book value of the property collateralizing themortgage note was approximately $1.1 billion.

 

Forthe three months ended September 30, 2007 (Successor), the periods January 26,2007 to September 30, 2007 (Successor) and January 1, 2007 to January 25, 2007(Predecessor), and the three and nine months ended September 30, 2006(Predecessor), we incurred approximately $16.0 million, $48.5 million, $6.9million, $25.7 million and $77.4 million of interest expense, inclusive ofamortization of deferred financing costs, respectively, excluding interestwhich was capitalized of approximately $1.6 million, $4.5 million, none, $2.9million and $9.2 million, respectively.

 

At September 30, 2007, our unconsolidated joint venture had totalindebtedness of approximately $315.0 million with a fixed interest rate ofapproximately 4.91%.  The mortgagematures in June 2015.  Our aggregatepro-rata share of the unconsolidated joint venture debt was approximately $94.5million.

 

**7.  Corporate Indebtedness**

 

**Unsecured Revolving CreditFacility**

As of December 31, 2006, we maintained a $500 million unsecuredrevolving credit facility, or the Credit Facility.  The Credit Facility was scheduled to maturein August 2008. Borrowings under the Credit Facility accrued interest at a rateof LIBOR plus 80 basis points and the Credit Facility carried a facility fee of20 basis points per annum.  At December31, 2006, the outstanding borrowings under the Credit Facility aggregated$269.0 million, and carried a weighted average interest rate of 6.14% perannum.

 

During January 2007, we incurred a net increase of $12.0 million inborrowings under the Credit Facility primarily for costs incurred

** **

** **

** **

**11**

----

** **

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements, (Continued)**

**(Unaudited)**

**September 30, 2007**

 

or to be incurred pursuant to the Merger.  Upon the closing of the Merger on January 25,2007, the aggregate balance of $281.0 million outstanding under the CreditFacility, together with accrued and unpaid interest, was repaid and the CreditFacility was terminated.

 

**Senior Unsecured Notes**

As of September 30, 2007,we had outstanding approximately $1.057 billion (net of unamortized issuancediscounts) of senior unsecured notes.

 

The following table setsforth our senior unsecured notes and other related disclosures by scheduledmaturity date (in thousands):

 
| **Issuance**      | ** ** | **Face  Amount** | ** ** | **Coupon  Rate** | ** ** | **Term  (in Years)** | ** ** | **Maturity**     | ** **     |
|-------------------|------------|------------------|------------|------------------|------------|----------------------|------------|------------------|----------------|
| March 26, 1999    |       | $                | 200,000    |             | 7.75       | %                    | 10         |             | March 15, 2009 |   |
| January 22, 2004  |       | 150,000          |       | 5.15             | %          | 7                    |       | January 15, 2011 |           |
| August 13, 2004   |       | 150,000          |       | 5.875            | %          | 10                   |       | August 15, 2014  |           |
| March 31, 2006    |       | 275,000          |       | 6.00             | %          | 10                   |       | March 31, 2016   |           |
| June 27, 2005 (1) |       | 287,500          |       | 4.00             | %          | 20                   |       | June 15, 2025    |           |
|              | ** ** | **$**            | 1,062,500  | ** **       | ** ** | ** **           | ** ** | ** **       | ** **     | ** ** |

----

| (1) |   | Exchangeable  senior debentures which are callable after June 17, 2010 at 100% of par. In  addition, the debentures can be put to us, at the option of the holder at par  plus accrued and unpaid interest, on June 15, 2010, 2015 and 2020 and upon  the occurrence of certain change of control transactions. As a result of the  Merger, the adjusted exchange rate for the debentures is 7.7461 shares of SL  Green common stock per $1,000 of principal amount of debentures and the  adjusted reference dividend for the debentures is $1.3491. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

On April 27, 2007, the$50.0 million 6.0% unsecured notes scheduled to mature in June 2007 and the$150.0 million 7.20% unsecured notes scheduled to mature in August 2007,assumed as part of the Merger, were redeemed.

 

Intereston the senior unsecured notes is payable semi-annually with principal andunpaid interest due on the scheduled maturity dates. In addition, certain ofthe senior unsecured notes were issued at discounts aggregating approximately$6.1 million.  Such discounts are beingamortized to interest expense over the term of the senior unsecured notes towhich they relate.  Through September 30,2007, approximately $0.5 million of the aggregate discounts have beenamortized.

 

**RestrictiveCovenants**

Theterms of the senior unsecured notes include certain restrictions and covenantswhich limit, among other things, the incurrence of additional indebtedness andliens, and which require compliance with financial ratios relating to theminimum amount of debt service coverage, the maximum amount of consolidatedunsecured and secured indebtedness and the minimum amount of unencumberedassets.  As of September 30, 2007 andDecember 31, 2006, we were in compliance with all such covenants.

#### ** **

**PrincipalMaturities**

 

Combined aggregateprincipal maturities of mortgages and notes payable, senior unsecured notes andour share of joint venture debt as of September 30, 2007, excluding extensionoptions, were as follows (in thousands):

** **
| ** **     | ** ** | **Scheduled  Amortization** | ** ** | **Principal  Repayments** | ** ** | **Unsecured  Notes** | ** ** | **Total** | ** **    | **Joint  Venture Debt** | ** ** |
|----------------|------------|-----------------------------|------------|---------------------------|------------|----------------------|------------|-----------|---------------|-------------------------|------------|
| **2007**       |       | $                           | 1,156      |                      | $          | **—**           |       | $         | **—**    |                    | $          | 1,156 |   | **—** |   |
| **2008**       |       | 3,634                       |       | **—**                |       | **—**           |       | 3,634     |          | **—**              |       |
| **2009**       |       | 3,942                       |       | **—**                |       | 200,000              |       | 203,942   |          | **—**              |       |
| **2010**       |       | 4,225                       |       | **—**                |       | **—**           |       | 4,225     |          | **—**              |       |
| **2011**       |       | 3,222                       |       | 216,656                   |       | 150,000              |       | 369,878   |          | **—**              |       |
| **Thereafter** |       | **—**                  |       | **—**                |       | 706,841              |       | 706,841   |          | 94,500                  |       |
| ** **     | ** ** | **$**                       | **16,179** | ** **                | **$**      | **216,656**          | ** ** | **$**     | **1,056,841** | ** **              | **$**      | **1,289,676** | ** ** | **$** | **94,500** | ** ** |
|                |            |                             |            |                           |            |                      |            |           |               |                         |            |  |  |  |  |  |  |

 

** **

**12**

----

** **

** **

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements (Continued)**

**(Unaudited)**

## **September30, 2007**

 

**8.****  Partners’ Capital**

 

Prior to the Merger, a Class A OP Unit and a share of common stock ofRARC had similar economic characteristics as they effectively shared equally inthe net income or loss and distributions of ROP.  As of January 25, 2007 and September 30,2007, all of our issued and outstanding Class A OP Units were owned by RARC orthe operating partnership.

 

As of December 31, 2006, we had issued and outstanding 1,200 preferredunits of limited partnership interest with a liquidation preference value of$1,000 per unit and a stated distribution rate of 7.0%, or Preferred Units,which was subject to reduction based upon terms of their initial issuance.  The terms of the Preferred Units provided forthis reduction in distribution rate in order to address the effect of certainmortgages with above market interest rates which were assumed by us inconnection with properties contributed to us in 1998.   As a result of the aforementioned reduction,no distributions were being made on the Preferred Units.  In connection with the Merger, the holder ofthe Preferred Units transferred the Preferred Units to the operatingpartnership in exchange for the issuance of 1,200 preferred units of limitedpartnership interest in the operating partnership with substantially similarterms as the Preferred Units.

 

**Net income per common partnership unit was determined byallocating net income after preferred distributions and minority partners’interest in consolidated partnerships income to the general and limitedpartners based on their weighted average distribution per common partnershipunits outstanding during the respective periods presented.**

** **

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

#### ** **

Prior to the Merger, RARC maintained a long term incentive program, orLTIP. With respect to the LTIP units and the restricted equity awards, RARCrecorded compensation expense which has been included in marketing, general andadministrative expenses on the accompanying consolidated statements ofoperations. As of December 31, 2006, RARC had accrued approximately $33.7million of compensation expense with respect to the special outperformancepool. These costs were included in accounts payable and accrued expenses on thebalance sheet at December 31, 2006. During January 2007, in connection with the Merger, RARC paid, in cash,approximately $35.5 million to the participants of the specialoutperformance pool of which $1.8 million was expensed during the periodJanuary 1, 2007 to January 25, 2007 (Predecessor).

 

On January 25, 2007, in connection with the Merger, certain formerexecutive officers of RARC waived approximately 443,000 of their LTIPUnits.  The remaining balance of LTIPUnits, regardless of their vesting status, were deemed earned.

 

**9.  Commitments and Contingencies**

 

We are not presently involvedin any material litigation nor, to our knowledge, is any material litigationthreatened against us or our properties, other than routine litigation arisingin the ordinary course of business. Management believes the costs, if any, incurred by us related to thislitigation will not materially affect our financial position, operating resultsor liquidity.

 

Our property located at810 7th Avenue, New York, NY is subject to certain air rights leaseagreements.  These lease agreements haveterms expiring in 2044 and 2048, including renewal options.

 

The following is aschedule of future minimum lease payments under noncancellable operatingleases with initial terms in excess of one year as of September 30, 2007 (inthousands):

 

| ** **                    | ** ** | **Air Rights** | ** ** | **Non-cancellable  operating leases** | ** ** |
|-------------------------------|------------|----------------|------------|---------------------------------------|------------|
|                          |       |           |       |                                  |       |
| 2007                          |       | $              | 7          |                                  | $          | 2,381 |   |
| 2008                          |       | 29             |       | 9,524                                 |       |
| 2009                          |       | 29             |       | 9,524                                 |       |
| 2010                          |       | 29             |       | 9,083                                 |       |
| 2011                          |       | 29             |       | 7,109                                 |       |
| Thereafter                    |       | 213            |       | 221,466                               |       |
| Total minimum  lease payments |       | $              | 336        | ** **                            | **$**      | 259,087 | ** ** |

 

** **

** **

**13**

----

** **

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements**

**(Unaudited)**

**September 30, 2007**

 

**10.  Environmental Matters**

 

Our management believesthat the properties are in compliance in all material respects with applicableFederal, state and local ordinances and regulations regarding environmentalissues.  Management is not aware of anyenvironmental liability that it believes would have a materially adverse impacton our financial position, results of operations or cash flows.  Management is unaware of any instances inwhich it would incur significant environmental cost if any of our propertieswere sold.

 

**11.  Segment Information**

 

We are engaged in owning,managing and leasing commercial office properties in Manhattan, WestchesterCounty, Connecticut and Long Island City and have two reportable segments, realestate and structured finance investments. We evaluate real estate performance and allocate resources based onearnings contribution to income from continuing operations.

 

Our real estate portfoliois primarily located in the geographical markets of Manhattan, WestchesterCounty, Connecticut and Long Island City. The primary sources of revenue are generated from tenant rents and escalationsand reimbursement revenue.  Real estateproperty operating expenses consist primarily of security, maintenance, utilitycosts, real estate taxes and ground rent expense (at certain applicableproperties).  See Note 4 for additionaldetails on our structured finance investments.

 

Selected results of operations for the three monthsended September 30, 2007 (Successor), the periods January 26, 2007 to September30, 2007 (Successor) and January 1, 2007 to January 25, 2007 (Predecessor) andthe three and nine months ended September 30, 2006 (Predecessor), and selectedasset information as of September 30, 2007 and December 31, 2006, regarding ouroperating segments are as follows (in thousands):

 

| ** **                                                                                                     | ** ** | **Real  Estate  Segment** | ** ** | **Structured  Finance  Segment** | ** ** | **Total  Company** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|----------------------------------|------------|--------------------|------------|
| Total revenues:                                                                                                |       |                      |       |                             |       |               |       |
| Three months  ended September 30, 2007 (Successor)                                                             |       | $                         | 78,876     |                             | $          | 4,487              |       | $ | 83,363 |   |
| Three months  ended September 30, 2006 (Predecessor)                                                           |       | 85,608                    |       | 5,983                            |       | 91,591             |       |
| January 26 to  September 30, 2007 (Successor)                                                                  |       | 212,998                   |       | 14,433                           |       | 227,431            |       |
| January 1 to  January 25, 2007 (Predecessor)                                                                   |       | 25,549                    |       | 1,201                            |       | 26,750             |       |
| Nine months  ended September 30, 2006 (Predecessor)                                                            |       | 259,670                   |       | 16,310                           |       | 275,980            |       |
|                                                                                                           |       |                      |       |                             |       |               |       |
| Income (loss)  from continuing operations before minority interest, gain on sale and  discontinued operations: |       |                      |       |                             |       |               |       |
| Three months  ended September 30, 2007 (Successor)                                                             |       | $                         | 9,604      |                             | $          | 2,806              |       | $ | 12,410 |   |
| Three months  ended September 30, 2006 (Predecessor)                                                           |       | (4,789                    | )          | 3,187                            |       | (1,602             | )          |
| January 26 to  September 30, 2007 (Successor)                                                                  |       | 24,391                    |       | 9,170                            |       | 33,561             |       |
| January 1 to  January 25, 2007 (Predecessor)                                                                   |       | (12,422                   | )          | 464                              |       | (11,958            | )          |
| Nine months  ended September 30, 2006 (Predecessor)                                                            |       | (2,912                    | )          | 8,204                            |       | 5,292              |       |
|                                                                                                           |       |                      |       |                             |       |               |       |
| Total assets                                                                                                   |       |                      |       |                             |       |               |       |
| As of:                                                                                                         |       |                      |       |                             |       |               |       |
| September 30,  2007 (Successor)                                                                                |       | $                         | 3,846,787  |                             | $          | 108,314            |       | $ | 3,955,101 |   |
| December 31,  2006 (Predecessor)                                                                               |       | 3,548,377                 |       | 198,454                          |       | 3,746,831          |       |

 

Income from continuingoperations represents total revenues less total expenses for the real estatesegment and total investment income less allocated interest expense for thestructured finance segment.  Interestcosts for the structured finance segment are imputed assuming 100% leverage atSL Green’s unsecured revolving credit facility borrowing cost.  We do not allocate marketing, general andadministrative expenses to the structured finance segment, since we baseperformance on the individual segments prior to allocating marketing, generaland administrative expenses.  All otherexpenses, except interest, relate entirely to the real estate assets.  There were no transactions between the abovetwo segments.

 

14

----

**Reckson Operating Partnership, L.P.**

**Notes toCondensed Consolidated Financial Statements**

**(Unaudited)**

**September 30, 2007**

 

Thetable below reconciles income from continuing operations before minorityinterest to net income available to common unitholders for the three monthsended September 30, 2007 (Successor), the periods January 26, 2007 to September30, 2007 (Successor) and January 1, 2007 to January 25, 2007 (Predecessor), andfor the three and nine months ended September 30, 2006 (Predecessor) (inthousands):

                
| ** **                                                                                                     | ** ** | **Three months Ended  September 30,** | ** ** | **Period  January 26 to September 30,** | ** ** | **Period  January 1 to January 25,** | ** ** | **Three months Ended  September 30,** | ** ** | **Nine months   Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|-----------------------------------------|------------|--------------------------------------|------------|---------------------------------------|------------|----------------------------------------|------------|
|                                                                                                           | ** ** | **2007**                              | ** ** | **2007**                                | ** ** | **2007**                             | ** ** | **2006**                              | ** ** | **2006**                               | ** ** |
|                                                                                                           |       | **(Successor)**                       | ** ** | **(Successor)**                         | ** ** | **(Predecessor**                     | **)**      | **(Predecessor)**                     | ** ** | **(Predecessor)**                      |       |
| Income (loss)  from continuing operations before minority  interest, gain on sale and discontinued operations: |       | $                                     | 12,410     |                                    | $          | 33,561                               |       | $                                     | (11,958    | )                                      | $          | (1,602 | ) | $ | 5,292 |   |
| Gain on sale of  real estate                                                                                   |       | —                                |       | —                                  |       | —                               |       | —                                |       | 35,393                                 |       |
| Minority interest  in other partnerships                                                                       |       | (2,558                                | )          | (6,725                                  | )          | (1,665                               | )          | (2,904                                | )          | (10,935                                | )          |
| Income from  continuing operations                                                                             |       | 9,852                                 |       | 26,836                                  |       | (13,623                              | )          | (4,506                                | )          | 29,750                                 |       |
| Net income/ gains  from discontinued operations                                                                |       | —                                |       | —                                  |       | 2,520                                |       | 13,993                                |       | 59,312                                 |       |
| Net income (loss)  available to common unitholders                                                             |       | $                                     | 9,852      |                                    | $          | 26,836                               |       | $                                     | (11,103    | )                                      | $          | 9,487 |   | $ | 89,062 |   |

 

**12.  Supplemental Disclosure of Non-Cash Investingand Financing Activities**

 

Asummary of our non-cash investing and financing activities for the nine monthsended September 30, 2007 and 2006 is presented below (in thousands):

 

| ** **                                                                                                               | ** ** | **Nine months Ended  September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2007****(1)**                      | ** ** | **2006** | ** ** |
| Redemption of  preferred units                                                                                           | ** ** | $                                    | 1,200      |   | $ | — |   |
| Transfer of real  estate to the operating partnership                                                                    |       | 608,222                              |       | — |   |
| Adjustment to  fair value of real estate, investment in unconsolidated joint venture and  structured finance investments |       | (3,131,606                           | )          | 44,400 |   |
| Adjustments to  contributed capital                                                                                      |       | 2,327,290                            |       | — |   |
| Other non-cash  financing                                                                                                |       | 92,017                               |       | — |   |
| Other non-cash  adjustments—investing                                                                               |       | 104,077                              |       | — |   |
| Redemption of  common units                                                                                              |       | —                               |       | 493 |   |
| Accretion of  debt discount                                                                                              |       | 1,654                                |       | — |   |
|                                                                                                                          |            |                                      |            |  |  |  |  |

----

| (1)   Presented  on a combined basis for the 2007 Successor and Predecessor periods. |
|------------------------------------------------------------------------------------------------|

** **

** **

**15**

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** **

**ITEM2.   Management’s Discussion and Analysisof Financial Condition and Results of Operations**

 

**Overview**

 

**Reckson Operating Partnership, L.P., or ROP, commencedoperations on June 2, 1995.  RecksonAssociates Realty Corp., or RARC, is the sole general partner of ROP.  RARC is a wholly-owned subsidiary of SL GreenRealty Corp., or SL Green.  The solelimited partner of ROP is SL Green Operating Partnership, L.P., or the operatingpartnership.**

** **

**ROP is engaged in the ownership, management, operation,acquisition, leasing, financing and development of commercial real estateproperties, principally office properties and also owns land for futuredevelopment located in the New York City, Westchester and Connecticut whichcollectively is also known as the Greater New York Area.  At September 30, 2007, our inventory ofdevelopment parcels aggregated approximately 81 acres of land in 4 separateparcels on which we can, based on estimates at September 30, 2007, developapproximately 1.1 million square feet of office space and in which we hadinvested approximately $64.0 million.  Inaddition, ROP also held approximately $108.3 million of structured financeinvestments.**

** **

On January 25, 2007, SL Green completed the acquisition of all of theoutstanding shares of common stock of RARC pursuant to the terms of theAgreement and Plan of Merger, dated as of August 3, 2006, as amended, theMerger Agreement, among SL Green, Wyoming Acquisition Corp., or Wyoming,Wyoming Acquisition GP LLC, Wyoming Acquisition Partnership LP, RARC and ROP.Pursuant to the terms of the Merger Agreement, each of the issued andoutstanding shares of common stock of RARC was converted into (i) $31.68 incash, (ii) 0.10387 of a share of the common stock, par value $0.01 per share,of SL Green and (iii) a pro-rated dividend in an amount equal to approximately$0.0977 in cash. SL Green also assumed an aggregate of approximately $226.3million of ROP mortgage debt, approximately $287.5 million of ROP convertiblepublic debt and approximately $967.8 million of ROP public unsecurednotes.  This transaction is referred toherein as the Merger.

 

On January 25, 2007, SLGreen completed the sale, or Asset Sale, of certain assets of ROP to aninvestment group led by certain of Reckson’s former executive management, orthe Buyer, for a total consideration of approximately $2.0 billion. SL Greencaused ROP to transfer the following assets to the Buyer in the Asset Sale: (1)certain real property assets and/or entities owning such real property assets,in either case, of ROP and 100% of certain loans secured by real property, allof which are located in Long Island, New York; (2) certain real property assetsand/or entities owning such real property assets, in either case, of ROPlocated in White Plains and Harrison, New York; (3) all of the real propertyassets and/or entities owning 100% of the interests in such real propertyassets, in either case, of ROP located in New Jersey; (4) the entity owning a25% interest in Reckson Australia Operating Company LLC, RARC’s formerAustralian management company (including its former Australian licensedresponsible entity), and other related entities, and ROP and ROP subsidiaries’rights to and interests in, all related contracts and assets, including,without limitation, property management and leasing, construction services andasset management contracts and services contracts; (5) the direct or indirectinterest of RARC in Reckson Asset Partners, LLC, an affiliate of RSVP and allof ROP’s rights in and to certain loans made by ROP to Frontline Capital Group,the bankrupt parent of RSVP, and other related entities, which will bepurchased by a 50/50 joint venture with an affiliate of SL Green; (6) a 50%participation interest in certain loans made by a subsidiary of ROP that aresecured by four real property assets located in Long Island, New York; and (7)100% of certain loans secured by real property located in White Plains and NewRochelle, New York.

 

The following discussionrelated to our consolidated financial statements should be read in conjunctionwith the financial statements appearing in this report and in Item 8 of ourAnnual Report on Form 10-K for the year ended December 31, 2006.

 

As a result of thesubstantial change in ownership from the Merger, SL Green has recorded theMerger in accordance with the provisions of Emerging Issues Task Force TopicD-97, “Push-Down Accounting.”  The effectof applying “push-down accounting” is to restate the assets and liabilities ofROP to fair value in the same manner as ROP’s assets and liabilities wererecorded by SL Green subsequent to the Merger.

 

SLGreen has not yet obtained all the information necessary to finalize itsestimates to complete the purchase price allocations in accordance with SFASNo. 141 related to our assets in connection with the Merger.  The purchase price allocations will befinalized once the information we identified has been received, which shouldnot be longer than one year from the date of acquisition.

 

 

16

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**ITEM 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

As of September 30, 2007, we owned the following interests in commercialoffice properties primarily in midtown Manhattan, a borough of New York City,or Manhattan, as well as Long Island City, Westchester County, and Connecticutwhich are collectively known as the Suburban assets:

 

| **Location** | ** ** | **Ownership**           | ** ** | **Number of  Properties** | ** ** | **Square Feet** | ** ** | **Weighted Average Occupancy(1)** | ** ** |
|--------------|------------|-------------------------|------------|---------------------------|------------|-----------------|------------|-----------------------------------|------------|
| Manhattan    |       | Consolidated properties |       | 4                         |       | 3,770,000       |       | 95.4                              | %          |
|         |       |                    |       |                      |       |            |       |                              |       |
| Suburban     |       | Consolidated properties |       | 19                        |       | 2,889,900       |       | 90.1                              | %          |
|         |       |                    |       |                      |       |            |       |                              |       |
| Suburban     |       | Unconsolidated property |       | 1                         |       | 1,402,000       |       | 100.0                             | %          |
|         |       |                    |       | 24                        |       | 8,061,900       |       |                              |       |

----

| (1)   The weighted average occupancy  represents the total leased square feet divided by total available square  feet. |
|----------------------------------------------------------------------------------------------------------------------------------|

 

**CriticalAccounting Policies**

Refer to our 2006 AnnualReport on Form 10-K for a discussion of our critical accounting policies, whichinclude rental property, investment in unconsolidated joint ventures, revenuerecognition, allowance for doubtful accounts, reserve for possible creditlosses and derivative instruments.  Therehave been no material changes to these policies in 2007.

 

**Results of Operations**

 

***Comparison of the three months ended September 30, 2007 tothe three months ended September 30, 2006***

 

Comparisonsdiscussed below are made using the combined operations of the Predecessor andSuccessor for 2007 as compared to the Predecessor’s operations for the sameperiod in 2006.  The results ofoperations may not be comparable for the periods presented due to the change inthe basis of accounting between the Successor and Predecessor periods resultingfrom the application of “push-down accounting.” The results of operations for 2006 include 120 West 45thStreet and Landmark Square 1-6.  Inconnection with the Merger, these properties were transferred to the operatingpartnership and are therefore not included in the Successor period results ofoperations.

 

| **Rental Revenues (in millions)**     | ** ** | **2007** | ** ** | **2006** | ** ** | ** ** | ** **

**$  Change** | ** ** | **%  Change** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|------------|---------------------------|------------|---------------|------------|
| Rental revenue                        |       | $        | 64.9       |     | $          | 66.9       |                      | $          | (2.0          | )          | $ | (3.0 | )% |
| Escalation and  reimbursement revenue |       | 13.7     |       | 15.1     |       | (1.4       | )                         | (9.3       | )             |
| Total                                 |       | $        | 78.6       |     | $          | 82.0       |                      | $          | (3.4          | )          | (4.2 | )% |
|                                       |            |          |            |          |            |            |                           |            |               |            |  |  |  |  |

 

AtSeptember 30, 2007, we estimated that the current market rents on ourconsolidated Manhattan properties and consolidated Suburban assets wereapproximately 53.0% and 11.1% higher, respectively, than then existing in-placefully escalated rents.  Approximately1.8% of the space leased at our consolidated properties expires during theremainder of 2007.

 

| **Investment and Other Income (in millions)**          | ** ** | **2007** | ** ** | **2006** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|---------------|------------|---------------|------------|
| Equity in net  income of unconsolidated joint ventures |       | $        | 0.4        |     | $          | 0.7           |       | $             | (0.3       | ) | (42.9 | )% |
| Investment and  other income                           |       | 4.8      |       | 9.5      |       | (4.7          | )          | (49.5         | )          |
| Total                                                  |       | $        | 5.2        |     | $          | 10.2          |       | $             | (5.0       | ) | (49.0 | )% |

 

Thedecrease in equity in net income of unconsolidated joint venture was primarilydue to lower net income contribution from One Court Square resulting fromadditional depreciation expense related to purchase accounting adjustment tothe investment in connection with the Merger. Our joint venture at One Court Square is net leased to a single tenantuntil 2020.  As such, we do notanticipate much change in occupancy rates or net income contributions from thisasset.  At September 30, 2007, weestimated that current market rents at our Suburban joint venture asset wasapproximately 10.4% higher than then existing in-place fully escalated rents.

 

Thedecrease in investment and other income is primarily due to the averageinvestment balance decreasing between 2006 and 2007.

 

 

17

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** **

**ITEM 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

| **Property Operating Expenses (in millions)** | ** ** | **2007** | ** ** | **2006** | ** ** | **$   Change** | ** ** | **%**

**Change** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|---------------------|------------|-------------------|------------|
| Operating  expenses                           |       | $        | 20.3       |     | $          | 22.0                |       | $                 | (1.7       | ) | (7.7 | )% |
| Real estate  taxes                            |       | 12.6     |       | 15.1     |       | (2.5                | )          | (16.6             | )          |
| Ground rent                                   |       | 2.6      |       | 2.1      |       | 0.5                 |       | 23.8              |       |
| Total                                         |       | $        | 35.5       |     | $          | 39.2                |       | $                 | (3.7       | ) | (9.4 | )% |

 

Operatingexpenses and real estate taxes remained comparable to the same period in theprior year when excluding the operating expenses and real estate taxes for 120West 45th Street and Landmark Square 1-6 from the 2006 period. Theincrease in ground rent expense was due to the reset of the ground rent at 1185Avenue of the Americas.

 

| **Other Expenses (in millions)**               | ** ** | **2007** | ** ** | **2006** | ** ** | **$   Change** | ** ** | **%  Change** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|---------------------|------------|---------------|------------|
| Interest expense                               |       | $        | 16.0       |     | $          | 25.7                |       | $             | (9.7       | ) | (37.7 | )% |
| Depreciation and  amortization expense         |       | 19.6     |       | 19.6     |       | —              |       | —        |       |
| Marketing,  general and administrative expense |       | 0.2      |       | 9.3      |       | (9.1                | )          | (97.9         | )          |
| Total                                          |       | $        | 35.8       |     | $          | 54.6                |       | $             | (18.8      | ) | (34.4 | )% |

 

Thedecrease in interest expense is due to mortgage debt on certain propertiesbeing repaid after September 30, 2006 and those properties remainingunencumbered. In addition, in April 2007, we redeemed $200.0 million ofunsecured notes which bore an average interest rate of 6.9%.

 

Thedecrease in marketing, general and administrative expenses is primarily due toSL Green’s policy of not allocating corporate costs to the properties.

 

***Comparison of the nine months ended September 30, 2007 tothe nine months ended September 30, 2006***

 

Comparisonsdiscussed below are made using the combined operations of the Predecessor andSuccessor for 2007 as compared to the Predecessor’s operations for the sameperiod in 2006. The results of operations may not be comparable for the periodspresented due to the change in the basis of accounting between the Successorand Predecessor periods resulting from the application of “push-downaccounting.” The results of operations for 2006 include 120 West 45thStreet and Landmark Square 1-6. In connection with the Merger, these propertieswere transferred to the operating partnership and are therefore not included inthe Successor period results of operations.

 

| **Rental Revenues (in millions)**     | ** ** | **2007** | ** ** | **2006** | ** ** | **$   Change** | ** ** | **%  Change** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|---------------------|------------|---------------|------------|
| Rental revenue                        |       | $        | 197.8      |     | $          | 201.0               |       | $             | (3.2       | ) | (1.6 | )% |
| Escalation and  reimbursement revenue |       | 40.0     |       | 41.3     |       | (1.3                | )          | (3.2          | )          |
| Total                                 |       | $        | 237.8      |     | $          | 242.3               |       | $             | (4.5       | ) | (1.9 | )% |

 

AtSeptember 30, 2007, we estimated that the current market rents on ourconsolidated Manhattan properties and consolidated Suburban assets wereapproximately 53.0% and 11.1% higher, respectively, than then existing in-placefully escalated rents. Approximately 1.8% of the space leased at ourconsolidated properties expires during the remainder of 2007.

 

| **Investment and Other Income (in millions)**          | ** ** | **2007** | ** ** | **2006** | ** ** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|--------------------------------------------------------|------------|----------|------------|----------|------------|------------|---------------|------------|---------------|------------|
| Equity in net  income of unconsolidated joint ventures |       | $        | 0.9        |     | $          | 2.9        |          | $          | (2.0          | )          | (69.0 | )% |
| Investment and  other income                           |       | 16.4     |       | 33.8     |       | (17.4      | )             | (51.5      | )             |
| Total                                                  |       | $        | 17.3       |     | $          | 36.7       |          | $          | (19.4         | )          | (52.9 | )% |
|                                                        |            |          |            |          |            |            |               |            |               |            |  |  |  |  |

 

Thedecrease in equity in net income of unconsolidated joint venture was primarilydue to lower net income contribution from One Court Square resulting fromadditional depreciation expense related to purchase accounting adjustment tothe basis of the investment in connection with the Merger. Our joint venture atOne Court Square is net leased to a single tenant until 2020. As such, we donot anticipate much change in occupancy rates or net income contributions fromthis asset. At September 30, 2007, we estimated that current market rents atour Suburban joint venture asset was approximately 10.4% higher than thenexisting in-place fully escalated rents.

 

18

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**ITEM 2.  Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

Thedecrease in investment and other income was primarily due to the sale in 2006of our option to acquire the minority partner’s 40% partnership interest in aproperty for net consideration of approximately $9.0 million. In addition, theaverage investment balance decreased between 2006 and 2007.

 

| **Property Operating Expenses (in  millions)** | ** ** | **2007** | ** ** | **2006** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|---------------|------------|---------------|------------|
| Operating  expenses                            |       | $        | 58.1       |     | $          | 58.9          |       | $             | (0.8       | ) | (1.4 | )% |
| Real estate  taxes                             |       | 40.2     |       | 43.4     |       | (3.2          | )          | (7.4          | )          |
| Ground rent                                    |       | 7.7      |       | 6.2      |       | 1.5           |       | 24.2          |       |
| Total                                          |       | $        | 106.0      |     | $          | 108.5         |       | $             | (2.5       | ) | (2.3 | )% |
|                                                |            |          |            |          |            |               |            |               |            |  |  |  |  |  |

 

Operatingexpenses and real estate taxes remained comparable to the same period in theprior year when excluding the operating expenses and real estate taxes for 120West 45th Street and Landmark Square 1-6 from the 2006 period. Theincrease in ground rent expense was due to a reset of the ground rent at 1185Avenue of the Americas.

 

| **Other Expenses (in millions)**               | ** ** | **2007** | ** ** | **2006** | ** ** | ** ** | **$  Change** | ** ** | **%  Change** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|------------|---------------|------------|---------------|------------|
| Interest expense                               |       | $        | 55.4       |     | $          | 77.4       |          | $          | (22.0         | )          | (28.4 | )% |
| Depreciation and  amortization expense         |       | 57.4     |       | 57.8     |       | (0.4       | )             | (0.7       | )             |
| Marketing,  general and administrative expense |       | 14.7     |       | 29.9     |       | (15.2      | )             | (50.8      | )             |
| Total                                          |       | $        | 127.5      |     | $          | 165.1      |          | $          | (37.6         | )          | (22.8 | )% |
|                                                |            |          |            |          |            |            |               |            |               |            |  |  |  |  |

 

Thedecrease in interest expense is due to mortgage debt on certain propertiesbeing repaid after September 30, 2006 and those properties remainingunencumbered. In addition, in April 2007, we redeemed $200.0 million ofunsecured notes which bore an average interest rate of $6.9%. We incurred a$1.0 million make-whole payment in connection with the early redemption ofthese bonds.

 

Thedecrease in marketing, general and administrative expenses is primarily due toSL Green’s policy of not allocating corporate costs to the properties. ThePredecessor 2007 period includes approximately $8.8 million related to mergercosts.

 

**Liquidityand Capital Resources**

Wecurrently expect that our principal sources of funds to meet our short-term andlong-term liquidity requirements (working capital, property operations, debtservice, redevelopment of properties, tenant improvements and leasing costs)will include cash flow from operations and net proceeds from divestitures ofproperties and redemptions of structured finance investments.

 

Cashflow from operations is primarily dependent upon the occupancy level of ourportfolio, the net effective rental rates achieved on our leases, thecollectibility of rent and operating escalations and recoveries from ourtenants and the level of operating and other costs.

 

Webelieve that our sources of working capital, specifically our cash flow fromoperations, are adequate for us to meet our short-term and long-term liquidityrequirements for the foreseeable future.

 

OnJanuary 25, 2007, we were acquired by SL Green. See Item 2 “Management’sDiscussion and Analysis — Liquidity and Capital Resources” in SL Green’sQuarterly Report on Form 10-Q for the quarter ended September 30, 2007 for acomplete discussion of additional sources of liquidity available to us due toour indirect ownership by SL Green.

 

#### **CashFlows**

**Thefollowing summary discussion of our cash flows is based on our condensedconsolidated statements of cash flows in “Item 1. Financial Statements” and isnot meant to be an all-inclusive discussion of the changes in our cash flowsfor the periods presented below.**

 

For purposes of this cash flow analysis, thecash flows for the period from January 1, 2007 to January 25, 2007(Predecessor), the date of the Merger, have been combined with the cash flowsfor the period January 26, 2007 to September 30, 2007 (Successor) to provide areasonable comparison to the cash flows for the nine months ended September 30,2006 (Predecessor). Summarized cash flow information for the nine months endedSeptember 30, 2007 and 2006 is as follows (in thousands):

 

| ** **                                 | ** ** | **Nine months ended September 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------|------------|
| ** **                                 | ** ** | **2007**                            | ** ** | **2006** | ** ** | **Increase  (Decrease)** | ** ** |
|                                       |       |                                |       |   |   |   |   |
| Net cash  provided by operating activities |       | $                                   | 81,896     |   | $ | 97,908 |   | $ | (16,012 | ) |
| Net cash  provided by investing activities |       | $                                   | 1,993,575  |   | $ | 82,497 |   | $ | 1,911,078 |   |
| Net cash used in  financing activities     |       | $                                   | (2,116,359 | ) | $ | (181,501 | ) | $ | (1,934,858 | ) |

 

19

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**ITEM 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations**

** **

**Ourprincipal source of operating cash flow is related to the leasing and operatingof the properties in our portfolio. Our properties provide a relativelyconsistent stream of cash flow that provides us with resources to pay operatingexpenses, debt service and fund quarterly dividend and distribution paymentrequirements. At September 30, 2007, our portfolio was 94.3% occupied. Inaddition, rental rates continue to increase and tenant concession packagesdecrease in the Manhattan and Suburban marketplaces. Our structured finance andjoint venture investments also provide a steady stream of operating cash flowto us.**

** **

**Cash isused in investing activities to fund acquisitions, redevelopment projects andrecurring and nonrecurring capital expenditures. We selectively invest inexisting buildings that meet our investment criteria. During the nine monthsended September 30, 2007, compared to the same period in the prior year wegenerated cash primarily from the following investing activities (in thousands):**

 

| Capital  expenditures and capitalized interest |   | $         | 66,861 |   |
|------------------------------------------------|--------|-----------|--------|--------|
| Distributions  from joint ventures             |   | 4,631     |   |
| Proceeds from  sales of real estate            |   | (193,500  | )      |
| Structured  finance and other investments      |   | 54,322    |   |
| Proceeds from  Asset Sale                      |   | 1,978,764 |   |

** **

**We generallyfund our investment activity through property-level financing and asset sales. Duringthe nine months ended September 30, 2007, compared to the same period in theprior year the following financing activities used the funds to complete theinvesting activity noted above (in thousands):**

** **

| Proceeds from  our debt obligations           |       | $          | (667,819 | ) |
|-----------------------------------------------|------------|------------|----------|---|
| Repayments under  our debt obligations        |       | 74,934     |     |
| Contributions                                 |       | 301,218    |     |
| Distributions  and other financing activities | ** ** | (1,643,191 | )        |

** **

**Capitalization**

Prior to the Merger, a Class A OP Unit and a share of common stock ofRARC had similar economic characteristics as they effectively share equally inthe net income or loss and distributions of ROP. As of January 25, 2007, all ofour issued and outstanding Class A OP Units were owned by RARC or the operatingpartnership.

 

As of December 31, 2006, we had issued and outstanding 1,200 preferredunits of limited partnership interest with a liquidation preference value of$1,000 per unit and a stated distribution rate of 7.0%, or Preferred Units,which was subject to reduction based upon terms of their initial issuance. Theterms of the Preferred Units provided for this reduction in distribution ratein order to address the effect of certain mortgages with above market interestrates which were assumed by us in connection with properties contributed to usin 1998. As a result of the aforementioned reduction, no distributions werebeing made on the Preferred Units. In connection with the Merger, the holder ofthe Preferred Units transferred the Preferred Units to the operatingpartnership in exchange for the issuance of 1,200 preferred units of limitedpartnership interest in the operating partnership with substantially similarterms as the Preferred Units.

 

**Net income per common partnership unit for the three andsix months ended September 30, 2006 was determined by allocating net incomeafter preferred distributions and minority partners’ interest in consolidatedpartnerships income to the general and limited partners based on their weightedaverage distribution per common partnership units outstanding during therespective periods presented.**

** **

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

 

20

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**ITEM 2.  Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

**ContractualObligations**

Combined aggregateprincipal maturities of mortgages payable and senior unsecured notes, our shareof joint venture debt, excluding extension options, estimated interest expense,and our obligations under our air rights and ground leases, as of September 30,2007 are as follows (in thousands):

 
| ** **                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Thereafter** | ** ** | **Total** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------------|------------|-----------|------------|
| Property  Mortgages         |       | $        | 1,156      |     | $          | 3,634    |       | $        | 3,942      |     | $          | 4,225          |       | $         | 219,878    |   | $ | — |   | $ | 232,835 |   |
| Senior unsecured  notes     |       | —   |       | —   |       | 200,000  |       | —   |       | 150,000  |       | 706,841        |       | 1,056,841 |       |
| Ground leases               |       | 2,381    |       | 9,524    |       | 9,524    |       | 9,083    |       | 7,109    |       | 221,466        |       | 259,087   |       |
| Air rights                  |       | 7        |       | 29       |       | 29       |       | 29       |       | 29       |       | 213            |       | 336       |       |
| Estimated  interest expense |       | 19,057   |       | 76,064   |       | 68,054   |       | 60,024   |       | 48,463   |       | 254,423        |       | 526,085   |       |
| Joint venture  debt         |       | —   |       | —   |       | —   |       | —   |       | —   |       | 94,500         |       | 94,500    |       |
| Total                       |       | $        | 22,601     |     | $          | 89,251   |       | $        | 281,549    |     | $          | 73,361         |       | $         | 425,479    |   | $ | 1,277,443 |   | $ | 2,169,684 |   |

 

**CorporateIndebtedness**

 

#### **UnsecuredRevolving Credit Facility**

Asof December 31, 2006 we maintained a $500 million unsecured revolvingcredit facility, or the Credit Facility. The Credit Facility was scheduled tomature in August 2008. At December 31, 2006, the outstanding borrowings underthe Credit Facility aggregated $269.0 million and carried a weighted averageinterest rate of 6.14% per annum. In connection with the Merger on January 25,2007, this Credit Facility was repaid and terminated.

 

**Senior Unsecured Notes**

As of September 30, 2007,we had outstanding approximately $1.057 billion (net of unamortized issuancediscounts) of senior unsecured notes.

 

The following table setsforth our senior unsecured notes and other related disclosures by scheduledmaturity date (in thousands):

 

| **Issuance**      | ** ** | **Face Amount**    | ** ** | **Coupon Rate** | ** ** | **Term  (in Years)** | ** ** | **Maturity**     | ** ** |
|-------------------|------------|--------------------|------------|-----------------|------------|----------------------|------------|------------------|------------|
| March 26, 1999    |       | $200,000           |       | 7.75            | %          | 10                   |       | March 15, 2009   |       |
| January 22, 2004  |       | 150,000            |       | 5.15            | %          | 7                    |       | January 15, 2011 |       |
| August 13, 2004   |       | 150,000            |       | 5.875           | %          | 10                   |       | August 15, 2014  |       |
| March 31, 2006    |       | 275,000            |       | 6.00            | %          | 10                   |       | March 31, 2016   |       |
| June 27, 2005 (1) |       | 287,500            |       | 4.00            | %          | 20                   |       | June 15, 2025    |       |
|              | ** ** | **$****1,062,500** |       |            |       |                 |       |             |       |

----

| (1)          Exchangeable senior debentures  which are callable after June 17, 2010 at 100% of par. In addition, the  debentures can be put to us, at the option of the holder at par plus accrued  and unpaid interest, on June 15, 2010, 2015 and 2020 and upon the occurrence  of certain change of control transactions. As a result of the Merger, the  adjusted exchange rate for the debentures is 7.7461 shares of SL Green common  stock per $1,000 of principal amount of debentures and the adjusted reference  dividend for the debentures is $1.3491. |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

On April 27, 2007, the$50.0 million, 6.0% unsecured notes scheduled to mature in June 2007 and the$150.0 million, 7.20% unsecured notes scheduled to mature in August 2007,assumed as part of the Merger, were redeemed.

 

Intereston the senior unsecured notes is payable semiannually with principal and unpaidinterest due on the scheduled maturity dates. In addition, certain of thesenior unsecured notes were issued at discounts aggregating approximately $6.1million. Such discounts are being amortized to interest expense over the termof the senior unsecured notes to which they relate. Through September 30, 2007,approximately $0.5 million of the aggregate discounts have been amortized.

 

**RestrictiveCovenants**

Theterms of our senior unsecured notes include certain restrictions and covenantswhich limit, among other things, the incurrence of additional indebtedness andliens, and which require compliance with financial ratios relating to theminimum amount of debt service coverage, the maximum amount of consolidatedunsecured and secured indebtedness and the minimum amount of unencumberedassets. As of September 30, 2007 and December 31, 2006, we were in compliancewith all such covenants.

 

21

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**ITEM 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**MarketRate Risk**

We arenot exposed to changes in interest rates as we have no floating rate borrowingarrangements.

 

All of our long-termdebt, totaling approximately $1.3 billion, bears interest at fixed rates, andtherefore the fair value of these instruments is affected by changes in themarket interest rates.

 

**Off-BalanceSheet Arrangements**

Wehave a number of off-balance sheet investments, including a joint ventureinvestment and structured finance investments. These investments all have varying ownership structures.  Our joint venture arrangement is accountedfor under the equity method of accounting as we have the ability to exercisesignificant influence, but not control over the operating and financialdecisions of this joint venture arrangement. Our off-balance sheet arrangements are discussed in Note 4, “StructuredFinance Investments” and Note 5, “Investment in Unconsolidated Joint Venture”in the accompanying financial statements.

 

**CapitalExpenditures**

We estimate that for thethree months ending December 31, 2007, we will incur approximately $49.5million of capital expenditures (including tenant improvements and leasingcommissions) on consolidated properties and none at our joint ventureproperty.  We expect to fund thesecapital expenditures with operating cash flow, borrowings under SL Green’scredit facility and cash on hand.  Webelieve that we will have sufficient resources to satisfy our capital needsduring the next 12-month period.

 

Thereafter, we expectthat our capital needs will be met through a combination of net cash providedby operations, borrowings, potential asset sales or additional equity or debtissuances by SL Green.

 

**Related PartyTransactions**

 

**Other**

 

**Insurance**

**SL Green maintains “all-risk”property and rental value coverage (including coverage regarding the perils offlood, earthquake and terrorism) and liability insurance with limits in excessof $200.0 million per location. These insurance policies cover the ROPassets.  SL Green now maintains twoproperty insurance portfolios. The first portfolio maintains a blanket limit of$600.0 million per occurrence for the majority of the New York Cityproperties in our portfolio with a sub-limit of $450.0 million for acts ofterrorism. This policy expires on December 31, 2008.  The second portfolio maintains a limit of$600.0 million per occurrence, including terrorism, for the majority of theSuburban properties. This policy expires on December 31, 2008.  The liability policy expires on October 31,2008.  The New York City portfolioincorporates SL Green’s captive, Belmont Insurance Company, which we formed inan effort to stabilize, to some extent, the fluctuations of insurance marketconditions. Belmont is licensed to write up to $100.0 million of coveragefor us, but at this time is providing $50.0 million of terrorism coveragein excess of $250.0 million and is insuring a large deductible on theliability insurance with a $250,000 deductible per occurrence and a $2.4million annual aggregate loss limit. SL Green has secured an excess insurer toprotect against catastrophic liability losses (above $250,000 deductible peroccurrence) and a stop loss for aggregate claims that exceed $2.4 million.  SL Green has retained a third partyadministrator to manage all claims within the deductible and we anticipate thatdirect management of liability claims will improve loss experience andultimately lower the cost of liability insurance in future years. Although SLGreen considers its insurance coverage (inclusive of the ROP assets) to beappropriate, in the event of a major catastrophe, such as an act of terrorism,SL Green may not have sufficient coverage to replace certain properties.**

 

TheTerrorism Risk Insurance Act, or TRIA, which was enacted in November 2002,was renewed on January 1, 2006. Congress extended TRIA, now called TRIEA(Terrorism Risk Insurance Extension Act) until December 31, 2007. The law extends the federal TerrorismInsurance Program that requires insurance companies to offer terrorism coverageand provides for compensation for insured losses resulting from acts ofterrorism. Our debt instruments, consistingof mortgage loans secured by our properties (which are generally non-recourseto us) ground leases and senior unsecured notes, contain customary covenantsrequiring us to maintain insurance. There can be no assurance that the lendersor ground lessors under these instruments will not take the position that atotal or partial exclusion from “all-risk” insurance coverage for losses due toterrorist acts is a breach of these debt and ground lease instruments thatallows the lenders or ground lessors to declare an event of default andaccelerate repayment of debt or recapture of ground lease positions. Inaddition, if lenders insist on full coverage for these risks and prevail inasserting that we are required to maintain such coverage, it could result insubstantially higher insurance premiums.

 

22

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**ITEM 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Inflation**

Substantially all of theoffice leases provide for separate real estate tax and operating expenseescalations as well as operating expense recoveries based on increases in theConsumer Price Index or other measures such as porters’ wage.  In addition, many of the leases provide forfixed base rent increases.  We believethat inflationary increases may be at least partially offset by the contractualrent increases and expense escalations described above.

 

23

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**ITEM 2.   Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

**Forward-Looking Information**

 

This report includescertain statements that may be deemed to be “forward-looking statements” withinthe meaning of Section 27A of the Securities Act of 1933, as amended, orthe Act, and Section 21E of the Securities Exchange Act of 1934, asamended, or the Exchange Act.  Suchforward-looking statements relate to, without limitation, our future capitalexpenditures, dividends and acquisitions (including the amount and naturethereof) and other development trends of the real estate industry and theManhattan, Westchester and Connecticut office market, business strategies, andthe expansion and growth of our operations. These statements are based on certain assumptions and analyses made byus in light of our experience and our perception of historical trends, currentconditions, expected future developments and other factors we believe areappropriate.  We intend suchforward-looking statements to be covered by the safe harbor provisions forforward-looking statements contained in Section 27A of the Act and Section 21Eof the Exchange Act.  Such statements aresubject to a number of assumptions, risks and uncertainties which may cause ouractual results, performance or achievements to be materially different from futureresults, performance or achievements expressed or implied by theseforward-looking statements. Forward-looking statements are generally identifiable by the use of thewords “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,”“project,” “continue,” or the negative of these words, or other similar wordsor terms.  Readers are cautioned not toplace undue reliance on these forward-looking statements.  Among the factors about which we have madeassumptions are:

 

•                  general economic or business(particularly real estate) conditions, either nationally or in New York City,Westchester County and Connecticut being less favorable than expected;

•                  reduced demand for office space;

•                  risks of real estate acquisitions;

•                  risks of structured finance investments;

•                  availability and creditworthiness ofprospective tenants;

•                  adverse changes in the real estatemarkets, including increasing vacancy, decreasing rental revenue and increasinginsurance costs;

•                  availability of capital (debt andequity);

•                  unanticipated increases in financing andother costs, including a rise in interest rates;

•                  market interest rates could adverselyaffect the market price of our common stock, as well as our performance andcash flows;

•                  our ability to satisfy complex rules inorder for us to qualify as a REIT, for federal income tax purposes, ourOperating Partnership’s ability to satisfy the rules in order for it to qualifyas a partnership for federal income tax purposes, the ability of certain of oursubsidiaries to qualify as REITs and certain of our subsidiaries to qualify astaxable REIT subsidiaries for federal income tax purposes and our ability andthe ability of our subsidiaries to operate effectively within the limitationsimposed by these rules;

•                  accounting principles and policies andguidelines applicable to REITs;

•                  competition with other companies;

•                  the continuing threat of terroristattacks on the national, regional and local economies including, in particular,the New York City area and our tenants;

•                  legislative or regulatory changes adverselyaffecting real estate investment trusts and the real estate business; and

•                  environmental, regulatory and/or safetyrequirements.

 

We undertake noobligation to publicly update or revise any forward-looking statements, whetheras a result of future events, new information or otherwise.

 

The risks included hereare not exhaustive.  Other sections ofthis report, our Annual Report on Form 10-K for the year ended December 31,2006 or our Quarterly Reports on Form 10Q for the quarters ended March 31, 2007and June 30, 2007 may include additional factors that could adversely affectour business and financial performance. Moreover, we operate in a very competitive and rapidly changingenvironment.  New risk factors emergefrom time to time and it is not possible for management to predict all suchrisk factors, nor can it assess the impact of all such risk factors on ourbusiness or the extent to which any factor, or combination of factors, maycause actual results to differ materially from those contained in anyforward-looking statements.  Given theserisks and uncertainties, investors should not place undue reliance onforward-looking statements as a prediction of actual results.

 

 

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** **

**ITEM 3.   Quantitativeand Qualitative Disclosure About Market Risk**

 

For quantitative andqualitative disclosures about market risk, see item 7A, “Quantitative andQualitative Disclosures About Market Risk,” of our Annual Report on Form 10-Kfor the year ended December 31, 2006. Our exposures to market risk have not changed materially since December31, 2006.

 

**ITEM 4T.   Controlsand Procedures**

** **

**Evaluation of Disclosure Controls and Procedures**

 

We maintain disclosure controls and procedures that are designed toensure that information required to be disclosed in our Exchange Act reports isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms, and that such information is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, as appropriate, to allow timely decisions regarding requireddisclosure based closely on the definition of “disclosure controls andprocedures” in Rule 13a-15(e) of the Exchange Act.  Notwithstanding the foregoing, a controlsystem, no matter how well designed and operated, can provide only reasonable,not absolute, assurance that it will detect or uncover failures within theCompany to disclose material information otherwise required to be set forth inour periodic reports.  Also, we haveinvestments in certain unconsolidated entities. As we do not control these entities, our disclosure controls andprocedures with respect to such entities are necessarily substantially morelimited than those we maintain with respect to our consolidated subsidiaries.

 

As of the end of the period covered by this report, we carried out anevaluation, under the supervision and with the participation of our management,including our President and our Treasurer, of the effectiveness of the designand operation of our disclosure controls and procedures.  Based upon that evaluation as of the end ofthe period covered by this report, our President and Treasurer concluded thatour disclosure controls and procedures were effective to give reasonableassurances to the timely collection, evaluation and disclosure of informationrelating to the Company that would potentially be subject to disclosure underthe Securities Exchange Act of 1934, as amended, and the rules and regulationspromulgated thereunder.

 

We are not currently required to comply with Section 404 (Management’sAnnual Report on Internal Control Over Financial Reporting) of theSarbanes-Oxley Act of 2002 because we are not an “accelerated filer,” asdefined by Rule 12b-2 under the Exchange Act. We are in the process of continuously improving our internal controlsover financial reporting processes and procedures for our financial reportingso that our management can report on these processes and procedures when requiredto do so.

 

**Changes in Internal Control over Financial Reporting**

 

There have been no significant changes in our internal control overfinancial reporting during the quarter ended September 30, 2007, that hasmaterially affected, or is reasonably likely to material affect, our internalcontrol over financial reporting.

 

 

25

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**PART II****    ****OTHER INFORMATION**

 

##### **ITEM 1.      LEGALPROCEEDINGS**

 

As of December 31,2006, we were not involved in any material litigation nor, to management’sknowledge, is any material litigation threatened against us or our portfolioother than routine litigation arising in the ordinary course of business orlitigation that is adequately covered by insurance.

 

On December 6, 2006, SLGreen announced that it and RARC had reached an agreement in principal with theplaintiffs to settle the previously disclosed class action lawsuits relating tothe Merger.  The settlement, whichremains subject to documentation and judicial review and approval, provides (1)for certain contingent profit sharing participations for former RARCstockholders relating to specified assets, none of which are owned by ROP (2)for potential payments to former RARC stockholders of amounts relating toReckson’s interest in contingent profit sharing participations in connectionwith the sale of certain Long Island industrial properties in a priortransaction, none of which are owned by ROP and (3) for the dismissal by theplaintiffs of all actions with prejudice and customary releases of alldefendants and related parties.

 

**ITEM1A.  RISK FACTORS**

 

We encourage you to read “Item 1A of Part 1-Risk Factors” in the AnnualReport on Form 10-K and the Quarterly Reports on Form 10-Q for the quartersended March 31, 2007 and June 30, 2007 for SL Green Realty Corp., our 100%indirect parent company.

 

There have been no material changes to the risk factors disclosed inItem 1A of Part 2 in our Quarterly Reports on Form 10-Q for the quarters endedMarch 31, 2007 and June 30, 2007.

 

 

26

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##### **ITEM 2.    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None

 

#### **ITEM 3.    DEFAULTS UPON SENIOR SECURITIES**

 

None

 

#### **ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

**None**

 

#### **ITEM 5.    OTHER INFORMATION**

 

None

 

**ITEM 6.**   **EXHIBITS**

 

(a)                                                                                  Exhibits:

 

31.1                                                                           Certification by the President pursuantto Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

31.2                                                                           Certification by the Treasurer pursuantto Section 302 of the Sarbanes-Oxley Act of 2002 filed herewith.

 

32.1                                                                           Certification pursuant to 18 U.S.C.section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 filed herewith.

 

32.2                                                                           Certification pursuant to 18 U.S.C.section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002 filed herewith.

 

27

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**SIGNATURES**

 

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized.

 

 
|   |   |   |   |   | RECKSON  OPERATING PARTNERSHIP, L.P.                           |
|--------|--------|--------|--------|--------|----------------------------------------------------------------|
|   |   |   |   |   | By:  Reckson Associates Realty Corp., its sole general partner |
|   |   |   |   |   |                                                           |   |   |
|   |   |   |   |   |                                                           |   |   |
|   |   |   |   |   |                                                           |   |   |
|   |   |   |   |   |                                                           |   |   |
|   |   |   |   |   | By:                                                            | /s/ GREGORY F. HUGHES |   |   |
|   |   |   |   |   |                                                           | Gregory F. Hughes |   |   |
|   |   |   |   |   |                                                           | Treasurer |   |   |
|   |   |   |   |   |                                                           |   |   |
|        |        |        |        |        |                                                                |  |  |  |  |

 

 

 

Date:       November 14, 2007

 

 

 

 

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