| The occurrence of any of the following factors or circumstances could adversely affect our cash flows, financial condition, results of operations and/or our ability to service debt and make distributions to our stockholders, any or all of which could in turn cause a decline in the market value of our securities |
| • We are dependent on the New York Tri-State area market due to limited geographic diversification and our financial results may suffer as a result of a decline in economic conditions in such area A decline in the economic conditions in the Tri-State Area and for commercial real estate could adversely affect our business, financial condition and results of operations |
| All of our properties are located in the Tri-State Area, although our organizational documents do not restrict us from owning properties outside this area |
| Each of our five markets is located in New York City and the suburbs of New York City and may be similarly affected by economic changes in this area |
| A significant downturn in the financial services industry and related industries would likely have a negative effect on these markets and on the performance of our properties |
| The potential impact of terrorist attacks in the New York City and Tri-State Area may adversely affect the value of our properties and our ability to generate cash flow |
| As a result, there may be a decrease in demand for office space in metropolitan areas that are considered at risk for future terrorist attacks, and this decrease may reduce our revenues from property rentals |
| • Debt servicing and refinancing, increases in interest rates and financial and other covenants could adversely affect our economic performance Dependence upon debt financing; risk of inability to service or refinance debt |
| In order to qualify as a REIT, for federal income tax purposes, we are required to distribute at least 90prca of our taxable income |
| As a result, we are more reliant on debt or equity financings than many other non-REIT companies that are able to retain more of their income |
| We are subject to the risks associated with debt financing |
| Our cash flow could be insufficient to meet required payments of principal and interest |
| We may not be able to refinance existing indebtedness, which in virtually all cases requires substantial principal payments at maturity, or the terms of such refinancing might not be as favorable as the terms of the existing indebtedness |
| As of December 31, 2005, the weighted average maturity of our existing indebtedness was approximately 3dtta8 years and our total existing indebtedness (net of minority partners’ interests’ share of our consolidated joint venture debt and including our share of unconsolidated joint venture debt) was approximately dlra2dtta0 billion |
| We also may not be able to refinance any indebtedness we incur in the future |
| Finally, we may not be able to obtain funds by selling assets or raising equity to make required payments on maturing indebtedness |
| Rising interest rates could adversely affect cash flow |
| We conduct all of our operations through, and serve as the sole general partner of, the Operating Partnership |
| Increases in interest rates could increase the Operating Partnership’s interest expense, which could adversely affect its ability to service its indebtedness or to pay dividends to our stockholders |
| As of December 31, 2005, approximately 21prca of our total existing indebtedness was variable rate debt and our total debt was approximately dlra2dtta0 billion |
| Outstanding advances under the Operating Partnership’s credit facility bear interest at variable rates |
| In addition, we may incur indebtedness in the future that also bears interest at a variable rate |
| Covenants in our debt agreements could adversely affect our financial condition and our ability to make distributions |
| The Operating Partnership has an unsecured credit facility with JPMorgan Chase Bank, I-16 ______________________________________________________________________ [79]Back to Contents National Association, as Administrative Agent, which provides for a maximum borrowing amount of up to dlra500 million |
| The credit facility matures in August 2008, provides for a one-year extension subject to a fee of 25 basis points and, upon receiving additional lender commitments, for an increase to the maximum revolving credit amount to dlra750 million |
| The ability of the Operating Partnership to borrow under the credit facility is subject to certain covenants, including covenants relating to limitations on unsecured and secured borrowings, minimum interest and fixed charge coverage ratios, a minimum equity value and a maximum dividend payout ratio |
| The credit facility also contains a financial covenant limiting the amount of cash distributions that we may pay to holders of our common stock during any fiscal quarter if they exceed, when added to all distributions paid during the three immediately preceding quarters, the greater of: • 90prca of our funds from operations; and • the amounts required in order for us to continue to qualify as a REIT We rely on borrowings under the Operating Partnership’s credit facility to finance acquisition and development activities and for working capital purposes |
| Although the Operating Partnership presently is in compliance with the covenants under the credit facility, the Operating Partnership’s ability to borrow under such facility is subject to continued compliance with the financial and other covenants contained therein |
| There is no assurance that the Operating Partnership will continue to be in compliance |
| If the Operating Partnership is unable to borrow under its credit facility, it could adversely affect our financial condition, including our ability to service our indebtedness or pay dividends to our stockholders |
| The indenture under which our unsecured notes are issued also contains customary covenants, including financial covenants relating to limitations on our ability to incur secured and unsecured indebtedness and the maintenance of a certain percentage of unencumbered assets |
| The Operating Partnership is in compliance with the covenants under the indenture, but there can be no assurance that it will continue to be in compliance with such covenants |
| In addition, the mortgage loans which are secured by certain of our properties contain customary covenants, including covenants that require us to maintain property insurance in an amount equal to the replacement cost of the properties with insurance carriers who satisfy certain ratings standards |
| As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all-risk” policies |
| In November 2002, the Terrorism Risk Insurance Act of 2002 (the “TRIA”) was signed into law which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005 |
| The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005 |
| In the event that our coverage for losses resulting from terrorist acts is limited, there can be no assurance that the lenders under our mortgage loans would not take the position that exclusions from our coverage for losses due to terrorist acts is a breach of a covenant which, if uncured, could allow the lenders to declare an event of default and accelerate repayment of the mortgage loans |
| Other outstanding debt instruments contain standard cross default provisions that would be triggered in the event of an acceleration of the mortgage loans |
| This matter could adversely affect our financial results and our ability to finance and/or refinance our properties or to buy or sell properties |
| Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of our properties, including for acts of terrorism up to dlra540 million on a per occurrence basis |
| The facility fee and interest rate payable under the terms of our credit facility are subject to change based upon changes in our credit ratings |
| Our senior unsecured debt is currently rated “BBB-” by Fitch Ratings, “BBB-” by Standard & Poor’s and “Baa3” by Moody’s Investors Service, Inc |
| As of December 31, 2005, based on a pricing grid of the Operating Partnership’s unsecured debt ratings, borrowings under our credit facility accrued interest at a rate of LIBOR plus 80 basis points and our credit facility carried a facility fee of 20 basis points per annum |
| In the event of a change in the Operating Partnership’s unsecured credit ratings, the interest rates and facility fee are subject to change |
| At December 31, 2005, the outstanding borrowings under our credit facility aggregated dlra419dtta0 million and carried a weighted average interest rate of 5dtta17prca |
| No limitation on debt |
| Currently, we have a policy of incurring debt only if our Debt Ratio is 50prca or less |
| As of December 31, 2005, our Debt Ratio was approximately 40dtta1prca |
| For these purposes, “Debt Ratio” is defined as the total debt of the Operating Partnership as a percentage of the market value of outstanding I-17 ______________________________________________________________________ [80]Back to Contents shares of common stock, including the conversion of outstanding partnership units in the Operating Partnership, the liquidation preference of the preferred units of the Operating Partnership, excluding all units of general partnership interest owned by us, plus total debt (including our share of unconsolidated joint venture debt and net of minority partners’ interests’ share of consolidated joint venture debt) |
| Under this policy, we could incur additional debt if our stock price increases, even if we may not have a corresponding increase in our ability to repay the debt |
| In addition, as of December 31, 2005, our debt-to-equity ratio was 1:1dtta5x |
| We calculated our debt-to-equity ratio by comparing the total debt of the Operating Partnership to the value of our outstanding common stock, common units of limited partnership interest and liquidation preference of the preferred units of the Operating Partnership (including its share of unconsolidated joint venture debt and net of minority partners’ interests’ share of consolidated joint venture debt), each based upon the market value of the common stock, and the liquidation preference of the preferred units of limited partnership interest in the Operating Partnership, excluding all units owned by us |
| As described above, our credit facility and the indenture under which our unsecured notes are issued contain financial covenants which limit the ability of the Operating Partnership to incur additional indebtedness |
| However, our organizational documents do not contain any limitation on the amount of indebtedness we may incur |
| Accordingly, our Board of Directors could alter or eliminate our policy with respect to the incurrence of debt and would do so, for example, if it were necessary in order for us to continue to qualify as a REIT If this policy were changed, we could become more highly leveraged, resulting in higher interest payments that could adversely affect our ability to pay dividends to our stockholders and could increase the risk of default on the Operating Partnership’s existing indebtedness |
| • The value of our investments in loans to FrontLine Capital Group (“FrontLine”) and in joint venture investments with Reckson Strategic Venture Partners LLC (“RSVP”) may be subject to further loss During 1997, we formed Frontline and RSVP, a real estate venture capital fund whose common equity is held indirectly by Frontline |
| In connection with the formation and spin-off of Frontline, the Operating Partnership established an unsecured credit facility with FrontLine (the “FrontLine Facility”) in the amount of dlra100 million |
| The Operating Partnership also approved the funding of investments of up to dlra110 million relating to REIT-qualified investments through RSVP-controlled joint ventures or advances made to FrontLine under an unsecured loan facility (the “RSVP Facility”) having terms similar to the FrontLine Facility (advances made under the RSVP Facility and the FrontLine Facility hereafter, the “FrontLine Loans”) |
| As of December 31, 2005, approximately dlra59dtta8 million had been funded to RSVP-controlled joint ventures and dlra142dtta7 million through the FrontLine Loans (collectively, the “RSVP/FLCG Investments”), on which we accrued interest (net of reserves) of approximately dlra19dtta6 million |
| The net carrying value of our investments in the RSVP/FLCG Investments of approximately dlra55dtta2 million was reassessed with no change by management as of December 31, 2005 |
| Such amount is included in investments in affiliate loans and joint ventures on our consolidated balance sheet |
| FrontLine is in default under the FrontLine Loans and on June 12, 2002 filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code |
| A committee of our Board of Directors, comprised solely of independent directors, considers any actions to be taken by us in connection with the RSVP/FLCG Investments |
| Scott H Rechler, who serves as Chief Executive Officer, President and Chairman of our Board of Directors, serves as CEO and Chairman of the Board of Directors of FrontLine and is its sole board member |
| Scott H Rechler also serves as a member of the management committee of RSVP and serves as a member of the Board of Directors of American Campus Communities, a company formerly owned by RSVP • Our acquisition, development and construction activities could result in losses We intend to acquire existing office properties to the extent that suitable acquisitions can be made on advantageous terms |
| Acquisitions of commercial properties entail risks, such as the risks that we may not be in a position or have the opportunity in the future to make suitable property acquisitions on advantageous terms and that our investments will fail to perform as expected |
| Some of the properties that we acquire may require significant additional investment and upgrades and are subject to the risk that estimates of the cost of improvements to bring such properties up to standards established for the intended market position may prove inaccurate |
| I-18 ______________________________________________________________________ [81]Back to Contents We also intend to continue the selective development and construction of office properties in accordance with our development and underwriting policies as opportunities arise |
| Our development and construction activities include the risks that: • we may abandon development opportunities after expending resources to pursue development; • construction costs of a project may exceed our original estimates; • occupancy rates and rents at a newly completed property may not be sufficient to make the property profitable; • financing may not be available to us on favorable terms for development of a property; and • we may not complete construction and lease-up on schedule, resulting in increased carrying costs to complete construction, construction costs and, in some instances, penalties owed to tenants with executed leases |
| Our development activities are also subject to risks relating to the inability to obtain, or delays in obtaining, all necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations |
| If any of the above events occur, our ability to pay dividends to our stockholders and service the Operating Partnership’s indebtedness could be adversely affected |
| In addition, new development activities, regardless of whether or not they are ultimately successful, typically require a substantial portion of management’s time and attention |
| • Adverse real estate market conditions, increases in operating expenses or capital expenditures, tenant defaults and uninsured losses could adversely affect our financial results • Our properties’ revenues and value may be adversely affected by a number of factors, including: • the national, state and local economic climate and real estate conditions, such as oversupply of or reduced demand for space and changes in market rental rates; • the need to periodically renovate, repair and relet our space; • increasing operating costs, including real estate taxes and utilities, which may not be passed through to tenants; • defaults by our tenants or their failure to pay rent on a timely basis; and • uninsured losses |
| A significant portion of our real estate investment expenses, such as mortgage payments, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a decrease in income from our properties |
| In addition, our real estate values and income from properties are also affected by our compliance with laws, including tax laws, interest rate levels and the availability of financing |
| We may suffer losses as a result of tenant bankruptcies |
| If any of our tenants files for protection from creditors under federal bankruptcy laws, such tenant generally has the right, subject to certain conditions, to reject its leases with us |
| In the event this occurs, we may not be able to readily lease the space or to lease it on equal or better terms |
| Our reliance on a major tenant could lead to losses |
| As a result of our acquisition in May 2005 of a 1dtta4 million square foot office tower located at One Court Square, Long Island City, New York, our lease with the seller, Citibank, NA and our subsequent transfer of a 70prca interest in the property to a joint venture partner, rent from Citibank at this and other properties in our portfolio currently comprises approximately 4dtta2prca of our pro-rata share of annualized base rent |
| We could be adversely affected if Citigroup experiences a significant downturn in its business, becomes insolvent or files for bankruptcy |
| Under the terms of its lease at One Court Square, Citibank has the right to cancel up to 20prca of the leased space in 2011 and 2012 and to cancel up to an additional 20prca of such space in 2014 and 2015 |
| We could be adversely affected if Citibank exercises its options to terminate its leases and we are unable to lease the space at similar rents |
| Because real estate investments are illiquid, we may not be able to sell properties when appropriate |
| Real estate investments generally cannot be sold quickly |
| We may not be able to vary our portfolio promptly in response to economic or other conditions |
| In addition, provisions of the Internal Revenue I-19 ______________________________________________________________________ [82]Back to Contents Code of 1986, as amended (the “Code”), limit a REIT’s ability to sell properties in some situations when it may be economically advantageous to do so, thereby adversely affecting returns to our stockholders |
| We may be unable to structure property dispositions in a tax-efficient manner |
| Certain of our properties have low tax bases relative to their fair values and, accordingly, the disposition of such properties would generate significant taxable gain unless they were transferred in a tax-free exchange under Section 1031 of the Code or another tax-free or tax-deferred transaction |
| For an exchange to qualify for tax-deferred treatment under Section 1031, many technical requirements must be satisfied |
| In addition, a qualified replacement property must be identified within 45 days of the sale of the relinquished property and such qualified replacement property generally must be acquired within 180 days from the sale |
| Given the competition for properties meeting our investment criteria, there can be no assurance that we will be able to identify and acquire qualified replacement properties within the required time frames under Section 1031, in which case we would not receive the tax benefit of such an exchange |
| As of March 7, 2005, we currently have approximately dlra94dtta5 million being held by a qualified intermediary |
| In the event we do not find qualified replacement properties in a timely manner we would recognize approximately dlra32dtta5 million of taxable gain, which could potentially affect our REIT distribution requirements |
| Competition in our markets is significant |
| The competition for tenants in the office markets in the Tri-State Area is significant and includes properties owned by other REITs, local privately-held companies, institutional investors and other owners |
| There is also significant competition for acquisitions in our markets from the same types of competitors |
| Increasing operating costs could adversely affect cash flow |
| Our properties are subject to operating risks common to commercial real estate, any and all of which may adversely affect occupancy or rental rates |
| Our properties are subject to increases in our operating expenses such as cleaning, electricity, heating, ventilation and air conditioning; elevator repair and maintenance; insurance and administrative costs; and other costs associated with security, landscaping, repairs and maintenance of our properties |
| As a result of the impact of the events of September 11, 2001, we have realized increased insurance costs, particularly relating to property and terrorism insurance, and security costs |
| While our tenants generally are currently obligated to pay a portion of these costs, there is no assurance that tenants will agree to pay these costs upon renewal or that new tenants will agree to pay these costs initially |
| If operating expenses increase, the local rental market may limit the extent to which rents may be increased to meet increased expenses without at the same time decreasing occupancy rates |
| While we have cost saving measures at each of our properties, if any of the above occurs, our ability to pay dividends to our stockholders and service our indebtedness could be adversely affected |
| Some potential losses are not covered by insurance; losses could result from terrorist acts |
| We carry comprehensive liability, fire, extended coverage and rental loss insurance on all of our properties |
| Five of our properties are located in New York City |
| As a result of the events of September 11, 2001, insurance companies were limiting coverage for acts of terrorism in “all risk” policies |
| In November 2002, the TRIA was signed into law, which, among other things, requires insurance companies to offer coverage for losses resulting from defined “acts of terrorism” through 2005 |
| The TRIA was subsequently extended, with certain modifications, through 2007 with the enactment of the Terrorism Risk Insurance Extension Act of 2005 |
| Our current property insurance coverage, which expires on June 2, 2006, provides for full replacement cost of our properties, including for acts of terrorism up to dlra540 million on a per occurrence basis |
| There can be no assurance that we will be able to replace these coverages at reasonable rates or at all |
| Furthermore, losses arising from acts of war or relating to pollution are not generally insured because they are either uninsurable or not economically insurable |
| If an uninsured loss or a loss in excess of insured limits should occur, we could lose our capital invested in a property, as well as any future revenue from the property |
| We would remain obligated on any mortgage indebtedness or other obligations related to the property |
| Any such loss could materially and adversely affect our business and financial condition and results of operations |
| • Property ownership through partnerships and joint ventures creates additional investment risks Partnership or joint venture investments may involve risks not otherwise present for investments made solely by us, including the possibility that our partners or co-venturer might become bankrupt, that our partners or co-venturer might at any time have different interests or goals than we do, and that our partners or co-venturer may take action contrary to our instructions, requests, policies or objectives, including our policy with respect to maintaining our qualification as a REIT Other risks of joint venture investments include impasse on decisions, such as a sale, because neither we nor our partners or co-venturer would have full control over the partnership or joint venture |
| There is no limitation under our organizational documents as to the amount of funds that may be invested in partnerships or joint ventures |
| The following is a description of the significant joint ventures in which we are involved: Our joint venture in 919 Third Avenue, New York, New York, includes the risks that we cannot enter into large leases or refinance or dispose of the property in our discretion |
| On December 21, 2001, we formed a joint venture (the “919JV”) with the New York State Teachers’ Retirement Systems (“NYSTRS”) whereby NYSTRS acquired a 49prca indirect interest in the property located at 919 Third Avenue, New York, New York for dlra220dtta5 million, which was comprised of dlra122dtta1 million of its proportionate share of secured mortgage debt and approximately dlra98dtta4 million of cash which was then distributed to us |
| We are responsible I-20 ______________________________________________________________________ [83]Back to Contents for managing the day-to-day operations and business affairs of the 919JV and have substantial rights in making decisions affecting the property such as developing a budget, leasing and marketing |
| We must obtain the consent of NYSTRS in order to make certain decisions, including a sale of the property, purchasing any additional property or entering into significant leases |
| NYSTRS has certain rights primarily intended to protect its investment |
| Our joint venture in a portfolio of six office properties includes the risks that we cannot enter into large leases or refinance the properties in our discretion |
| During September 2000, we formed a joint venture (the “Tri-State JV”) with Teachers Insurance and Annuity Association (“TIAA”) and contributed nine Class A suburban office properties aggregating approximately 1dtta5 million square feet to the Tri-State JV for a 51prca majority ownership interest |
| TIAA contributed approximately dlra136 million for a 49prca interest in the Tri-State JV which was then distributed to us |
| Since the formation of the Tri-State JV, we acquired TIAA’s 49prca interest in two of the properties held by the Tri-State JV and the Tri-State JV sold one of its properties to a third party |
| As a result of these transactions, the Tri-State JV owns six Class A suburban office properties aggregating approximately 946cmam000 square feet |
| We are responsible for managing the day-to-day operations and business affairs of the Tri- State JV and have substantial rights in making decisions affecting the properties such as leasing, marketing and financing |
| The minority member has certain rights primarily intended to protect its investment |
| Our investment in the Omni includes the risks that we cannot refinance or dispose of the property in our sole discretion and we could have our general partnership interest converted into a limited partnership interest |
| The Operating Partnership owns a 60prca general partner interest in Omni Partners, LP (the “Omni Partnership”), the partnership that owns the Omni, a 579cmam000 square foot office building located in our Nassau West Corporate Center office park |
| Odyssey Partners, LP (“Odyssey”) and an affiliate of Odyssey own the remaining 40prca interest |
| Through our partnership interest, we act as managing partner and have the sole authority to conduct the business and affairs of the Omni Partnership subject to the limitations set forth in the amended and restated agreement of limited partnership of the Omni Partnership (the “Omni Partnership Agreement”) |
| These limitations include Odyssey’s right to negotiate under certain circumstances a refinancing of the mortgage debt encumbering the Omni and the right to approve any sale of the Omni made on or before March 13, 2007 (the “Acquisition Date”) |
| The Operating Partnership will continue to act as the sole managing partner of the Omni Partnership unless certain conditions specified in the Omni Partnership Agreement shall occur |
| Upon the occurrence of any of these conditions, the Operating Partnership’s general partnership interest shall convert to a limited partnership interest and an affiliate of Odyssey shall be the sole managing partner, or, at the option of Odyssey, the Operating Partnership shall be a co-managing partner with an affiliate of Odyssey |
| In addition, on the Acquisition Date, the Operating Partnership will have the right to purchase Odyssey’s interest in the Omni Partnership at a price (the “Option Price”) based on 90prca of its fair market value |
| The Option Price shall apply to the payment of all sums due under a loan made by the Operating Partnership in March 1997 to Odyssey in the amount of approximately dlra17 million |
| The Odyssey loan matures on the Acquisition Date and is secured by a pledge of Odyssey’s interest in the Omni Partnership |
| Our formation of a joint venture with Reckson New York Property Trust (“Reckson LPT”) subjects us to certain risks |
| On September 21, 2005, we announced the completion of the public offering in Australia of approximately Adlra263 million (approximately USdlra202 million) of units in a newly-formed Company-sponsored Australian listed property trust, Reckson LPT, which is traded on the Australian Stock Exchange, and the closing of the first of three tranches of this transaction |
| Reckson LPT contributed the net proceeds of the offering to Reckson Australia Operating Company, LLC, a newly-formed joint venture (the “RAOC JV”), in exchange for a 75prca indirect interest therein |
| Simultaneously, the RAOC JV acquired from us 17 properties for a transaction price of approximately dlra367 million (including the assumption of approximately dlra196 million in mortgage debt) |
| In return, we received a 25prca interest in the RAOC JV and approximately dlra128 million in cash |
| In tranche II, which closed on January 6, 2006, we transferred an additional three properties to the RAOC JV for approximately dlra84dtta6 million (including the assignment of approximately dlra20dtta1 million in mortgage debt) and maintained our 25prca interest in the RAOC JV We have agreed to transfer to the RAOC JV an additional five properties for approximately dlra111dtta8 million in the third tranche of the transaction, which is expected to close in October 2006 |
| I-21 ______________________________________________________________________ [84]Back to Contents In connection with these transactions, we arranged for approximately dlra320 million of debt to encumber the properties transferred to the RAOC JV In August and September 2005, we entered into loan agreements with UBS Real Estate Investments Inc |
| for an aggregate of approximately dlra248 million, which were secured by nine of the properties transferred to the RAOC JV in September 2005, and three of the properties scheduled to be transferred to the RAOC JV during October 2006 |
| In January 2006, the RAOC JV entered into a loan agreement with Citigroup Global Markets Realty Corp |
| for approximately dlra72 million, which was secured by two of the properties transferred to the RAOC JV in January 2006 and five of the properties transferred in the first tranche |
| In connection with the August 2005 loan, we have provided guarantees covering customary exceptions from the non-recourse nature of the indebtedness, as well as certain obligations relating to the potential termination of a number of leases at four of the properties |
| We have also guaranteed to the respective lender certain capital requirements related to certain of the properties |
| The loan agreement provides that we will be relieved of (i) the customary non- recourse exceptions and capital requirements upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least dlra100 million and (ii) all but two of the lease-related obligations upon transfer of the respective properties to the RAOC JV and the RAOC JV meeting a net worth test of at least dlra200dtta00 million |
| The RAOC JV has agreed to indemnify us for any loss, cost or damage it may incur pursuant to our guaranty of these obligations |
| As of December 31, 2005, the RAOC JV met the dlra100 million net worth threshold and there remain approximately dlra18 million of aggregate guarantees outstanding |
| Reckson LPT is managed by Reckson Australia Management Limited (“RAML”), an Australian licensed “Responsible Entity” which is wholly-owned by the Operating Partnership |
| If RAML fails to maintain its license as a “Responsible Entity” it could no longer manage Reckson LPT RAML is managed by a six member board that includes three independent directors from Australia |
| Reckson Australia LPT Corporation, which is wholly-owned by Reckson LPT, serves as the managing member of the RAOC JV, and has substantial rights in making decisions affecting the RAOC JV, other than with respect to certain identified “major decisions,” including but not limited to a merger or consolidation involving the RAOC JV, a disposition of all or substantially all of its assets, or its liquidation or dissolution |
| Such major decisions require the prior written consent of a majority of the non-managing members |
| We, through RAML, will have obligations to the RAOC JV, Reckson LPT and its unitholders in connection with the management of Reckson LPT Certain members of our management, including Mr |
| Scott Rechler, our Chief Executive Officer, President and Chairman of the Board of Directors, will be involved with the management and operation of the RAOC JV and will devote time and attention to matters relating to the RAOC JV The completion of the third tranche of this transaction is subject to conditions typical for transactions of this nature and, as a result, there can be no assurance that the third tranche will be completed on the terms described above or at all |
| There also can be no assurance that the RAOC JV will perform as we anticipate |
| Our joint venture in One Court Square, Long Island City, New York, includes the risks that we cannot enter into large leases or refinance or dispose of the property in our sole discretion and we could be removed as administrative member |
| On November 30, 2005, we formed a joint venture (the “Court Square JV”) with a group of institutional investors (the “JV Partners”) led by JPMorgan Investment Management, whereby the JV Partners acquired a 70prca interest in our 1dtta4 million square foot, 50-story, Class A office tower located at One Court Square, Long Island City, for approximately dlra329dtta7 million, including the assumption of approximately dlra220dtta5 million of debt |
| Pursuant to the terms of the operating agreement governing the Court Square JV The Court Square JV will be managed by a two-person management committee composed of one representative from each of the Company and the JV Partners |
| We have been designated as the administrative member of the Court Square JV The operating agreement of the Court Square JV requires approvals from members on certain decisions including annual budgets, sale of the property, refinancing of the property’s mortgage debt and material renovations to the property |
| In addition, after September 20, 2009 the members each have the right to recommend the sale of the property, subject to the terms of the property level debt, and to dissolve the Court Square JV We may be removed as administrative member if (i) we become bankrupt, (ii) we are found to have committed fraud, willful misconduct or gross negligence in the conduct of our duties, (iii) we make an unpermitted transfer under the agreement or (iv) the Operating Partnership holds, directly or indirectly, less than a 10prca interest in the Court Square JV I-22 ______________________________________________________________________ [85]Back to Contents The operating agreement grants to each of the Company and the JV Partners a right of first offer to acquire the other member’s interest in the Court Square JV at any time after November 30, 2007 |
| In addition, after September 20, 2009, either the Company or the JV Partners may recommend the sale of One Court Square (or 100prca of the interest in the Court Square JV) to a third party at the price at which such member would be willing to sell the property |
| The non-recommending member may either approve the proposed marketing of the property or may purchase the property at an equivalent price |
| Also, either member may initiate a buy-sell process at any time after (i) November 30, 2007, if a dispute with respect to a “major decision” arises, or (ii) September 20, 2009 |
| In the event the JV Partners exercise their right to recommend the sale of the property or initiate a buy-sell process, we may not be able to finance our acquisition of the property and it may be sold to a third party |
| • Investments in mortgage debt could lead to losses |
| We hold investments in mortgages secured by office or other types of properties |
| We may acquire the mortgaged properties through foreclosure proceedings or negotiated settlements |
| In addition to the risks associated with investments in commercial properties, investments in mortgage indebtedness present additional risks, including the risk that the fee owners of such properties may not make payments of interest and principal in a timely fashion or at all, and we may not realize our anticipated return or sustain losses relating to the investments |
| Moreover, to the extent that we make investments in mortgages that are secured by properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments |
| Although we currently have no intention to originate mortgage loans as a significant part of our business, we may make loans to a seller in connection with our purchase of real estate |
| The underwriting criteria we would use for these loans would be based upon the credit and value of the underlying real estate |
| • Investments in mezzanine loans involve greater risks of loss than senior loans secured by properties |
| We may invest in mezzanine loans relating to office or other types of properties in the Tri-State Area |
| Investments in mezzanine loans take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests in the entity that directly or indirectly owns the property |
| These types of investments involve a higher degree of risk than a senior mortgage loan because the investment may become unsecured as a result of foreclosure by the senior lender |
| In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the property owning entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan |
| If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full |
| Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies and control decisions made in bankruptcy proceedings relating to borrowers |
| In addition, mezzanine loans may have higher loan to value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal |
| Moreover, to the extent that we make investments in mezzanine loans that relate to properties other than office properties, we are less experienced with the financing and operations of these other property types and therefore may not properly evaluate the risks involved in such investments |
| There is no limitation under our organizational documents as to the amount of mezzanine debt in which we may invest |
| • Environmental problems are possible Under various Federal, state and local laws, ordinances and regulations, an owner of real estate is liable for the costs of removal or remediation of certain hazardous or toxic substances on or in such property |
| These laws often impose such liability without regard to whether the owner knew of, or was responsible for, the presence of such hazardous or toxic substances |
| The cost of any required remediation and the owner’s liability therefor as to any property is generally not limited under such enactments and could exceed the value of the property and/or the aggregate assets of the owner |
| The presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral |
| Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at a I-23 ______________________________________________________________________ [86]Back to Contents disposal or treatment facility, whether or not such facility is owned or operated by such person |
| Even if more than one person was responsible for the contamination, each person covered by the environmental laws may be held responsible for the clean-up costs incurred |
| In addition, third parties may sue the owner or operator of a site for damages and costs resulting from environmental contamination emanating from that site |
| Certain environmental laws also govern the removal, encapsulation or disturbance of asbestos-containing materials (“ACMs”) when such materials are in poor condition, or in the event of renovation or demolition |
| Such laws impose liability for release of ACMs into the air and third parties may seek recovery from owners or operators of real properties for personal injury associated with ACMs |
| In connection with the ownership (direct or indirect), operation, management and development of real properties, we may be considered an owner or operator of such properties or as having arranged for the disposal or treatment of hazardous or toxic substances and, therefore, potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property |
| All of our properties have been subjected to a Phase I or similar environmental audit (which involved general inspections without soil sampling, ground water analysis or radon testing) completed by independent environmental consultant companies |
| These Phase I, or similar environmental audits have revealed trusted environmental issues which we are currently addressing at the affected properties |
| These environmental audits have not revealed any environmental liability that we believe would have a material adverse effect on our business |
| • Failure to qualify as a REIT would be costly We have operated (and intend to operate) so as to qualify as a REIT under the Code beginning with our taxable year ended December 31, 1995 |
| Although our management believes that we are organized and operated in a manner to so qualify, no assurance can be given that we will continue to qualify or remain qualified as a REIT If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates |
| Moreover, unless entitled to relief under certain statutory provisions, we also will be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost |
| This treatment would significantly reduce net earnings available to service indebtedness, make investments or pay dividends to stockholders because of the additional tax liability to us for the years involved |
| Also, we would not then be required to pay dividends to our stockholders |
| • We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our shares of common stock At any time, the federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended |
| Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our stockholders |
| Effective generally for taxable years 2003 through 2008, the maximum rate of tax applicable to individuals on qualified dividend income from regular C corporations is 15prca |
| This reduces substantially the so-called “double taxation” (that is, taxation at both the corporate and stockholder levels) that has generally applied to corporations that are not taxed as REITs |
| Dividends from REITs generally will not qualify for the 15prca dividend tax rate because, as a result of the dividends-paid deduction to which REITs are entitled, REITs generally do not pay corporate level tax on income that they distribute to stockholders |
| The lower rates of taxation of qualified dividend income may cause individual investors to view stocks of non-REIT corporations as more attractive relative to stocks of REITs |
| We cannot predict what impact these tax rates, or future changes in the laws or regulations governing REITs, may have on the value of our shares of common stock |
| • Limits on changes in control may deter changes in management and third party acquisition proposals Supermajority Vote for Removal of Directors |
| In our charter, we have opted into a provision of the Maryland General Corporation Law (the “MGCL”) requiring a vote of two-thirds of the common stock to remove one or more directors |
| Our bylaws provide that a special meeting of stockholders need only be called if requested by holders of the majority of votes eligible to be cast at such meeting |
| We have adopted a stockholder rights plan which could delay, defer or prevent a change in control |
| Our charter authorizes the Board of Directors to issue up to 25 million shares of preferred stock, to reclassify unissued shares of capital stock, and to establish the preferences, conversion and other rights, voting powers, restrictions, limitations and restrictions on ownership, limitations as to dividends or other distributions, qualifications, and terms and conditions of redemption for each class or series of any capital stock issued |
| In October 2000, the Board of Directors adopted a Stockholder Rights Plan (the “Rights Plan”) designed to protect our stockholders from various abusive takeover tactics, including attempts to acquire control at an inadequate price, depriving stockholders of the full value of their investment |
| The Rights Plan is designed to allow the Board of Directors to secure the best available transaction for all of our stockholders |
| The Rights Plan was not adopted in response to any known effort to acquire control of us |
| Under the Rights Plan, each of our stockholders received a dividend of one Right for each share of our outstanding common stock owned |
| The Rights are exercisable only if a person or group acquires, or announces their intent to acquire, 15prca or more of our common stock, or announces a tender offer the consummation of which would result in beneficial ownership by a person or group of 15prca or more of our common stock |
| Each Right entitles the holder to purchase one one-thousandth of a share of a series of our junior participating preferred stock at an initial exercise price of dlra84dtta44 |
| If any person acquires beneficial ownership of 15prca or more of the outstanding shares of our common stock, then all Rights holders except the acquiring person are entitled to purchase our common stock at a price discounted from the then market price |
| If we are acquired in a merger after such an acquisition, all Rights holders except the acquiring person are also entitled to purchase stock in the buyer at a discount in accordance with the Rights Plan |
| Limitations on acquisition of and changes in control pursuant to Maryland law |
| We have opted out of certain provisions of the MGCL referred to as the “control share acquisition statute,” which eliminates the voting rights of shares acquired in a Maryland corporation in quantities so as to constitute “control shares,” as defined under the MGCL and the “business combination statute,” which generally limits business combinations between a Maryland corporation and any 10prca owners of the corporation’s stock or any affiliate thereof |
| However, the Board of Directors may eliminate the provision exempting acquisitions from the control share acquisition statute and/or cause the business combination statute to be applicable without, in either case, obtaining the approval of our stockholders |
| If the Board of Directors took such action(s), these provisions could have the effect of inhibiting a third party from making an acquisition proposal for the Company or of delaying, deferring or preventing a change in control of the Company under circumstances that otherwise could provide the holders of shares of common stock with the opportunity to realize a premium over the then-prevailing market price |
| • The market value of our securities could decrease in the event we do not maintain our current dividend rate and also as a result of our performance and market perception Effect of earnings and cash dividends |
| The market value of the equity securities of a REIT may be based primarily upon the market’s perception of the REIT’s growth potential and its current and future cash dividends, and may be secondarily based upon the real estate market value of the underlying assets |
| During the prior two years, we have incurred significant leasing costs, in the form of tenant improvement costs, leasing commissions and free rent, as a result of market demands from tenants and high levels of leasing transactions that result from the re-tenanting of scheduled expirations or space vacated due to early terminations of leases |
| We are also expending costs on tenants that are renewing or extending their leases earlier than scheduled |
| As a result of these and/or other operating factors, our cash available for distribution from operating activities was not sufficient to pay 100prca of the dividends paid on our common equity during 2004 and 2005 |
| To meet the short-term funding requirements relating to the higher leasing costs, we have used proceeds from property sales or borrowings under our credit facility |
| Based on our forecasted leasing, we anticipate that we will continue to incur shortfalls during 2006 |
| We currently intend to fund any shortfalls I-25 ______________________________________________________________________ [88]Back to Contents with proceeds from sales of non-income producing assets or borrowings under our credit facility |
| We periodically review our dividend policy to determine the appropriateness of our dividend rate relative to our cash flows |
| We adjust our dividend rate based on such factors as leasing activity, market conditions and forecasted increases and decreases in our cash flow as well as required distributions of taxable income to maintain REIT status |
| There can be no assurance that we will maintain the current quarterly distribution level on our common equity |
| Adverse impact of rising interest rate |
| One factor which influences the price of securities is the dividend or interest rate on the securities relative to market interest rates |
| Rising interest rates may lead potential buyers of our equity securities to expect a higher dividend rate, which would adversely affect the market price of the securities |
| In addition, rising interest rates would result in increased expense, thereby adversely affecting cash flow and the ability of the Operating Partnership to service its indebtedness |
| • Transactions by the Operating Partnership or the Company could adversely affect debt holders Except with respect to a covenant limiting the incurrence of indebtedness, a covenant requiring the Operating Partnership to maintain a certain percentage of unencumbered assets and a covenant requiring any successor in a business combination with the Operating Partnership to assume all of the obligations of the Operating Partnership under the indenture pursuant to which the debt securities will be issued, the indenture does not contain any provisions that would protect holders of debt securities in the event of (i) a highly leveraged or similar transaction involving the Operating Partnership, the management of the Operating Partnership or the Company, or any affiliate of any these parties, (ii) a change in control or (iii) certain reorganizations, restructuring, mergers or similar transactions involving the Operating Partnership or the Company |