Thomas Properties 8-K Entry into a Material Definitive Agreement

EXHIBIT 99.1

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and operating data on a historical basis for our company and on a combined historical basis for the affiliated group of companies which constitute our predecessor prior to October 13, 2004 (“TPGI Predecessor”).

The following data should be read in conjunction with our financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K.

TPGI Predecessor’s historical combined financial data includes the following operations and properties for the period January 1, 2004 to October 12, 2004:

• the investment advisory, property management, leasing and real estate development operations of TPGI Predecessor;

• the real estate operations of the affiliates that currently own interests in Four Points Centre, Two Commerce Square and 2100 JFK Boulevard, Campus El Segundo, and One Commerce Square (beginning June 2004); and

• investment and equity in income or loss from the operations of the affiliates that currently own interests in One Commerce Square (through May 2004), 2121 Market Street and City National Plaza.

Thomas Properties Group, Inc. and TPGI Predecessor

(dollars in thousands, except per share data)

	Thomas Properties Group, Inc.										TPGI Predecessor
	Year ended December 31, 2008		Year ended December 31, 2007		Year ended December 31, 2006		Year ended December 31, 2005		Period from October 13, 2004 through December 31, 2004		Period from January 1, 2004 through October 12, 2004
Revenues:
Rental	$	30,523	$	32,646	$	33,076	$	32,618	$	7,356	$	20,611
Tenant reimbursements		25,874		26,371		25,197		24,960		5,056		14,289
Parking and other		3,869		3,917		3,837		4,151		793		2,103
Investment advisory, management, leasing, and development services		7,194		12,750		6,931		3,630		1,158		4,033
Investment advisory, management, leasing, and development services—unconsolidated real estate entities		18,263		17,921		12,603		7,805		865		3,843
Reimbursable property personnel costs		6,079		3,877		2,620		2,074		373		1,707
Condominium sales		79,758		—		—		—		—		—
Total revenues		171,560		97,482		84,264		75,238		15,601		46,586
Expenses:
Property operating and maintenance		25,608		22,690		20,805		20,593		4,521		11,888
Real estate taxes		6,482		6,087		5,904		5,803		1,267		3,392
Investment advisory, management, leasing, and development services		14,800		13,093		7,139		4,144		531		3,496
Reimbursable property personnel costs		6,079		3,877		2,620		2,074		373		1,707
Cost of condominium sales		62,436		—		—		—		—		—
Rent—unconsolidated real estate entities		284		241		227		233		—		—
Interest		22,763		17,721		20,570		20,784		5,611		18,695
Depreciation and amortization		11,766		11,604		12,661		12,408		2,614		6,206
General and administrative		16,411		17,326		17,202		12,914		2,095		4,487
Impairment loss		11,023		—		—		—		—		—
Total expenses		177,652		92,639		87,128		78,953		17,012		49,871

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	Thomas Properties Group, Inc.															TPGI Predecessor
	Year ended December 31, 2008			Year ended December 31, 2007			Year ended December 31, 2006			Year ended December 31, 2005			Period from October 13, 2004 through December 31, 2004			Period from January 1, 2004 through October 12, 2004
Gain on purchase of other secured loan		—			—			—			25,776			—			—
Gain on sale of real estate		3,618			4,441			10,640			—			—			975
Gain (loss) from early extinguishment of debt		255			—			(360	)		(4,497	)		—			—
Interest income		2,795			6,014			2,974			1,268			300			17
Equity in net (loss) of unconsolidated real estate entities		(12,828	)		(14,853	)		(12,909	)		(16,259	)		(988	)		(1,099	)
(Loss) income before benefit (provision) for income taxes and noncontrolling interests		(12,252	)		445			(2,519	)		2,573			(2,099	)		(3,392	)
Benefit (provision) for income taxes		1,885			(1,221	)		(635	)		(698	)		390			—
Net (loss) income		(10,367	)		(776	)		(3,154	)		1,875			(1,709	)		(3,392	)
Noncontrolling interests’ share of net loss (income):
Unitholders in the Operating Partnership		4,683			(249	)		1,577			(1,559	)		1,128			(1,614	)
Partners in the consolidated real estate entities		198			122			(472	)		328			—			—
		4,881			(127	)		1,105			(1,231	)		1,128			(1,614	)
TPGI share of net (loss) income	$	(5,486	)	$	(903	)	$	(2,049	)	$	644		$	(581	)	$	(5,006	)
(Loss) earnings per share-basic and diluted	$	(0.24	)	$	(0.05	)	$	(0.15	)	$	0.03		$	(0.04	)
Weighted average common shares outstanding—basic		23,693,577			20,739,371			14,339,032			14,301,932			14,290,097
Weighted average common shares outstanding—diluted		23,693,577			20,739,371			14,339,032			14,306,607			14,290,097
Cash flows from:
Operating activities	$	2,216		$	45,507		$	20,628		$	20,820		$	(5,435	)	$	11,255
Investing activities		(35,543	)		(139,921	)		(19,084	)		(54,510	)		(88,746	)		5,380
Financing activities		(24,297	)		156,718			(1,116	)		41,099			147,154			(16,692	)

	December 31,
	Thomas Properties Group, Inc.
	2008		2007		2006		2005		2004
Balance Sheet Data (at year end):
Investments in real estate, net	$	478,665	$	463,364	$	336,154	$	313,161	$	282,485
Total assets		660,435		713,904		510,342		479,611		449,195
Mortgages, other secured, and unsecured loans		387,945		396,007		331,828		325,179		295,890
Total liabilities		439,708		478,496		375,152		344,690		307,760
Equity		220,727		235,408		135,190		134,921		141,435
Total liabilities and equity		660,435		713,904		510,342		479,611		449,195

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section in this Form 10-K entitled “Forward-Looking Statements.” Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see the section in this report entitled “Risk Factors.”

Overview and Background

We are a full-service real estate operating company that owns, acquires, develops and manages office, retail and multi-family properties on a nationwide basis. We conduct our business through our Operating Partnership, of which we own 61.0% at December 31, 2008. We have control over the major decisions of the Operating Partnership.

Critical Accounting Policies and Estimates

Accounting estimates. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the relevant reporting periods. Certain accounting policies are considered to be critical accounting estimates, as these policies require us to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in the accounting estimate are reasonably likely to occur from period to period. We believe the following accounting policies reflect the more significant estimates used in the preparation of our financial statements. For a summary of significant accounting policies, see note 3 to our financial statements, included elsewhere in this report.

Investments in real estate. The price that we pay to acquire a property is impacted by many factors including the condition of the buildings and improvements, the occupancy of the building, the existence of above and below market tenant leases, the creditworthiness of the tenants, favorable or unfavorable financing, above or below market ground leases and numerous other factors. Accordingly, we are required to make subjective assessments to allocate the purchase price paid to acquire investments in real estate among the assets acquired and liabilities assumed based on our estimate of the fair values of such assets and liabilities. This includes determining the value of the buildings and improvements, land, any ground leases, tenant improvements, in-place tenant leases, tenant relationships, the value (or negative value) of above (or below) market leases and any debt assumed from the seller or loans made by the seller to us. Each of these estimates requires a great deal of judgment and some of the estimates involve complex calculations. Our calculation methodology is summarized in Note 3 to our consolidated financial statements. These allocation assessments have a direct impact on our results of operations because if we were to allocate more value to land there would be no depreciation with respect to such amount or if we were to allocate more value to the buildings as opposed to allocating to the value of tenant leases, this amount would be recognized as an expense over a much longer period of time, since the amounts allocated to buildings are depreciated over the estimated lives of the buildings whereas amounts allocated to tenant leases are amortized over the terms of the leases. Additionally, the amortization of value (or negative value) assigned to non-market rate leases is recorded as an adjustment to rental revenue as compared to amortization of the value of in-place leases and tenant relationships, which is included in depreciation and amortization in our consolidated statements of operations.

We are required to make subjective assessments as to the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

We evaluate a property for potential impairment when events or changes in circumstances indicate that the current book value of the property may not be recoverable. In the event that these periodic assessments result in a determination that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the property, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. Estimates of expected future net cash flows are inherently uncertain and are based on assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. These estimates require us to make assumptions relating to, among other things, future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future sale of the property.

We use the equity method of accounting to account for investments in real estate entities over which we have significant influence, but not control over major decisions. In these situations, the unit of account for measurement purposes is the equity investment and not the real estate. Accordingly, if our joint venture investments meet the other-than-temporary criteria of Accounting Principle Board Opinion No. 18 – “The Equity Method of Accounting for Investments in Common Stock”, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of our investment.

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With respect to condominium units held for sale, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value less costs to sell the project. Estimates of fair value are often based on expected future net cash flows, which are inherently uncertain and are based on assumptions dependent upon future and current market conditions and events that affect the ultimate value of the project. These estimates require us to make assumptions relating to, among other things, sales absorption rates, selling prices and discount rates.

Revenue recognition. Leases with tenants are accounted for as operating leases. Rental income is recognized as earned based upon the contractual terms of the leases with tenants. Minimum annual rents are recognized on a straight-line basis over the lease term regardless of when the payments are made. The deferred rents asset on our balance sheets represents the aggregate excess rental revenue recognized on a straight-line basis over the cash received under the applicable lease provisions. Our leases generally contain provisions that require tenants to reimburse us for a portion of property operating expenses and real estate related taxes associated with the property. These reimbursements are recognized as revenues in the period the related expenses are incurred. Real estate commissions on leases we charge to third party owners of rental properties are generally recorded as income after we satisfy all obligations under the commission agreement. A typical commission agreement provides that we earn 50% of the lease commission upon the execution of the lease agreement by the tenant. The remaining 50% of the lease commission is earned at a later date, usually upon tenant occupancy. The existence of any significant future contingencies will delay recognition of commission revenue until those contingencies are satisfied. In addition, we eliminate lease commissions we charge on our ownership share of rental properties. Investment advisory, property management and development services fees are recognized when earned under the provisions of the related agreements.

We have one high-rise condominium project for which we use the percentage of completion accounting method to recognize revenues and costs. Revenues and costs for projects are recognized using the percentage of completion method of accounting when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not revert to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the costs of the project can be reasonably estimated. Revenues are recognized on the individual project’s aggregate value of units which have closed and units for which the home buyers have signed binding agreements of sale and are based on the percentage of total estimated construction costs that have been incurred. The total estimated costs of the project are allocated to these units on a relative sales value basis. Total estimated revenues and construction costs are reviewed periodically, and any change is applied to current and future periods.

Allowances for uncollectible current tenant receivables and unbilled deferred rents receivable. Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for estimated uncollectible tenant receivables and unbilled deferred rent. Our determination of the adequacy of these allowances requires significant judgments and estimates. Unbilled deferred rents receivable represents the amount that the cumulative straight-line rental revenue recorded to date exceeds cash rents billed to date under the lease agreements. Given the longer-term nature of these types of receivables, our determination of the adequacy of the allowance for unbilled deferred rents receivables is based primarily on historical loss experience. We evaluate the allowance for unbilled deferred rents receivable using a specific identification methodology for our company’s significant tenants, assessing a tenant’s financial condition and the tenant’s ability to meet its lease obligations. In addition, the allowance includes a reserve based upon our historical experience and current and anticipated future economic conditions that are not associated with any specific tenant.

Depreciable lives of leasing costs. We incur certain capital costs in connection with leasing our properties. These costs consist primarily of lease commissions and tenant improvements. Lease costs are amortized on the straight-line method over the shorter of the estimated useful life of the asset or the estimated remaining term of the lease, ranging from one to 15 years. We reevaluate the remaining useful life of these costs as the creditworthiness of our tenants changes. If we determine that the estimated remaining life of the respective lease has changed, we adjust the amortization period and, therefore, the amortization or depreciation expense recorded each period may fluctuate. If we experience increased levels of amortization or depreciation expense due to changes in the estimated useful lives of leasing costs, our results of operations may be adversely affected.

Income taxes. We are subject to federal income taxes in the United States, and also in states and local jurisdictions in which we operate. We account for income taxes according to Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes”. SFAS 109 requires the recognition of deferred tax assets, net of applicable reserves, related to net operating loss carryforwards and certain temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not. Otherwise, a valuation allowance is applied.

In accordance with the criteria of SFAS No. 5, “Accounting for Contingencies”, we record tax contingencies when the exposure item becomes probable and reasonably estimable. We assess the tax uncertainties on a quarterly basis and maintain the required tax reserves until the underlying issue is resolved or upon the expiration of the statute of limitations. Our estimate of potential outcome of any uncertain tax issue is highly judgmental and we believe we have adequately provided for any reasonable and foreseeable outcomes related to uncertain tax matters.

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In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes,” which was effective for our company on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in tax positions and requires that we recognize the impact of a tax position in our financial statements if that position would more likely than not be sustained on audit, based on the technical merits of the position. We recorded the cumulative effect of this change in accounting principle as an adjustment to opening retained earnings at January 1, 2007.

Factors That May Influence Future Results of Operations

The following is a summary of the more significant factors we believe may affect our results of operations. For a more detailed discussion regarding the factors that you should consider before making a decision to acquire shares of our common stock, see the information under the caption “Risk Factors” elsewhere in this report.

Rental income. The amount of net rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space, to lease currently available space as well as space in newly developed or redeveloped properties and space available from unscheduled lease terminations. The amount of rental income we generate also depends on our ability to maintain or increase rental rates in the submarkets where our properties are located.

Los Angeles, Philadelphia, Austin, and Houston—Submarket Information. A significant portion of our income is derived from properties located in Los Angeles, Philadelphia, Austin and Houston. The market conditions in these submarkets have a significant impact on our results of operations.

Information regarding significant tenants—Conrail. A significant amount of space at our Two Commerce Square property has historically been leased to Conrail. Approximately half or 375,000 square feet of this lease expired in June 2008 and the remaining half expires in June 2009. Conrail currently subleases substantially all of its space to a number of subtenants. While we have entered into agreements with many of the subtenants for direct leases once their sublease term expires, the rental rates are lower than paid by the current tenant. As a result, our aggregate revenues from this property are lower following the expiration of the Conrail lease in 2008 and we currently expect aggregate revenues from the property to further decrease following the final Conrail expiration in June 2009. We have entered into direct leases for 624,000 square feet of the Conrail space. The lease terms range from 3 months to 139 months. Because of these direct leases, we believe we have mitigated some of the risks associated with the Conrail tenant concentration.

Development and redevelopment activities. We believe that our development activities present growth opportunities for us over the next several years. We continually evaluate the size, timing and scope of our development and redevelopment initiatives and, as necessary, sales activity to reflect the economic conditions and the real estate fundamentals that exist in our submarkets. However, we may not be able to lease committed development or redevelopment properties at expected rental rates or within projected time frames or complete projects on schedule or within budgeted amounts. The occurrence of one or more of these events could adversely affect our financial condition, results of operations and cash flows. We currently own interests in four development projects, and TPG/CalSTRS includes four redevelopment properties and two development sites. As of December 31, 2008, we had incurred, on a consolidated basis, approximately $101.5 million of predevelopment and infrastructure costs that are reflected in Land improvements-development properties on our balance sheet and $1.3 million is reflected in Construction in progress related to our development projects. To the extent that we, or joint ventures we are a partner in, do not proceed with projects as planned, development and/or redevelopment costs would need to be evaluated for impairment.

Results of Operations

The results of operations reflect the consolidation of the affiliates that own One Commerce Square, Two Commerce Square, Murano, 2100 JFK Boulevard, Four Points Centre, Campus El Segundo and our investment advisory, property management, leasing and real estate development operations. The following properties are accounted for using the equity method of accounting:

2121 Market Street (for all periods presented)

City National Plaza (as of January 2003, the date of acquisition)

Reflections I (as of October 2004, the date of acquisition)

Reflections II (as of October 2004, the date of acquisition)

Murano (as of March 2005, the date of formation, through August 1, 2006)

Four Falls Corporate Center (as of March 2005, the date of acquisition)

Oak Hill Plaza (as of March 2005, the date of acquisition)

Walnut Hill Plaza (as of March 2005, the date of acquisition)

Valley Square Office Park (as of March 2005, the date of acquisition, through April 2006, the date of disposition)

San Felipe Plaza (as of August 2005, the date of acquisition)

2500 City West (as of August 2005, the date of acquisition)

Brookhollow Central I, II, and III (as of August 2005, the date of acquisition)

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Intercontinental Center (as of August 2005, the date of acquisition through May 2007, the date of disposition)

2500 City West land (as of December 2005, the date of acquisition)

CityWestPlace (as of June 2006, the date of acquisition)

CityWestPlace land (as of June 2006, the date of acquisition)

Centerpointe I & II (as of January 2007, the date of acquisition)

Fair Oaks Plaza (as of January 2007, the date of acquisition)

The following investment entity that holds a mortgage loan receivable is accounted for using the equity method of accounting:

BH Note B Lender, LLC (as of October 2008, the date of formation)

TPG/CalSTRS, LLC also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following properties (“Austin Portfolio Joint Venture Properties”):

San Jacinto Center (as of June 2007, the date of acquisition)

Frost Bank Tower (as of June 2007, the date of acquisition)

One Congress Plaza (as of June 2007, the date of acquisition)

One American Center (as of June 2007, the date of acquisition)

300 West 6th Street (as of June 2007, the date of acquisition)

Research Park Plaza I & II (as of June 2007, the date of acquisition)

Park Centre (as of June 2007, the date of acquisition)

Great Hills Plaza (as of June 2007, the date of acquisition)

Stonebridge Plaza II (as of June 2007, the date of acquisition)

Westech 360 I-IV (as of June 2007, the date of acquisition)

TGP/CalSTRS, LLC indirectly owns a 25% interest in Square Mile Brookhollow LLC, an entity which purchased a mortgage loan (Note B) which is secured by Brookhollow Central I, II and III.

Comparison of the year ended December 31, 2008 to the year ended December 31, 2007.

Total revenues. Total revenues increased by $74.1 million, or 76.0%, to $171.6 million for the year ended December 31, 2008 compared to $97.5 million for the year ended December 31, 2007. The significant components of revenue are discussed below.

Rental revenues. Rental revenue decreased by $2.1 million, or 6.4% to $30.5 million for the year ended December 31, 2008 compared to $32.6 million for the year ended December 31, 2007. The decrease was primarily related to a scheduled expiration in June 2008 of a significant tenant at Two Commerce Square representing approximately 375,000 rentable square feet. Approximately 66% of the space from the June 2008 Conrail lease expiration has been leased to former subtenants or new tenants at current market rates, which are lower than the expired lease rates.

Tenant reimbursements.Tenant reimbursements decreased by $0.5 million or 1.9% to $25.9 million for the year ended December 31, 2008 compared to $26.4 million for the year ended December 31, 2007. The decrease was primarily related to a scheduled expiration in June 2008 of a significant tenant lease at Two Commerce Square representing approximately 375,000 rentable square feet, offset by revenues from former subtenants that are now direct tenants or new tenants.

Parking and other revenues. Revenues from parking and other remained consistent for each of the twelve month periods ended December 31, 2008 and 2007.

Investment advisory, management, leasing and development services revenues. This caption represents revenues earned from services provided to unaffiliated entities in which we have no ownership interest. Revenues from these services decreased by $5.6 million, or 43.8%, to $7.2 million for the year ended December 31, 2008 compared to $12.8 million for the year ended December 31, 2007. The decrease was primarily due to a disposition incentive fee of $5.6 million related to the sale of an unaffiliated fee-managed property in 2007.

Investment advisory, management, leasing and development services revenues—unconsolidated real estate entities.This caption represents revenues earned from services provided to entities in which we use the equity method to account for our ownership interest since we have significant influence, but not control over the entities. Revenues from these services from unconsolidated real estate entities increased by $0.4 million, or 2.2%, to $18.3 million for the year ended December 31, 2008 compared to $17.9 million for the year ended December 31, 2007. This increase was primarily a result of an increase in fee income of $1.5 million related to the Austin Portfolio Joint Venture Properties acquired in June 2007 and an increase of $0.5 million in fee income related to the rest of the portfolio, which was offset by a decrease in acquisition fees of $1.7 million related to the property investments in Fairfax, Virginia acquired in January 2007, and Austin, Texas acquired in June 2007 as well as a decrease of $0.5 million in advisor fees primarily related to our Houston portfolio.

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Reimbursement of property personnel costs. This caption represents the reimbursement for property personnel salary, payroll taxes and benefits. The increase of $2.2 million or 56.4% to $6.1 million for the year ended December 31, 2008 compared to $3.9 million for the year ended December 31, 2007 was primarily a result of an increase in personnel as a result of the acquisition of the Austin Portfolio Joint Venture Properties in June 2007 resulting in a full twelve months in 2008 compared to seven months in 2007.

Condominium sales. This caption represents the revenue recognized on the percentage of completion method of accounting of the Murano condominium units and parking spaces which closed or were under a binding sales contract as of December 31, 2008. As of December 31, 2008, we had closed the sale of 111 units and 107 parking spaces and had an additional 14 units and 12 parking spaces under contract of sale, for which we recognized revenue of $79.8 million. Prior to the quarter ended June 30, 2008, we accounted for units and parking spaces under contract of sale based on the deposit method of accounting.

Total expenses. Total expenses increased by $85.1 million, or 91.9%, to $177.7 million for the year ended December 31, 2008 compared to $92.6 million for the year ended December 31, 2007. The significant components of expense are discussed below.

Rental property operating and maintenance expense.Rental property operating and maintenance expense increased by $2.9 million, or 12.8%, to $25.6 million for the year ended December 31, 2008 as compared to $22.7 million for the year ended December 31, 2007. The increase is primarily due to an increase in various operating expenses, such as professional services, engineering, utilities and business property taxes as well as increased bad debt charges, wind down costs associated with closing a restaurant at Commerce Square, and marketing and other expenses related to our completed development properties.

Real estate taxes. Real estate taxes remained consistent for each for the twelve month periods ended December 31, 2008 and 2007.

Investment advisory, management, leasing and development services expenses.These expenses increased by $1.7 million, or 13.0%, to $14.8 million for the year ended December 31, 2008 as compared to $13.1 million for the year ended December 31, 2007, primarily due to an increase in the use of consultants for accounting software improvements and our third party development services business and legal fees related to our investment in the Green Fund offset by a decrease in our third party leasing costs in Houston due to lower leasing volume in 2008 compared to 2007.

Reimbursable property personnel costs. This caption represents the reimbursement of property personnel salary, payroll taxes and benefits. The increase of $2.2 million or 56.4% to $6.1 million for the year ended December 31, 2008 compared to $3.9 million for the year ended December 31, 2007 was primarily a result of an increase in salaries and employment related costs related to the Austin Portfolio Joint Venture Properties acquired in June 2007, resulting in a full twelve months in 2008 compared to seven months in 2007.

Cost of condominium sales. This caption represents the cost recognized on the percentage of completion method of accounting for the Murano condominium units and parking spaces which closed or were under a binding sales contract as of December 31, 2008. As of December 31, 2008, we had closed the sale of 111 units and 107 parking spaces and had an additional 14 units and 12 parking spaces under contract of sale, for which we recognized cost of sales of $62.4 million. Prior to the quarter ended June 30, 2008, we accounted for units and parking spaces under contract of sale based on the deposit method of accounting.

Interest expense. Interest expense increased by $5.1 million or 28.8% to $22.8 million for the year ended December 31, 2008 as compared to $17.7 million for the year ended December 31, 2007. The increase in interest expense is primarily attributable to $5.1 million in interest costs no longer being capitalized on Murano and our Four Points office buildings due to the substantial completion of development on these projects during the year ended December 31, 2008 offset by a decrease in interest expense relating to Two Commerce Square of $0.7 million primarily due to the amortizing loan balances for the mortgage and mezzanine loans, increased interest of $0.2 million related to the Campus El Segundo development being completed and increased interest expense of $0.5 million due to lower levels of assets qualifying for corporate capitalization of interest.

Depreciation and amortization expense.Depreciation and amortization expense remained consistent for each for the twelve month periods ended December 31, 2008 and 2007.

General and administrative. General and administrative decreased by $0.9 million, or 5.2%, to $16.4 million for the year ended December 31, 2008 compared to $17.3 million for the year ended December 31, 2007. The decrease is due to a decrease in salaries and benefits related to a reduction in bonuses for the year ended December 31, 2008 as well as a $0.6 million decrease in business taxes due to a refund of Philadelphia business privilege tax and a decrease in certain Delaware corporate taxes.

Impairment Loss.We recognized a non-cash impairment charge of $11.0 million related to our Murano condominium project whose units are complete and held for sale. We are required to record Murano at its estimated fair value as it meets the held for sale criteria of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. There was no corresponding impairment charge in 2007.

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Gain on sale of real estate. Gain on sale of real estate decreased by $0.8 million, or 18.2%, to $3.6 million for the year ended December 31, 2008 compared to $4.4 million for the year ended December 31, 2007. A 14.1 acre parcel at Campus El Segundo was sold in 2006 for $24.6 million resulting in a total gain of $18.4 million. We were obligated to fund certain infrastructure improvements of approximately $2.7 million with respect to the development of the sold parcel. The remaining deferred gain was recognized upon completion of the remaining infrastructure improvements during the year ended December 31, 2008.

Interest income. Interest income decreased by $3.2 million, or 53.3%, to $2.8 million for the year ended December 31, 2008 compared to $6.0 million for the year ended December 31, 2007, primarily due to declining investment balances and lower interest rates.

Equity in net loss of unconsolidated real estate entities.Equity in net loss of unconsolidated real estate entities improved by $2.1 million, or 14.1%, to a net loss of $12.8 million for the year ended December 31, 2008 compared to a net loss of $14.9 million for the year ended December 31, 2007. Set forth below is a summary of the unconsolidated condensed financial information for the unconsolidated real estate entities and our share of net loss and equity in net loss for the years ended December 31, 2008 and 2007 (in thousands):

	2008			2007
Revenue	$	322,553		$	258,512
Operating and other expenses		(170,019	)		(138,942	)
Interest expense		(126,386	)		(118,182	)
Depreciation and amortization		(125,565	)		(107,633	)
Impairment loss		(4,840	)		—
Noncontrolling interest		—			(104	)
(Loss) income from discontinued operations		(104	)		7,662
Net loss	$	(104,361	)	$	(98,687	)
Thomas Properties’ share of net loss	$	(16,168	)	$	(17,465	)
Intercompany eliminations		3,340			2,612
Equity in net loss of unconsolidated real estate entities	$	(12,828	)	$	(14,853	)

Aggregate revenue, operating and other expenses, interest expense and depreciation and amortization for unconsolidated real estate entities for the year ended December 31, 2008 compared to the year ended December 31, 2007 increased primarily due to the acquisition of our interests in the Austin Portfolio Joint Venture Properties in June 2007. Income from discontinued operations for unconsolidated real estate entities decreased by $7.8 million for the year ended December 31, 2008 compared to the year ended December 31, 2007 due to the sale of Intercontinental Center in 2007.

(Provision) benefit for income taxes. Provision for income taxes decreased by $3.1 million, or 258.3%, to a benefit of $1.9 million for the year ended December 31, 2008 compared to a provision of $1.2 million for the year ended December 31, 2007. Of this decrease, an increase of approximately $0.4 million is attributable to the interest on unrecognized benefits, which is recorded as a component of income tax expense, and the remainder of $2.7 million is attributable to applying the statutory rate of 35% to the change in book income for the year ended December 31, 2007 of $0.3 million to a book loss for the year ended December 31, 2008 of $7.4 million.

Comparison of the year ended December 31, 2007 to the year ended December 31, 2006.

Total revenues. Total revenues increased by $13.2 million, or 15.7%, to $97.5 million for the year ended December 31, 2007 compared to $84.3 million for the year ended December 31, 2006. The significant components of revenue are discussed below.

Rental revenues. Rental revenue remained consistent for each of the twelve month periods ended December 31, 2007 and 2006.

Tenant reimbursements.Tenant reimbursements remained consistent for each of the twelve month periods ended December 31, 2007 and 2006.

Parking and other revenues. Revenues from parking and other remained consistent for each of the twelve month periods ended December 31, 2007 and 2006.

Investment advisory, management, leasing and development services revenues. This caption represents revenues earned from services provided to unaffiliated entities in which we have no ownership interest. Revenues from these services increased by $5.6 million, or 70.9%, to $13.5 million for the year ended December 31, 2007 compared to $7.9 million for the year ended December 31, 2006. The increase was primarily due to a disposition fee of $5.5 million related to the sale of an unaffiliated fee managed property.

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Investment advisory, management, leasing and development services revenues—unconsolidated real estate entities.This caption represents revenues earned from services provided to entities in which we use the equity method to account for our ownership interest since we have significant influence, but not control over the entities. Revenues from these services from unconsolidated real estate entities increased by $6.8 million, or 47.9%, to $21.0 million for the year ended December 31, 2007 compared to $14.2 million for the year ended December 31, 2006. This increase was primarily the result of an increase in fee income of $1.5 million related to the property investments in Fairfax, Virginia acquired on January 31, 2007 by TPG/CalSTRS and $4.4 million related to the properties in Austin, Texas acquired on June 1, 2007 by the Austin Portfolio Joint Venture. The increase was also due to an increase in fee income of $0.5 million relating to higher asset management fees from City National Plaza.

Total expenses. Total expenses increased by $5.5 million, or 6.3%, to $92.6 million for the year ended December 31, 2007 compared to $87.1 million for the year ended December 31, 2006. The significant components of expense are discussed below.

Rental property operating and maintenance expense.Rental property operating and maintenance expense increased by $1.9 million, or 9.1%, to $22.7 million for the year ended December 31, 2007 as compared to $20.8 million for the year ended December 31, 2006. The increase is primarily due to an increase in various operating expenses, such as professional services, engineering, utilities and business property taxes.

Real estate taxes. Real estate taxes remained consistent for each for the twelve month periods ended December 31, 2007 and 2006.

Investment advisory, management, leasing and development services expenses.These expenses increased by $5.6 million, or 57.1%, to $15.4 million for the year ended December 31, 2007 as compared to $9.8 million for the year ended December 31, 2006, primarily due to an increase in salaries and employment-related costs due to an increase in the number of personnel, and leasing expenses related to increased leasing volume in our Houston portfolio.

Interest expense. Interest expense decreased by $2.9 million or 14.1% to $17.7 million for the year ended December 31, 2007 as compared to $20.6 million for the year ended December 31, 2006. The decrease is primarily due to increased capitalized interest of $1.5 million in 2007 compared to 2006 related to our developments. In addition, there was a decrease in interest expense relating to Two Commerce Square of $0.8 million primarily due to the amortizing loan balances for the mortgage and mezzanine loans.

Depreciation and amortization expense.Depreciation and amortization expense decreased by $1.1 million or 8.7% to $11.6 million for the year ended December 31, 2007 compared to $12.7 million for the year ended December 31, 2006. The decrease primarily was due to assets which were fully depreciated during 2007.

General and administrative. General and administrative expense increased by $1.7 million, or 9.9%, to $18.9 million for the year ended December 31, 2007 compared to $17.2 million for the year ended December 31, 2006. The increase is primarily due to an increase in salaries and employment related costs due to an increase in the number of personnel.

Gain on sale of real estate. Gain on sale of real estate decreased by $6.2 million, or 58.5%, to $4.4 million for the year ended December 31, 2007 compared to $10.6 million for the year ended December 31, 2006. A 14.1 acre parcel at Campus El Segundo was sold in 2006 for $24.6 million resulting in a total gain of $18.4 million. We were obligated to fund certain infrastructure improvements of approximately $2.7 million with respect to the development of the sold parcel; therefore we recorded a deferred gain of $8.1 million. The remaining deferred gain as of December 31, 2007 was $3.4 million, which was recognized on a percentage of completion basis as we completed the remaining infrastructure improvements of approximately $1.1 million during 2008.

Interest income. Interest income increased $3.0 million, or 100.0%, to $6.0 million for the year ended December 31, 2007 compared to $3.0 million for the year ended December 31, 2006, primarily due to higher average cash balances invested at higher rates.

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Equity in net loss of unconsolidated real estate entities.Equity in net loss of unconsolidated real estate entities increased by $2.0 million, or 15.5%, to a net loss of $14.9 million for the year ended December 31, 2007 compared to a net loss of $12.9 million for the year ended December 31, 2006. Set forth below is a summary of the unconsolidated condensed financial information for the unconsolidated real estate entities and our share of net loss and equity in net loss for the years ended December 31, 2007 and 2006 (in thousands):

	2007			2006
Revenue	$	258,512		$	140,796
Operating and other expenses		(138,942	)		(89,931	)
Interest expense		(118,182	)		(56,795	)
Depreciation and amortization		(107,633	)		(55,501	)
Noncontrolling interest		(104	)		(1,650	)
Income from discontinued operations		7,662			4,722
Net Loss	$	(98,687	)	$	(58,359	)
Thomas Properties’ share of net loss	$	(17,465	)	$	(14,473	)
Intercompany eliminations		2,612			1,564
Equity in net loss of unconsolidated real estate entities	$	(14,853	)	$	(12,909	)

Aggregate revenue attributable to, and operating and other expenses for unconsolidated real estate entities for the year ended December 31, 2007 compared to the year ended December 31, 2006 increased primarily due to the acquisition of our interests in City West Place in June 2006, the two properties in Fairfax, Virginia in January 2007 and the Austin Portfolio Joint Venture Properties in June 2007.

Aggregate interest expense increased by $61.4 million, or 108.1%, to $118.2 million for the year ended December 31, 2007 compared to $56.8 million for the year ended December 31, 2006 primarily as a result of an increase in interest expense of $6.3 million relating to the debt obligations of City West Place, $8.9 million relating to the debt obligations of the Fairfax, Virginia properties and $35.8 million relating to the debt obligations of the Austin Portfolio Joint Venture Properties. The increase was also due to refinancing of the City National Plaza mortgage and mezzanine loans in July 2006, resulting in higher additional borrowings in 2007, which resulted in an increase in interest expense of $9.4 million.

Aggregate depreciation and amortization expense increased by $52.1 million, or 93.9%, to $107.6 million for the year ended December 31, 2007 compared to $55.5 million for the year ended December 31, 2006 primarily as a result of additional depreciation and amortization expense of $7.6 million due to the acquisition of City West Place in June 2006, $7.9 million due to the acquisition of the two Fairfax, Virginia properties in January 2007 and $38.7 million due to the acquisition of the Austin Portfolio Joint Venture Properties in June 2007. In addition, there was an increase of $4.0 million for City National Plaza due to additional capital expenditures in 2007, offset by a $5.7 million decrease in depreciation and amortization expense related to Brookhollow Building 1, which was operational in previous years, but subject to commencement of redevelopment efforts during 2007.

(Provision) benefit for income taxes. Provision for income taxes increased $586,000, or 92.3%, to a provision of $1,221,000 for the year ended December 31, 2007 compared to a provision of $635,000 for the year ended December 31, 2006. Of this increase, approximately $335,000 is attributable to the interest on unrecognized benefits, which is recorded as a component of income tax expense, and the remainder is attributable to an increase in book income for the year ended December 31, 2008.

Liquidity and Capital Resources

As of December 31, 2008, we have unrestricted cash and cash equivalents of $69.0 million. Our management believes that our company will have sufficient capital to satisfy our liquidity needs over the next 12 months through working capital and net cash provided by operations. We expect to meet our long-term liquidity requirements, including property and undeveloped land acquisitions and additional future development and redevelopment activity, through cash flow from operations, additional secured and unsecured long-term borrowings, dispositions of non-strategic assets, and the potential issuance of common units of our Operating Partnership or additional debt, common or preferred equity securities, including convertible securities. We do not have any present intent to reserve funds to retire existing debt upon maturity. We will instead seek to refinance this debt at maturity or retire the long-term debt through the issuance of securities, as market conditions permit. There can be no assurances that such debt refinancing will be available at the time of such maturities on acceptable terms, if at all, and our cost of capital could increase as a result of any such debt refinancings. Additionally, existing stockholders could experience substantial dilution in the event we are required to issue additional equity capital.

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As of December 31, 2008, we have unfunded capital commitments to (1) our joint venture with CalSTRS of $5.4 million; (2) the Thomas High Performance Green Fund, an investment fund formed by us, CalSTRS and other institutional investors, of $50.0 million; and (3) the UBS North American Property Fund, an investment fund formed by us and UBS Wealth Management-North American Property Fund Limited, of $50.0 million. With respect to our joint venture with CalSTRS, we are not obligated to fund our share of the capital commitment for the acquisition of any new project, but we are obligated to fund to implement tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007. We estimate we will fund up to $5.4 million in 2009. Our requirement to fund all or a portion of our commitments to the Thomas High Performance Green Fund and the UBS North American Property Fund is subject to our identifying properties to acquire that are mutually acceptable to us, and our partners. Our cash requirements for the Green Fund could be reduced by contributions by us to the fund of assets in which we have an interest.

We intend to declare and pay annual dividends on our common stock. The dividend declared for the first quarter of 2009, payable in April, 2009, is for $0.0125 per share, compared with previous quarterly dividend payments of $0.06 per share. The availability of funds to pay dividends is impacted by property-level restrictions on cash flows. Two Commerce Square is subject to debt financing with lock-box arrangements. Funds generated by Two Commerce Square cannot be distributed to us under the terms of the lock-box arrangements established for the existing lenders for the property. In addition, all of our properties held in our joint venture with CalSTRS are subject to debt financing with a lockbox arrangements. With respect to our joint venture properties, we do not control decision making with respect to these properties, and may not be able to obtain monies from these properties even if funds are available for distribution to us. In addition, we may enter future financing arrangements that contain restrictions on our use of cash generated from our properties.

Development and Redevelopment Projects

We currently own interests in four development projects (three of which are discussed below), and our joint venture with CalSTRS includes four redevelopment properties and two development sites.

• We have substantially completed construction and received certificates of occupancy for all of the units at Murano, a 302-unit high-rise residential condominium project in downtown Philadelphia. We had closed sales on 111 units and 107 parking spaces as of December 31, 2008 and had an additional 14 units and 12 parking spaces under contract of sale. Under the percentage-of-completion method of accounting, we recognized a gain on sale of approximately $17.3 million for the year ended December 31, 2008. Murano is classified as Condominium units held for sale on our balance sheet as of December 31, 2008. Due to deteriorating market conditions, in the second half of 2008, we recorded an $11.0 million impairment charge.

• During the third quarter 2008, we completed the core and shell construction of two office buildings totaling approximately 192,000 square feet at Four Points Centre. As of December 31, 2008, we have included these two buildings in our operating portfolio classification.

We anticipate seeking to mitigate our development risk on all of our development projects by obtaining significant pre-leasing and guaranteed maximum cost construction contracts. There can be no assurance we will be able to successfully implement these risk mitigation measures.

The amount and timing of costs associated with our development and redevelopment projects is inherently uncertain due to market and economic conditions. We presently intend to fund development and redevelopment expenditures primarily through construction or refurbishment financing. In 2006, we refinanced the loan for City National Plaza, which provides proceeds to cover the estimated future redevelopment costs for this property. Construction of the Murano was financed in part with a construction loan up to $142.5 million. Repayment of this loan is being made with proceeds from the sales of condominium units. The loan has a balance of $63.9 million as of December 31, 2008 and we had additional borrowing capacity of $10.1 million. The office building development at Four Points is financed in part with a construction loan up to $42.7 million. Presently, we have not obtained construction financing for the development at Campus El Segundo. If we finance these development projects through construction loans and are unable to obtain permanent financing on advantageous terms or at all, we would need to fund these obligations from cash flow from operations or seek alternative capital sources. If unsuccessful, this could adversely impact our financial condition and results of operations and impair our ability to satisfy our debt service obligations. If we are successful in obtaining construction or refurbishment financing and permanent financing, we anticipate that the corresponding interest costs would represent both a significant use of our cash flow and a material component of our results of operations.

We are also involved in managing two entitlement projects, which are discussed below:

• We are presently entitling approximately 14.4 acres in Los Angeles, California, for office, production facility, residential and retail uses. The project, called Metro Studio@Lankershim, will include approximately 1.5 million square feet. Upon completion of entitlements, we expect to enter into a long-term ground lease with the Los Angeles County Metropolitan Transportation Authority, which owns the land.

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• Also, we have been engaged by NBC/Universal to entitle, master plan and develop (subject to our right of first offer) 124 acres located adjacent to Universal City in Los Angeles for the development of a residential and retail town center. We anticipate completing the development of these projects as market feasibility permits.

Leasing, Tenant Improvement and Capital Needs

In addition to our development and redevelopment projects, we also own One Commerce Square and Two Commerce Square. These properties require routine capital maintenance in the ordinary course of business. The properties also require that we incur expenditures for leasing commissions and tenant improvement costs. The level of these expenditures varies from year to year based on several factors, including lease expirations. We are contractually committed to incur expenditures of approximately $6.3 million in capital improvements, tenant improvements, and leasing commissions for the One Commerce Square and Two Commerce Square properties collectively during 2009 through 2010.

Annual capital expenditures may fluctuate in response to the nature, extent and timing of improvements required to maintain our properties. Tenant improvements and leasing costs may also fluctuate depending upon other factors, including the type of property involved, the existing tenant base, terms of leases, types of leases, the involvement of leasing agents and overall market conditions.

Contractual Obligations

A summary of our contractual obligations at December 31, 2008 is as follows (in thousands). The ensuing footnotes to this summary are an integral part of this disclosure.

	Payments Due by Period
	2009		2010		2011		2012		2013		Thereafter		Total
Regularly scheduled principal payments	$	500	$	492	$	1,971	$	2,160	$	1,946	$	3,880	$	10,949
Balloon principal payments due at maturity (1) (2)		20,900		128,441		—		—		106,446		121,209		376,996
Interest payments—fixed rate debt		21,756		14,912		14,290		14,205		10,055		14,751		89,969
Interest payments—variable rate debt (3)		—		—		—		—		—		—		—
Capital commitments (4)		10,897		857		—		—		—		—		11,754
Operating lease (5)		53		—		—		—		—		—		53
FIN 48 obligations, including interest and penalties (6)		—		—		—		—		—		—		—
Total	$	54,106	$	144,702	$	16,261	$	16,365	$	118,447	$	139,840	$	489,721

(1) The debt maturing in 2009 includes the Campus El Segundo mortgage loan in the amount of $17.0 million. This loan has a one-year extension option at our election subject to us complying with certain loan covenants. We were in compliance with these covenants as of December 31, 2008 and expect to be in compliance at the extension date. We expect to exercise our option to extend this loan. We have guaranteed and promised to pay the principal, interest and any other sum payable under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so. We plan to repay the remaining $3.9 million of debt maturing in 2009.

(2) In January 2010, $36.0 million in nonrecourse senior and junior mezzanine loans secured by our ownership interest in Two Commerce Square mature. We will seek to extend or refinance this debt at maturity. The Four Points Centre construction loan in the amount of $28.5 million matures in June 2010. This loan has two one-year extension options at our election subject to certain conditions. The first extension option is subject to completion of the improvements and executed leases representing at least 75% of the net rentable area, among other things. The second extension option is subject to completion of improvements, executed leases representing at least 90% of the net rentable area, and a minimum debt yield, among other things. We have guaranteed in favor of and promised to pay to the lender 46.5% of the principal, interest and any other sum payable under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so. This guaranty is currently limited to a maximum of $13.3 million. Upon the occurrence of certain events, as defined in the repayment and completion guaranty agreement, our maximum liability as guarantor will be reduced to 31.5% of all sums payable under the loan, and upon the occurrence of even further events, as defined, our maximum liability as guarantor will be reduced to 25.0% of all sums payable under the loan. Furthermore, we agreed to guarantee the completion of the construction improvements, as defined in the agreement, in the event of any default of the borrower. We have completed construction of the core and shell. If the borrower fails to complete the required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement. In addition, the Murano construction loan has a balance of $63.9 million as of December 31, 2008 with a maturity date of July 31, 2009, however it has two six-month extension options, which are conditional on the closing of 100 residential units, which has occurred and therefore we expect to exercise these options, and extend the maturity date to July 31, 2010. This loan is nonrecourse to the Company. We amortize the principal balance of the Murano construction loan with sales proceeds as we close on the sale of condominium units.

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(3) As of December 31, 2008, 71.8% of our debt was at contractually fixed rates. The information in the table above reflects our projected interest rate obligations for the fixed-rate payments based on the contractual interest rates and scheduled maturity dates. The remaining 28.2% of our debt bears interest at variable rates based on the prime rate or LIBOR plus a spread that ranges from 1.5% to 3.3%. The interest payments on the variable rate debt have not been reported in the table above because we cannot reasonably determine the future interest obligations on our variable rate debt as we cannot predict what prime and LIBOR rates will be in the future. As of December 31, 2008, the one-month LIBOR was 0.44% and the prime rate was 3.25%.

(4) Capital commitments of our company and consolidated subsidiaries include approximately $6.3 million of tenant improvements and leasing commissions for certain tenants in One Commerce Square and Two Commerce Square. We have an unfunded capital commitment of $5.4 million to our TPG/CalSTRS joint venture, of which we estimate we will fund the entire amount in 2009. We are not obligated to fund our share for the acquisition of any new project, but we are obligated to fund to implement tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007.

(5) Represents the future minimum lease payments on our operating lease for our corporate office at City National Plaza. The table does not reflect available maturity extension options.

(6) The FIN 48 obligations in the table above should represent amounts associated with uncertain tax positions related to temporary differences. However, reasonable estimates cannot be made about the amount and timing of payment for these obligations. As of December 31, 2008, $17.1 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, and we are uncertain as to if and when such amounts may be settled. Included within the unrecognized tax benefits is $1.5 million of accrued interest. We have not recorded any penalties with respect to unrecognized tax benefits.

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Off-Balance Sheet Arrangements—Indebtedness of Unconsolidated Real Estate Entities

As of December 31, 2008, our company had investments in entities owning unconsolidated properties with stated ownership percentages ranging from 6.25% to 50.0%. We do not have control of these entities, and none of the entities are considered variable interest entities. Therefore, we account for them using the equity method of accounting. The table below summarizes the outstanding debt for the properties as of December 31, 2008 (in thousands). We have not guaranteed any of the debt. None of these loans are recourse to us other than as noted in footnote 12 below.

	Interest Rate At December 31, 2008					Principal Amount		Maturity Date	Maturity Date at End of Extension Options
City National Plaza (1)
Senior mortgage loan	LIBOR	+	1.07	%	(2)	$	355,300	7/9/2009	7/9/2010
Senior mezzanine loan-Note A (3)	LIBOR	+	2.59	%	(2)		66,446	7/9/2009	7/9/2010
Senior mezzanine loan-Note B	LIBOR	+	1.90	%	(2)		24,000	7/9/2009	7/9/2010
Senior mezzanine loan-Note C	LIBOR	+	2.25	%	(2)		24,000	7/9/2009	7/9/2010
Senior mezzanine loan-Note D	LIBOR	+	2.50	%	(2)		24,000	7/9/2009	7/9/2010
Senior mezzanine loan-Note E	LIBOR	+	3.05	%	(2)		22,700	7/9/2009	7/9/2010
Junior mezzanine loan (4)	LIBOR	+	5.00	%	(2)		56,954	7/9/2009	7/9/2010
CityWestPlace
Fixed			6.16	%			121,000	7/6/2016	7/6/2016
Floating	LIBOR	+	1.25	%	(2)(5)		92,400	7/1/2009	7/1/2011
San Felipe Plaza
Mortgage loan-Note A			5.28	%			101,500	8/11/2010	8/11/2010
Mortgage loan-Note B (6)	LIBOR	+	3.00	%			16,200	8/11/2010	8/11/2010
2500 City West
Mortgage loan-Note A			5.28	%			70,000	8/11/2010	8/11/2010
Mortgage loan-Note B (7)	LIBOR	+	3.00	%			11,378	8/11/2010	8/11/2010
Brookhollow Central I, II and III
Mortgage loan-Note A	LIBOR	+	0.44	%	(2)(8)		24,154	8/9/2009	8/9/2010
Mortgage loan-Note B (6)	LIBOR	+	4.25	%	(2)(8)		17,494	8/9/2009	8/9/2010
Mortgage loan-Note C	LIBOR	+	4.86	%	(2)(8)		16,746	8/9/2009	8/9/2010
Four Falls Corporate Center
Mortgage loan-Note A			5.31	%			42,200	3/6/2010	3/6/2010
Mortgage loan-Note B (6) (9)	LIBOR	+	3.25	%	(2)(10)		9,867	3/6/2010	3/6/2010
Oak Hill Plaza/Walnut Hill Plaza
Mortgage loan-Note A			5.31	%			35,300	3/6/2010	3/6/2010
Mortgage loan-Note B (6) (9)	LIBOR	+	3.25	%	(2)(11)		9,152	3/6/2010	3/6/2010
2121 Market Street mortgage loan (12)			6.05	%			18,826	8/1/2033	8/1/2033
Reflections I mortgage loan			5.23	%			22,169	4/1/2015	4/1/2015
Reflections II mortgage loan			5.22	%			9,236	4/1/2015	4/1/2015
Centerpointe I & II (13)
Senior mortgage loan	LIBOR	+	0.60	%	(2)		55,000	2/9/2010	2/9/2012
Mezzanine loan (Note A) (14)	LIBOR	+	1.51	%	(2)		14,501	2/9/2010	2/9/2012
Mezzanine loan (Note B) (15)	LIBOR	+	4.32	%	(2)		12,539	2/9/2010	2/9/2012
Mezzanine loan (Note C) (16)	LIBOR	+	3.26	%	(2)		12,855	2/9/2010	2/9/2012
Fair Oaks Plaza (17)			5.52	%			44,300	2/9/2017	2/9/2017
Austin Portfolio Joint Venture Properties:
San Jacinto Center
Mortgage loan-Note A			6.05	%			43,000	6/11/2017	6/11/2017
Mortgage loan-Note B			6.05	%			58,000	6/11/2017	6/11/2017
Frost Bank Tower
Mortgage loan-Note A			6.06	%			61,300	6/11/2017	6/11/2017
Mortgage loan-Note B			6.06	%			88,700	6/11/2017	6/11/2017
One Congress Plaza
Mortgage loan-Note A			6.08	%			57,000	6/11/2017	6/11/2017
Mortgage loan-Note B			6.08	%			71,000	6/11/2017	6/11/2017
One American Center
Mortgage loan-Note A			6.03	%			50,900	6/11/2017	6/11/2017
Mortgage loan-Note B			6.03	%			69,100	6/11/2017	6/11/2017
300 West 6th Street			6.01	%			127,000	6/11/2017	6/11/2017
Research Park Plaza I & II
Senior mortgage loan	LIBOR	+	0.55	%	(2)(18)		23,560	6/9/2009	6/9/2012
Mezzanine loan	LIBOR	+	2.01	%	(2)(18)		27,940	6/9/2009	6/9/2012
Stonebridge Plaza II
Senior mortgage loan	LIBOR	+	0.63	%	(2)(18)		19,800	6/9/2009	6/9/2012
Mezzanine loan	LIBOR	+	1.76	%	(2)(18)		17,700	6/9/2009	6/9/2012
Austin Bank Term Loan	LIBOR	+	3.25	%	(19)(20)		192,500	6/1/2013	6/1/2013
Revolving Credit Facility	LIBOR	+	3.25	%	(21)		—	6/1/2012	6/1/2012
Subtotal—Austin, TX Portfolio:						$	907,500
						$	2,237,717

The LIBOR rate for the loans above was 0.44% at December 31, 2008, except for the Austin Bank Term Loan and the Revolving Credit Facility (see footnotes 20 and 21).

14

(1) The City National Plaza loans collectively have maximum borrowings of $580 million. The senior mortgage loan and Notes B, C, D and E under the senior mezzanine loans are subject to exit fees equal to .25% of the loan amounts. Note A under the senior mezzanine loan and the junior mezzanine loan are subject to an exit fee equal to .50% of the loan amount. Under certain circumstances all of the exit fees will be waived. All of the City National Plaza loans have a one-year extension options at our election subject to a 75% loan to value ratio for all senior debt combined and 80% loan to value ratio for senior debt and junior mezzanine debt combined.

(2) The partnership that owns each property has purchased interest rate cap agreements for the funded portion of these loans.

(3) TPG/CalSTRS may borrow an additional $3.6 million.

(4) TPG/CalSTRS may borrow an additional $3.0 million.

(5) This loan has two one-year extension options at our election. The Company plans to exercise the extension option in 2009.

(6) This loan has been fully funded as of December 31, 2008.

(7) TPG/CalSTRS may borrow an additional $4.1 million under this loan.

(8) These loans have a one-year extension option at our election. The Company plans to exercise the extension options in 2009.

(9) These loans are subject to exit fees equal to 1% of the loan amounts, however, under certain circumstances the exit fees will be waived. These loans bear interest at the greater of the one month LIBOR or 2.25% per annum, plus the applicable margin. As of December 31, 2008, one month LIBOR is below 2.25%, per annum.

(10) This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the partnership which owns Oak Hill Plaza/Walnut Hill Plaza.

(11) This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the partnership which owns Four Falls Corporate Center.

(12) The 2121 Market Street mortgage loan is prepayable without penalty after May 1, 2013, at which date the outstanding principal amount of this loan will be approximately $17.2 million. The interest rate will increase to the greater of 8.1% or the treasury rate plus 2.0% on August 1, 2013. Any amounts over the initial interest rate may be deferred to the extent excess cash is not available to make such payments. Provided there is no deferred interest, the loan balance will be fully amortized on August 1, 2033, the maturity date of the loan. The loan is guaranteed by our Operating Partnership and our co-general partner in the partnership that owns 2121 Market Street, up to a maximum amount of $3.3 million.

(13) The loans are subject to exit fees of up to 0.5% through February 9, 2009. The Centerpointe I & II senior mortgage loan bears interest at a rate equal to one month LIBOR plus 0.60%. The mezzanine loans bear interest at a rate such that the weighted average of the rate on these loans and the rate on the senior mortgage loan secured by Centerpointe I & II equals LIBOR plus 1.59% per annum. The weighted average interest rate on the senior mezzanine loans as of December 31, 2008 was 3.4% per annum. The weighted average interest rate on all of the loans was 2.0% per annum. All of these loans have two one-year extension options at our election subject to a debt service coverage ratio of 1:1.

(14) TPG/CalSTRS may borrow an additional $10.5 million under this loan.

(15) TPG/CalSTRS may borrow an additional $9.1 million under this loan.

(16) TPG/CalSTRS may borrow an additional $9.3 million under this loan.

(17) This loan may be defeased in full after three years (or January 31, 2010), or prepaid in full after 9 years and 8 months (or October 2016).

(18) These loans have three one-year extension options at our election.

(19) The Austin Portfolio Joint Venture entered into an interest rate collar agreement for 50% of the loan balance, or $96.25 million, in which we bought a cap and sold a floor. The counterparty, a Lehman affiliate, has stopped accepting payments on the rate collar.

(20) The margin above LIBOR on the bank term loan is subject to adjustment under certain circumstances. The term loan is secured by mortgages on three of the Austin Portfolio Joint Venture Properties and a pledge of equity interests in the remaining seven Austin Portfolio Joint Venture Properties. The interest rate at December 31, 2008 was 4.69%.

(21) The Austin Portfolio Joint Venture has a $100 million secured revolving credit commitment to fund future capital requirements, bearing interest at LIBOR plus 3.25%. The margin above LIBOR on this facility is subject to adjustment under certain circumstances. On September 17, 2008, we submitted a borrowing notice with respect to the full $100 million available under the revolving credit facility, which was not funded. It is our understanding that Lehman Brothers Holdings, Inc., the parent of the lead arranger and the administrative agent of this facility, as well as the administrative agent itself have filed for bankruptcy protection. The interest rate at December 31, 2008 was 4.69%.

15

Cash Flows

Comparison of year ended December 31, 2008 to year ended December 31, 2007

Cash and cash equivalents were $69.0 million as of December 31, 2008 and $126.7 million as of December 31, 2007.

Operating Activities—Net cash provided by operating activities decreased by $43.3 million to $2.2 million for the year ended December 31, 2008 compared to $45.5 million for the year ended December 31, 2007. The decrease was primarily the result of an increase in net loss of $(4.6) million attributable to the Company, gain on sale of Murano condominiums of $(17.3) million, a decrease of $(35.3) million in accounts payable and other liabilities and a decrease in deferred rents of $(2.5) million primarily due to lease expirations for Conrail . The decreases were offset by the Murano impairment loss of $11.0 million and a decrease in receivables from unconsolidated subsidiaries resulting in payments of $4.5 million for lease commissions and other fees.

Investing Activities—Net cash used in investing activities increased by $104.4 million to $35.5 million for the year ended December 31, 2008 compared to $139.9 million for the year ended December 31, 2007. The increase was primarily the result of a decrease in expenditures for real estate improvements of $22.5 million, an increase due to proceeds received of $69.3 million from the sale of Murano condominium and an increase of $18.8 million resulting from a 2007 investment in the acquisition of unconsolidated real estate entities. The increases were offset by $(4.0) million used for the purchase of interests in One Commerce Square and Two Commerce Square and a decrease in return of capital from unconsolidated subsidiaries of $(3.1) million.

Financing Activities—Net cash provided by financing activities decreased by $181.0 million to $24.3 million for the year ended December 31, 2008 compared to $156.7 million used in financing activities for the year ended December 31, 2007. The decrease was primarily the result of proceeds from our April 2007 public offering, net of offering costs, of $139.3 million and a decrease of $69.8 million primarily due to the principal payments of the Murano loans. The decreases were offset by an increase of $33.6 million related to payments for the redemption of operating units in 2007.

Comparison of year ended December 31, 2007 to year ended December 31, 2006

Cash and cash equivalents were $126.7 million as of December 31, 2007 and $64.3 million as of December 31, 2006.

Operating Activities—Net cash provided by operating activities increased by $24.9 million to $45.5 million for the year ended December 31, 2007 compared to $20.6 million for the year ended December 31, 2006. The increase was primarily in changes in assets and liabilities of $15.2 million, an increase in net income (loss) of $1.1 million attributable to the Company, an increase in noncontrolling interest of $1.2 million, and the change of the deferred gain on sale of real estate of $6.2 million related to Campus El Segundo.

Investing Activities—Net cash used in investing activities increased by $126.2 million to $144.7 million for the year ended December 31, 2007 compared to $18.5 million for the year ended December 31, 2006. The increase was primarily the result of an increase in real estate improvements of $96.2 million, a decrease in return of capital distributions from unconsolidated entities of $19.7 million, and a decrease of $29.5 million due to less proceeds from the sale of real estate. The increases were offset by $5.4 million used for the purchase of interests in unconsolidated real estate entities and a decrease of $19.9 million from fewer contributions to unconsolidated real estate entities.

Financing Activities—Net cash provided by financing activities increased by $163.1 million to $161.5 million for the year ended December 31, 2007 compared to $1.7 million used in financing activities for the year ended December 31, 2006. The increase was primarily the result of proceeds from our April 2007 public offering, net of offering costs, of $139.3 million. There was an increase of loan draws of $66.8 million for the construction loans at Four Points and Murano, which was offset by an increase in principal payments of mortgage and other secured loans of $9.3 million related to the land loan at Four Points, the Murano preferred equity loan, and the loans at Two Commerce Square. The increases were offset by a decrease of $33.6 million related to payments in 2007 for the redemption of operating units.

Inflation

Substantially all of our office leases provide for tenants to reimburse us for increases in real estate taxes and operating expenses related to the leased space at the applicable property. In addition, many of the leases provide for increases in fixed base rent. We believe that inflationary increases may be partially offset by the contractual rent increases and expense reimbursements as described above. We have one multi-family residential rental property and are substantially complete with construction on Murano, a high-rise residential condominium tower in Philadelphia. The existing residential property is located in the Philadelphia central business district and subject to short-term leases. Inflationary increases can often be offset by increased rental rates, however, a weak economic environment may restrict our ability to raise rental rates.

16

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data required by this Item 8 are filed with this report on Form 10-K commencing on page 18.

17

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements and Financial Statement Schedules

The following consolidated financial information is included as a separate section of this report on Form 10-K:

INDEX TO FINANCIAL STATEMENTS

	Page
Thomas Properties Group, Inc. and Subsidiaries:
Report of Independent Registered Public Accounting Firm	21
Consolidated Balance Sheets as of December 31, 2008 and 2007	22
Consolidated Statements of Operations for Thomas Properties Group, Inc. and Subsidiaries for the years ended December 31, 2008, 2007 and 2006	23
Consolidated Statements of Equity for Thomas Properties Group, Inc. and Subsidiaries for the years ended December 31, 2008, 2007 and 2006	24
Consolidated Statements of Cash Flows for Thomas Properties Group, Inc. and Subsidiaries for the years ended December 31, 2008, 2007 and 2006	25
Notes to Consolidated Financial Information	27
Schedule III: Investments in Real Estate	54
TPG/CalSTRS, LLC:
Report of Independent Registered Public Accounting Firm	55
Consolidated Balance Sheets as of December 31, 2008 and 2007	56
Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006	57
Consolidated Statements of Members’ Equity and Comprehensive Loss for the years ended December 31, 2008, 2007 and 2006	58
Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006	59
Notes to Consolidated Financial Information	60

(b) Exhibits

3.1	Second Amended and Restated Certificate of Incorporation of the Registrant. (1)
3.2	Amended and Restated Bylaws of the Registrant. (2)
10.1*	Amended and Restated 2004 Equity Incentive Plan (3)
10.2	Operating Partnership Agreement. (4)
10.3	Master Contribution Agreement entered into by James A. Thomas and the other contributors party thereto. (4)
10.4	Non-employee Directors Restricted Stock Plan. (4)
10.5	Pairing Agreement between the Registrant and its Operating Partnership. (4)
10.6	Form of Indemnification Agreement entered into by the Registrant and each of its directors and executive officers. (5)
10.7*	Amended and Restated Employment Agreement between the Registrant and Mr. James A Thomas. (15)
10.8*	Amended and Restated Employment Agreement between the Registrant and Mr. Thomas S. Ricci. (15)
10.9*	Amended and Restated Employment Agreement between the Registrant and Mr. Randall L. Scott. (15)

18

10.10*	Amended and Restated Employment Agreement between the Registrant and Mr. John R. Sischo. (15)
10.11*	Amended and Restated Employment Agreement between the Registrant and Ms. Diana M. Laing. (15)
10.12+	Second Amended and Restated Operating Agreement of TPG/CalSTRS, LLC. (5)
10.13	Registration Rights Agreement between the Registrant and the parties thereto. (4)
10.14	Loan Agreement dated as of July 31, 2003 between Philadelphia Plaza-Phase II, LP as Borrower and Morgan Stanley Mortgage Capital, Inc. as Lender. (5)
10.15	Senior Mezzanine Loan Agreement dated as of July 31, 2003 by and among Philadelphia Plaza-Phase II, LP as Borrower, TCS SPE 1, LP as Guarantor and DB Realty Mezzanine Investment Fund II, LLC as Lender. (5)
10.16	Junior A Mezzanine Loan Agreement dated as of July 31, 2003 by and among Philadelphia Plaza-Phase II, LP as Borrower, TCS SPE 2, LP as Guarantor and DB Realty Mezzanine Parallel Fund II, LLC as Lender. (5)
10.17	Junior B Mezzanine Loan Agreement dated as of July 31, 2003 by and among Philadelphia Plaza-Phase II, LP as Borrower, TCS SPE 3, LP as Guarantor and DB Realty Mezzanine Parallel Fund II, LLC as Lender. (5)
10.18	Thomas Properties Group, Inc. Form of Restricted Shares Award Agreement. (6)
10.19	Thomas Properties Group, Inc., Form of Incentive Unit Award Agreement. (6)
10.20	Thomas Properties Group, Inc. Form of Non-Qualified Option Award Agreement. (6)
10.21	Thomas Properties Group, Inc. Form of Non-employee Directors’ Restricted Shares Award Agreement. (6)
10.22	Loan Agreement between TPG Oak Hill/Walnut Hill, LLC and Greenwich Capital Financial Products, Inc. (6)
10.23	Loan Agreement between TPG Four Falls, LLC and Greenwich Capital Financial Products, Inc. (6)
10.24	Loan Agreement between TPG—San Felipe Plaza, L.P. and Nomura Credit & Capital, Inc. (7)
10.25	Loan Agreement between TPG—2500 City West, L.P. and Nomura Credit & Capital, Inc. (7)
10.26	Loan Agreement between TPG—BH/ICC, L.P. and Nomura Credit & Capital, Inc. (7)
10.27	Loan Agreement between TPG—Commerce Square Partners—Philadelphia Plaza, L.P. as borrower and Greenwich Capital Financial Products, Inc. as lender. (8)
10.28	Loan Agreement between TPG-2101 CityWest 1&2, L.P. and Greenwich Capital Financial Products, Inc. (9)
10.29	Loan Agreement between TPG-2101 CityWest 3&4, L.P. and Greenwich Capital Financial Products, Inc. (9)
10.30	Loan Agreement between 515/555 Flower Associates, LLC and Citigroup Global Markets Realty Corp. (9)
10.31	Loan Agreement between 515/555 Flower Mezzanine Associates, LLC and Citigroup Global Markets Realty Corp. (9)
10.32	Loan Agreement between 515/555 Flower Junior Mezzanine Associates, LLC and Citigroup Global Markets Realty Corp. (9)
10.33	First Amendment to Second Amended and Restated Operating Agreement of TPG/CalSTRS, LLC. (10)

19

10.34	Second Amendment to Second Amended and Restated Operating Agreement of TPG/CalSTRS, LLC. (11)
10.35	Third Amendment to Second Amended and Restated Operating Agreement of TPG/CalSTRS, LLC. (12)
10.36	Limited Partnership Agreement of Thomas High Performance Green Fund, L.P. (12)
10.37+	Letter Agreement Relating to Thomas High Performance Green Fund, L.P. with California State Teachers’ Retirement System. (12)
10.38*	Employment Agreement between the Registrant and Mr. Paul S. Rutter. (13)
10.39*	Policy adopted by the Compensation Committee regarding equity grants to executive officers. (14)
10.40	Fourth Amendment to Second Amended and Restated Operating Agreement of TPG/CalSTRS, LLC.
21.1	Subsidiaries of the Registrant.
23.1	Consent of Ernst & Young, LLP.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
In accordance with SEC Release 33-8212, the following exhibits are being furnished, and are not being filed as part of this report or as a separate disclosure document, and are not being incorporated by reference into any registration statement filed under the Securities Act of 1933.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference from the Registrant’s Report on Form 8-K filed October 18, 2004.

(2) Incorporated by reference from the Registrant’s Report on Form 8-K filed January 4, 2008.

(3) Incorporated by reference from the Registrant’s Definitive Proxy Statement filed April 29, 2008.

(4) Incorporated by reference from the Registrant’s Report on Form 10-Q filed November 22, 2004.

(5) Incorporated by reference from Registration Statement file number 333-11452.

(6) Incorporated by reference from the Registrant’s Report on Form 10-K filed March 30, 2005.

(7) Incorporated by reference from the Registrant’s Report on Form 10-Q filed August 10, 2005.

(8) Incorporated by reference from the Registrant’s Report on Form 8-K filed January 5, 2006.

(9) Incorporated by reference from the Registrant’s Report on Form 10-Q filed August 9, 2006.

(10) Incorporated by reference from the Registrant’s Report on Form 10-K filed April 2, 2007.

(11) Incorporated by reference from the Registrant’s Report on Form 10-Q filed August 9, 2007.

(12) Incorporated by reference from the Registrant’s Report on Form 10-K filed March 18, 2008.

(13) Incorporated by reference from the Registrant’s Report on Form 8-K filed September 5, 2008.

(14) Incorporated by reference from the Registrant’s Report on Form 8-K filed June 10, 2008.

(15) Incorporated by reference from the Registrant’s Report on Form 8-K filed December 24, 2008.

+ Confidential treatment requested.

* Managerial compensatory plan or arrangement.

20

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Thomas Properties Group, Inc.

We have audited the accompanying consolidated balance sheets of Thomas Properties Group, Inc. (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Thomas Properties Group, Inc. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Notes 3 and 7 to the consolidated financial statements, as a result of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160,“Non Controlling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51” and FASB Staff Position EITF No. 03-6-1,“Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities” on January 1, 2009, the Company retrospectively adjusted its consolidated financial statements to reflect the presentation and disclosure requirements of these new accounting standards.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Thomas Properties Group, Inc.’s internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 20, 2009 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Los Angeles, California

March 20, 2009, except for the retrospective

adjustments described in Notes 3, 7 and 8,

as to which the date is October 15, 2009

21

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

December 31, 2008 and 2007

	2008			2007
ASSETS
Investments in real estate:
Operating properties, net of accumulated depreciation of $101,191 and $111,619 as December 31, 2008 and 2007, respectively	$	274,784		$	237,250
Land improvements—development properties		101,495			73,979
Construction in progress		1,274			152,135
		377,553			463,364
Condominium units held for sale		101,112			—
Investments in unconsolidated real estate entities		29,098			42,211
Cash and cash equivalents, unrestricted		69,023			126,647
Restricted cash		16,665			26,251
Rents and other receivables, net of allowance for doubtful accounts of $226 and $558 as of December 31, 2008 and 2007, respectively		4,452			2,352
Receivables from condominium sales contracts, net		10,485			—
Receivables from unconsolidated real estate entities		4,701			6,640
Deferred rents		10,604			14,696
Deferred leasing and loan costs, net of accumulated amortization of $9,826 and $8,874 as of December 31, 2008 and 2007, respectively		15,018			13,051
Other assets, net		21,724			18,692
Total assets	$	660,435		$	713,904
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans	$	255,579		$	257,278
Other secured loans		128,466			134,829
Unsecured loan		3,900			3,900
Accounts payable and other liabilities, net		46,567			74,953
Dividends and distributions payable		2,377			2,354
Due to affiliate		—			2,000
Prepaid rent		2,819			3,182
Total liabilities		439,708			478,496
Equity:
Stockholders’ equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding as of December 31, 2008 and 2007		—			—
Common stock, $.01 par value, 75,000,000 shares authorized, 23,853,904 and 23,747,936 shares issued and outstanding as of December 31, 2008 and 2007, respectively		238			237
Limited voting stock, $.01 par value, 20,000,000 shares authorized, 14,496,666 shares issued and outstanding as of December 31, 2008 and 2007		145			145
Additional paid-in capital		158,341			153,569
Retained deficit and dividends, including $186 and $201 of other comprehensive loss as of December 31, 2008 and December 31, 2007, respectively		(26,980	)		(15,611	)
Total stockholders’ equity		131,744			138,340
Noncontrolling interests:
Unitholders in the Operating Partnership		85,210			92,487
Partners in consolidated real estate entities		3,773			4,581
Total noncontrolling interests		88,983			97,068
Total equity		220,727			235,408
Total liabilities and equity	$	660,435		$	713,904

See accompanying notes to consolidated financial information.

22

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

	Year ended December 31, 2008			Year ended December 31, 2007			Year ended December 31, 2006
Revenues:
Rental	$	30,523		$	32,646		$	33,076
Tenant reimbursements		25,874			26,371			25,197
Parking and other		3,869			3,917			3,837
Investment advisory, management, leasing, and development services		7,194			12,750			6,931
Investment advisory, management, leasing, and development services—unconsolidated real estate entities		18,263			17,921			12,603
Reimbursement of property personnel costs		6,079			3,877			2,620
Condominium sales		79,758			—			—
Total revenues		171,560			97,482			84,264
Expenses:
Property operating and maintenance		25,608			22,690			20,805
Real estate taxes		6,482			6,087			5,904
Investment advisory, management, leasing, and development services		14,800			13,093			7,139
Reimbursable property personnel costs		6,079			3,877			2,620
Cost of condominium sales		62,436			—			—
Rent—unconsolidated real estate entities		284			241			227
Interest		22,763			17,721			20,570
Depreciation and amortization		11,766			11,604			12,661
General and administrative		16,411			17,326			17,202
Impairment loss		11,023			—			—
Total expenses		177,652			92,639			87,128
Gain on sale of real estate		3,618			4,441			10,640
Gain (loss) from early extinguishment of debt		255			—			(360	)
Interest income		2,795			6,014			2,974
Equity in net loss of unconsolidated real estate entities		(12,828	)		(14,853	)		(12,909	)
(Loss) income before benefit (provision) for income taxes and noncontrolling interests		(12,252	)		445			(2,519	)
Benefit (provision) for income taxes		1,885			(1,221	)		(635	)
Net loss		(10,367	)		(776	)		(3,154	)
Noncontrolling interests’ share of net loss (income):
Unitholders in the Operating Partnership		4,683			(249	)		1,577
Partners in consolidated real estate entities		198			122			(472	)
		4,881			(127	)		1,105
TPGI share of net (loss) income	$	(5,486	)	$	(903	)	$	(2,049	)
Loss per share-basic and diluted	$	(0.24	)	$	(0.05	)	$	(0.15	)
Weighted average common shares outstanding—basic		23,693,577			20,739,371			14,339,032
Weighted average common shares outstanding—diluted		23,693,577			20,739,371			14,339,032

See accompanying notes to consolidated financial information.

23

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

Years Ended December 31, 2008, 2007 and 2006

	Common Stock			Limited Voting Stock			Additional Paid-In Capital			Deficit			Unearned Compensation, net			Other Comprehensive Income (loss)			Noncontrolling Interests			Total
	Shares	Amount
Balance, December 31, 2005	14,347,465	$	143	$	167		$	65,653		$	(3,379	)	$	(264	)	$	—		$	72,601		$	134,921
Beginning balance adjustment	—		—		—			4,603			(269	)		—			—			4,054			8,388
Reclass due to adoption of SFAS No. 123 R	—		—		—			(264	)		—			264			—			—			—
Issuance of unvested restricted stock	66,419		1		—			408			—			—			—			(409	)		—
Vesting of restricted stock	—		—		—			235			—			—			—			282			517
Vesting of stock options	—		—		—			77			—			—			—			92			169
Vesting of incentive units	—		—		—			1,390			—			—			—			1,680			3,070
Change in noncontrolling interest (see Note 3)	—		—		—			(2,373	)		—			—			—			2,373			—
Stock option exercise	4,377		—		—			54			—			—			—			—			54
Dividends	—		—		—			—			(3,459	)		—			—			(4,204	)		(7,663	)
Contributions	—		—		—			—			—			—			—			4,340			4,340
Distributions	—		—		—			—			—			—			—			(550	)		(550	)
Net loss	—		—		—			—			(2,049	)		—			—			(1,105	)		(3,154	)
Fair market value change of redeemable noncontrolling interest in unconsolidated real estate entities	—		—		—			(2,182	)		—			—			—			(2,720	)		(4,902	)
Balance, December 31, 2006	14,418,261	$	144	$	167		$	67,601		$	(9,156	)	$	—		$	—		$	76,434		$	135,190
Adoption of FIN 48	—		—		—			—			(120	)		—			—			—			(120	)
Issuance of unvested restricted stock	103,564		1		—			—			—			—			—			(913	)		(912	)
Vesting of restricted stock	—		—		—			1,354			—			—			—			176			1,530
Vesting of stock options	—		—		—			465			—			—			—			37			502
Vesting of incentive units	—		—		—			1,481			—			—			—			1,163			2,644
Change in noncontrolling interest (see Note 3)	—		—		—			(22,272	)		—			—			—			22,272			—
Stock option exercise	26,111		—		—			320			—			—			—			—			320
Proceeds from sale of common stock, net of offering expenses	9,200,000		92		—			139,316			—			—			—			—			139,408
Syndication fee	—		—		—			(314	)		—			—			—			(246	)		(560	)
Redemption of Operating Partnership units	—		—		(22	)		(33,646	)		—			—			—			—			(33,668	)
Dividends	—		—		—			—			(5,278	)		—			—			(3,718	)		(8,996	)
Tax benefit for uncertain tax provision	—		—		—			—			47			—			—			—			47
Other comprehensive loss recognized	—		—		—			—			—			—			(201	)		(129	)		(330	)
Contributions	—		—		—			—			—			—			—			415			415
Distributions	—		—		—			—			—			—			—			(36	)		(36	)
Net loss	—		—		—			—			(903	)		—			—			127			(776	)
Fair market value change of redeemable noncontrolling interest in unconsolidated real estate entities	—		—		—			(736	)		—			—			—			1,486			750
Balance, December 31, 2007	23,747,936	$	237	$	145		$	153,569		$	(15,410	)	$	—		$	(201	)	$	97,068		$	235,408
Issuance of unvested restricted stock	105,968		1		—			—			—			—			—			—			1
Share registration expenses	—		—		—			(15	)		—			—			—			—			(15	)
Vesting of restricted stock	—		—		—			1,063			—			—			—			—			1,063
Vesting of stock options	—		—		—			218			—			—			—			—			218
Vesting of incentive units	—		—		—			1,353			—			—			—			861			2,214
Change in noncontrolling interest (see Note 3)	—		—		—			787			—			—			—			(787	)		—
Dividends	—		—		—			—			(5,898	)		—			—			(3,589	)		(9,487	)
Other comprehensive income recognized	—		—		—			—			—			—			15			8			23
Distributions	—		—		—			—			—			—			—			(626	)		(626	)
Net loss	—		—		—			—			(5,486	)		—			—			(4,881	)		(10,367	)
Fair market value change of redeemable noncontrolling interest in unconsolidated real estate entities	—		—		—			1,366			—			—			—			929			2,295
Balance, December 31, 2008	23,853,904	$	238	$	145		$	158,341		$	(26,794	)	$	—		$	(186	)	$	88,983		$	220,727

See accompanying notes to consolidated financial information.

24

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Year ended December 31, 2008			Year ended December 31, 2007			Year ended December 31, 2006
Cash flows from operating activities:
Net loss	$	(10,367	)	$	(776	)	$	(3,154	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Gain on sale of real estate		(3,618	)		(4,441	)		(10,640	)
Gain on sale of condominiums—closed units		(15,001	)		—			—
Gain on sale of condominiums—units under contracts		(2,321	)		—			—
Loss from early extinguishment of debt		—			—			360
Equity in net loss of unconsolidated real estate entities		12,828			14,853			12,909
Deferred rents		3,433			5,896			5,543
Depreciation and amortization expense		11,766			11,604			12,661
Bad debt		564			143			127
Amortization of loan costs		449			327			488
Amortization of above and below market leases, net		(79	)		(16	)		(259	)
Non-cash amortization of share-based compensation		3,495			3,764			3,754
Distributions from operations of unconsolidated real estate entities		462			1,113			980
Impairment loss		11,023			—			—
Changes in assets and liabilities:
Rents and other receivables		(2,664	)		(300	)		(879	)
Receivables—unconsolidated real estate entities		1,939			(2,566	)		(739	)
Deferred leasing and loan costs		(3,864	)		(599	)		(419	)
Deferred tax asset		—			—			635
Other assets		(3,930	)		(12,558	)		28
Deferred interest payable		4,587			177			177
Accounts payable and other liabilities		(5,906	)		29,434			(749	)
Due to affiliate		—			2,000			—
Prepaid rent		(580	)		(156	)		(195	)
Deferred tax liability		—			(2,392	)		—
Net cash provided by operating activities:		2,216			45,507			20,628
Cash flows from investing activities:
Expenditures for improvements to real estate		(102,956	)		(125,481	)		(29,257	)
Proceeds from sales of condominiums		69,273			—			—
Purchases of interests in consolidated real estate entities		(4,000	)		—			—
Purchases of interests in unconsolidated real estate entities		—			(18,797	)		(24,150	)
Proceeds from sale of real estate		—			—			29,450
Return of capital from unconsolidated real estate entities		4,105			7,166			26,853
Contributions to unconsolidated real estate entities		(1,965	)		(2,059	)		(21,980	)
Payments for purchase of naming rights		—			(750	)		—
Net cash used in investing activities	$	(35,543	)	$	(139,921	)	$	(19,084	)

25

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(In thousands)

	Year ended December 31, 2008			Year ended December 31, 2007			Year ended December 31, 2006
Cash flows from financing activities:
Proceeds from equity offering		—			139,818			—
Payment of share registration costs		(15	)		(432	)		—
Payment for redemption of operating units		—			(33,646	)		—
Noncontrolling interest contributions		—			—			52
Noncontrolling interest distributions		(211	)		(36	)		(550	)
Payment of dividends to common stockholders and distributions to limited partners of the Operating Partnership		(9,463	)		(8,557	)		(7,653	)
Principal payments of mortgage and other secured loans		(89,998	)		(20,215	)		(10,962	)
Proceeds from mortgage and other secured loans		75,070			84,217			17,434
Payments of loan costs		—			—			(51	)
Proceeds from exercise of stock options		—			320			54
Change in restricted cash		320			(4,751	)		560
Net cash (used in) provided by financing activities		(24,297	)		156,718			(1,116	)
Net (decrease) increase in cash and cash equivalents		(57,624	)		62,304			428
Cash and cash equivalents at beginning of period		126,647			64,343			63,915
Cash and cash equivalents at end of period	$	69,023		$	126,647		$	64,343
Supplemental disclosure of cash flow information:
Cash paid for interest, net of capitalized interest of $3,731, $6,196, and $4,710 for the year ended December 31, 2008, December 31, 2007 and December 31, 2006	$	22,232		$	22,730		$	19,180
Supplemental disclosure of non-cash investing and financing activities:
Accrual for declaration of dividends to common shareholders and distributions to limited partners of the Operating Partnership	$	23		$	438		$	1,916
Investments in real estate included in accounts payable and other liabilities		(9,584	)		13,503			5,789
Decrease in investments in real estate and accumulated depreciation for removal of fully amortized improvements		19,057			4,540			8,730
Increase in investments in real estate for the consolidation of Murano		—			—			7,436
Reclassification of noncontrolling interest for limited partnership units in the Operating Partnership from additional paid in capital		787			22,272			2,373
Other comprehensive income		(22	)		329			—
Syndication fee related to investment in Austin Portfolio Joint Venture Properties		—			560			—

See accompanying notes to consolidated financial information.

26

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL INFORMATION

December 31, 2008, 2007, and 2006

(Tabular amounts in thousands)

1. Organization and Description of Business

The terms “Thomas Properties”, “us”, “we” and “our” as used in this report refer to Thomas Properties Group, Inc. together with our Operating Partnership, Thomas Properties Group, L.P. (the “Operating Company”).

We were formed to succeed to certain businesses of the Thomas Properties predecessor (Thomas Properties Group, Inc. Predecessor, or “TPGI Predecessor”), which was not a legal entity but rather a combination of real estate entities and operations. We own, manage, lease, acquire and develop real estate, consisting primarily of office properties and related parking garages, located in Southern California; Sacramento, California; Philadelphia, Pennsylvania; Northern Virginia; Houston, Texas and Austin, Texas. The owners of TPGI Predecessor were Mr. James A. Thomas, our Chairman, Chief Executive Officer and President, and certain others who had minor ownership interests.

We were incorporated in the State of Delaware on March 9, 2004. On October 13, 2004, we completed our initial public offering (the “Offering”). Concurrent with the consummation of the Offering, Thomas Properties and the Operating Partnership, together with the partners and members of the affiliated partnerships and limited liability companies of TPGI Predecessor and other parties which held direct or indirect ownership interests in the properties engaged in certain formation transactions. The formation transactions were designed to (i) continue the operations of TPGI Predecessor, (ii) enable us to raise the necessary capital to acquire increased interests in certain of the properties and repay certain property level indebtedness, (iii) fund joint venture capital commitments, (iv) provide capital for future acquisitions, and (v) fund future development costs at our development properties.

Our operations are carried on through our Operating Partnership. We are the sole general partner in the Operating Partnership. Pursuant to contribution agreements among the owners of TPGI Predecessor and the Operating Partnership, the Operating Partnership received a contribution of interests in the real estate properties, as well as the investment advisory, property management, leasing and real estate development operations of TPGI Predecessor in exchange for limited partnership units (“Units”) in the Operating Partnership issued to the contributors and the assumption of debt and other specified liabilities. As of December 31, 2008, we held a 61.0% interest in the Operating Partnership which we consolidate, as we have control over the major decisions of the Operating Partnership.

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As of December 31, 2008, we were invested in the following real estate properties:

Property	Type	Location
Consolidated properties:
One Commerce Square	High-rise office	Philadelphia Central Business District, Pennsylvania (“PCBD”)
Two Commerce Square	High-rise office	PCBD
Murano	Construction substantially complete; Residential condominiums held for sale	PCBD
2100 JFK Boulevard	Undeveloped land; Residential/Office/Retail	PCBD
Four Points Centre	Core and shell construction of two office buildings complete; undeveloped land; Office/Retail/Research and Development/Hotel	Austin, Texas
Campus El Segundo	Developable land—site infrastructure substantially complete; Office/Retail/ Research and Development/Hotel	El Segundo, California
Metro Studio@Lankershim	Entitlements and pre-development in progress; Office/Studio/Production/Retail	Los Angeles, California
Unconsolidated properties:
2121 Market Street	Residential and Retail	PCBD
TPG/CalSTRS, LLC:
City National Plaza	High-rise office	Los Angeles Central Business District, California
Reflections I	Suburban office—single tenancy	Reston, Virginia
Reflections II	Suburban office—single tenancy	Reston, Virginia
Four Falls Corporate Center	Suburban office	Conshohocken, Pennsylvania
Oak Hill Plaza	Suburban office	King of Prussia, Pennsylvania
Walnut Hill Plaza	Suburban office	King of Prussia, Pennsylvania
San Felipe Plaza	High-rise office	Houston, Texas
2500 City West	Suburban office and undeveloped land	Houston, Texas
Brookhollow Central I, II and III	Suburban office	Houston, Texas
CityWestPlace	Suburban office and undeveloped land	Houston, Texas
Centerpointe I & II	Suburban office	Fairfax, Virginia
Fair Oaks Plaza	Suburban office	Fairfax, Virginia
San Jacinto Center	High-rise office	Austin Central Business District, Texas, (“ACBD”)
Frost Bank Tower	High-rise office	ACBD
One Congress Plaza	High-rise office	ACBD
One American Center	High-rise office	ACBD
300 West 6th Street	High-rise office	ACBD
Research Park Plaza I & II	Suburban office	Austin, Texas
Park Centre	Suburban office	Austin, Texas
Great Hills Plaza	Suburban office	Austin, Texas
Stonebridge Plaza II	Suburban office	Austin, Texas
Westech 360 I-IV	Suburban office	Austin, Texas

2100 JFK Boulevard includes a surface parking lot that services One Commerce Square, Two Commerce Square and other unrelated properties. The City National Plaza property also includes an off-site garage that provides parking for City National Plaza and other properties. The office properties typically include on-site parking, retail and storage space.

28

From the late 1980s through 2000, TPGI Predecessor developed One Commerce Square, Two Commerce Square, 2121 Market Street and the California Environmental Protection Agency (“CalEPA”) headquarters building in Sacramento, California. We have the responsibility for the day-to-day operations of CalEPA building, but have no ownership interest in the property. We provide investment advisory services for the California State Teachers Retirement System (“CalSTRS”) with respect to three properties that are wholly owned by CalSTRS— 800 South Hope Street, 1835 Market Street and Pacific Financial Plaza—as well as the properties owned in a joint venture between CalSTRS and us (“TPG/CalSTRS”). In addition, we provide property management, leasing and development services to the properties discussed above, except we do not provide property management services for 2121 Market Street and Reflections I.

In 2001, TPGI Predecessor formed a joint venture with a third party, which entered into an agreement to purchase the land commonly referred to as Campus El Segundo. In October 2005, we purchased the entire interest of our unaffiliated noncontrolling partner in the joint venture and exercised the option to acquire the land.

Effective October 13, 2004, Mr. Thomas owned an 11% ownership interest in One Commerce Square and Two Commerce Square. On December 31, 2007, we exercised our option to purchase Mr. Thomas’ 11% ownership interest in One Commerce Square for $2 million, and on August 6, 2008, we exercised our option to purchase Mr. Thomas’ 11% ownership interest in Two Commerce Square.

As of December 31, 2008, we held a 73% interest in Murano, which was formed to hold a general partnership interest in the Murano development project. Commencing as of August 2, 2006, we consolidated this entity.

2. Change in Method of Accounting for Deferred Tax Asset

As of January 1, 2006, we elected to change the method of accounting for the deferred tax effects of Thomas Properties Group, Inc.’s investment in its consolidated Operating Partnership. Paragraph 34 of SFAS No. 109, “Accounting for Income Taxes” (SFAS No. 109), notes that a deferred tax asset related to an investment in a consolidated subsidiary or corporate joint venture should not be recorded unless it is apparent it will reverse in the foreseeable future. Because partnerships are not taxable entities and their tax consequences flow through to their investors they generally are not considered consolidated subsidiaries or corporate joint ventures. However, because the deferred tax assets related to the outside basis difference of the Company’s investment in the Operating Partnership bears the same attributes as the outside basis difference of a consolidated subsidiary, we have adopted, as a change in accounting policy, a limitation on recording deferred tax assets related to the investment in consolidated partnerships unless the temporary difference will reverse in the foreseeable future. This preferable alternative results in an application whereby we do not recognize a deferred tax asset related to these temporary differences as they will not reverse in the foreseeable future. In accordance with SFAS No. 154, “Accounting for Changes and Error Corrections” (SFAS No. 154), we have retrospectively applied this preferable alternative and adjusted our previously issued consolidated financial statements.

3. Summary of Significant Accounting Policies

Principles of Consolidation and Combination

The accompanying consolidated financial statements of our company include all the accounts of Thomas Properties Group, Inc., the Operating Partnership and the subsidiaries of the Operating Partnership. Property interests contributed to the Operating Partnership by Mr. Thomas and entities majority owned by him in exchange for Units have been accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests. Accordingly, the contributed assets and assumed liabilities were recorded at TPGI Predecessor’s historical cost basis, except for the noncontrolling owners’ share. The pooling-of-interests method of accounting also requires the reporting of results of operations, for the period in which the combination occurred as though the entities had been combined at either the beginning of the period or inception. Prior to the Offering, Thomas Properties Group, Inc. and the Operating Partnership had no operations. The combination did not require any material adjustments to conform the accounting policies of the separate entities. The remaining interests, which were acquired for cash and Units, have been accounted for as a purchase, and the excess of the purchase price over the related historical cost basis has been allocated to the assets acquired and liabilities assumed.

The real estate entities included in the consolidated financial statements have been consolidated only for the periods that such entities were under control by us or TPGI Predecessor, or were considered a variable interest entity. The equity method of accounting is utilized to account for investments in real estate entities over which we have significant influence, but not control over major decisions, including the decision to sell or refinance the properties owned by such entities. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

The interests in One Commerce Square (beginning June 1, 2004 through December 30, 2007), and Two Commerce Square (beginning October 13, 2004 through August 5, 2008), not owned by us are reflected as noncontrolling interest. On August 6, 2008 and December 31, 2007, we exercised our option to purchase the remaining 11% interest in Two Commerce Square and One Commerce Square, respectively, for $2.0 million each, resulting in our 100% ownership of Two Commerce Square and One Commerce Square.

29

We have a $20,510,000 preferred equity interest in Murano. Excluding the preferred equity interest, a third party has a 27.0% ownership interest in Murano.

Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less when acquired.

Restricted Cash

Restricted cash consists of security deposits from tenants and deposits from prospective condominium buyers as well as funds required under the terms of certain secured notes payable. There are restrictions on our ability to withdraw these funds other than for their specified usage. See Note 5 for additional information on restrictions under the terms of certain secured notes payable.

Investments in Real Estate

Investments in real estate are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

Buildings	40 to 50 years
Building improvements	5 to 40 years
Tenant improvements	Shorter of the useful lives or the terms of the related leases

Improvements and replacements are capitalized when they extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest, real estate taxes, insurance and other development related costs incurred during construction periods are capitalized and depreciated on the same basis as the related assets. Included in investments in real estate is capitalized interest of $22.6 million and $16.3 million as of December 31, 2008 and 2007, respectively. In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, “Business Combinations” , as revised (“SFAS 141R”). SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141R on January 1, 2009 will, among other things, require us to prospectively expense all acquisition costs for business combinations. The implementation of SFAS 141R on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred rather than our past practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

We consider assets to be held for sale pursuant to the provisions of SFAS No. 144, “Impairments of Long-Lived Assets and Discontinued Operations” (“SFAS 144”). We evaluate the held for sale classification of real estate owned each quarter.

Unconsolidated Real Estate Entities

Investments in unconsolidated real estate entities are accounted for using the equity method of accounting whereby our investments in partnerships and limited liability companies are recorded at cost and the investment accounts are adjusted for our share of the entities’ income or loss and for distributions and contributions.

We use the equity method to account for our unconsolidated real estate entities since we have significant influence but not control over the entities and none of the entities, other than Murano, effective August 1, 2006, are considered variable interest entities.

Impairment of Long-Lived Assets

We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Included in the consolidated net loss for the year ended December 31, 2008, is a pre-tax, non-cash impairment charge of $11.0 million related to our Murano condominium project whose units are complete and held for sale. We were required to record the condominium units at their estimated fair value on December 31, 2008, as the condominium units met the held for sale criteria of SFAS 144. Also included in Equity in net loss of unconsolidated real estate entities for the year ended December 31, 2008, is a pre-tax, non-cash impairment charge of $1.2 million related to our joint venture investments. We recorded our share of the impairment loss at the joint venture level as these investments met the other-than-temporary impairment criteria of Accounting Principles Board Opinion No. 18—“The Equity Method of Accounting for Investments in Common Stock”.

30

Deferred Leasing and Loan Costs

Deferred leasing commissions and other direct costs associated with the acquisition of tenants are capitalized and amortized on a straight-line basis over the terms of the related leases. Costs associated with unsuccessful leasing opportunities are expensed. Leasing costs, net of related amortization, totaled $13,477,000 and $11,064,000 as of December 31, 2008 and 2007, respectively, and are included in deferred leasing and loan costs, net of accumulated amortization, in the accompanying consolidated balance sheets. For the years ended 2008 and 2007, amortization of leasing costs was $2,091,000 and $1,653,000, respectively.

Loan costs are capitalized and amortized to interest expense over the terms of the related loans using a method that approximates the effective-interest method. Loan costs, net of related amortization, totaled $1,541,000 and $1,987,000 as of December 31, 2008 and 2007, respectively, and are included in deferred leasing and loan costs, net of accumulated amortization, in the accompanying consolidated balance sheets.

Deferred leasing and loan costs also include the carrying value of acquired in-place leases, which are discussed below.

Purchase Accounting for Acquisition of Interests in Real Estate Entities

Purchase accounting was applied, on a pro rata basis, to the assets and liabilities related to real estate entities for which we or TPGI Predecessor acquired interests, based on the percentage interest acquired. For purchases of additional interests that were consummated subsequent to June 30, 2001, the effective date of SFAS No. 141, “Business Combinations”, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building, tenant and site improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values. Loan premiums, in the case of any above market rate loans, or loan discounts, in the case of below market loans, are recorded based on the fair value of any loans assumed in connection with acquiring the real estate.

The fair value of the tangible assets of an acquired property (which includes land, building, tenant and site improvements) is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building, tenant and site improvements based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute leases including leasing commissions, legal and other related costs.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values, included in other assets, are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values, included in other liabilities, are amortized as an increase to rental income over the terms in the respective leases. As of December 31, 2008 and 2007, we had an asset related to above market leases of $1,070,000 and $1,148,000, respectively, net of accumulated amortization of $884,000 and $658,000, respectively, and a liability related to below market leases of $920,000 and $946,000, respectively, net of accumulated accretion of $1,179,000 and $1,110,000, respectively. The weighted average amortization period for our above and below market leases was approximately 4.2 and 7.7 years as of December 31, 2008 and 2007, respectively.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value for the additional interests in real estate entities acquired by us and TPGI Predecessor because such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to the value of tenant relationships, an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to depreciation and amortization expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

31

The table below presents the expected amortization related to the acquired in-place lease value and acquired above and below market leases at December 31, 2008:

	2009			2010			2011			2012			2013			Thereafter			Total
Amortization expense:
Acquired in-place lease value	$	543		$	533		$	521		$	476		$	381		$	1,005		$	3,459
Adjustments to rental revenues
Above market leases	$	(249	)	$	(219	)	$	(218	)	$	(207	)	$	(147	)	$	(30	)	$	(1,070	)
Below market leases		237			221			218			140			35			69			920
Net adjustment to rental revenues	$	(12	)	$	2		$	—		$	(67	)	$	(112	)	$	39		$	(150	)

Noncontrolling Interests of Unitholders in the Operating Partnership

Noncontrolling interests of unitholders in the Operating Partnership represent the interests in the Operating Partnership units which are held primarily by entities affiliated with Mr. Thomas. The ownership percentage of the noncontrolling interests is determined by dividing the number of Operating Partnership units by the total number of shares of common stock and Operating Partnership units outstanding. Net income is allocated based on the ownership percentages. The issuance of additional shares of common stock or Operating Partnership units results in changes to the noncontrolling interests of the Operating Partnership percentage as well as the total net assets to the Company. As a result, all common transactions result in an allocation between equity and noncontrolling interests of the Operating Partnership in the accompanying consolidated balance sheets to account for the change in the noncontrolling interests of the Operating Partnership ownership percentage as well as the change in total net assets of the company.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment decreased revenue by $3,044,000, $5,678,000, and $5,501,000 for the years ended December 31, 2008, 2007 and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $80,000, $16,000 and $259,000 for the years ended December 31, 2008, 2007 and 2006, respectively. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in rents and other receivables. We also maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the high quality of the existing tenant base, reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative square footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statements of operations, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that revenues should have been presented in tenant reimbursements instead of parking and other. Accordingly, we reclassified such reimbursements from the parking and other revenue caption to the tenant reimbursements revenue caption, and we reclassified the corresponding expense from the parking and other revenue caption to the rental property operating and maintenance expense caption for the year ended December 31, 2006 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “parking and other” and “rental property operating and maintenance” in the consolidated statements of operations for the year ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.8 million, $(0.1) million, and $5.7 million, respectively. This reclassification had no impact on operating income, net income, and earnings per share or equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold. If the criteria for profit recognition under the full-accrual method are not met, we defer gain recognition and account for the continued operations of the property by applying the deposit or percentage of completion method, as appropriate, until the appropriate criteria are met. With respect to a parcel we sold at Campus El Segundo in 2006, we deferred a portion of the gain as we were obligated to fund certain infrastructure improvements with respect to the sold parcel; therefore we recognized the deferred gain on the percentage of completion method. The improvements were completed in 2008 and the remaining deferred gain balance was recognized.

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We have one high-rise condominium project for which we use the percentage of completion accounting method to recognize revenues and costs. Revenues and costs for projects are recognized using the percentage of completion method of accounting when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not revert to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the costs of the project can be reasonably estimated. Revenues are recognized on the individual project’s aggregate value of units which have closed and units for which the home buyers have signed binding agreements of sale and are based on the percentage of total estimated construction costs that have been incurred. The total estimated costs of the project are allocated to these units on a relative sales value basis. Total estimated revenues and construction costs are reviewed periodically, and any change is applied to current and future periods.

Forfeited customer deposits are recognized as revenue in the period in which we determine that the customer will not complete the purchase of the condominium unit and when we determine that we have the right to keep the deposit. As of December 31, 2008, there were six forfeitures totaling $574,000, of which $528,000 was recognized in 2008, and $46,000 was recognized in 2007.

Investment advisory fees are based on a percentage of net operating income earned by a property under management and are recorded on a monthly basis as earned. Property management fees are based on a percentage of the revenue earned by a property under management and are recorded on a monthly basis as earned. Generally, 50% of leasing fees are recognized upon the execution of the lease and the remainder upon tenant occupancy unless significant future contingencies exist. Development fees are recognized as the real estate development services are rendered using the percentage-of-completion method of accounting based on total project costs incurred to total estimated costs.

Equity Offering Costs

Underwriting commissions and costs and expenses from our October 2004 initial public offering and our April 2007 public offering are reflected as a reduction to additional paid-in-capital. In addition, share registration expenses of $15,000 related to the redemption of incentive units are reflected as a reduction to additional paid-in-capital.

Income Taxes

We account for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, as measured by applying currently enacted tax laws. A valuation allowance is established for deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Earnings (loss) per share

The Company computes earnings per share in accordance with SFAS No. 128, Earnings Per Share (“SFAS 128”). Basic earnings per common share is computed by dividing net income applicable to common shares by the weighted average number of shares of common stock outstanding during the period.

On January 1, 2009, the Company adopted FASB Staff Position (“FSP”) No. EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP EITF 03-6-1”). FSP EITF 03-6-1 addresses whether instruments granted in share-based payment awards are participating securities prior to vesting, and therefore, need to be included in the earnings allocation when computing earnings per share under the two-class method as described in SFAS 128. In accordance with FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Upon adoption, all prior-period earnings per share data presented was adjusted retrospectively with no material impact.

Stock-based Compensation

On January 1, 2006, in connection with the adoption of SFAS No. 123R using the modified prospective method, we reclassified $264,000 to net the unearned compensation line item within equity against additional paid in capital. Under SFAS No. 123R, an equity instrument is not recorded to equity until the related compensation expense is recorded over the requisite service period of the award. Prior to the adoption of SFAS No. 123R, and in accordance with the previous accounting guidance, we recorded the full fair value of all issued but nonvested stock options and restricted shares in additional paid in capital and recorded an offsetting deferred compensation balance on a separate line item within equity for the amount of compensation costs not yet recognized for these nonvested instruments. We use the Black-Scholes-Merton option pricing model to estimate the fair value of granted options. This model takes into account the option’s exercise price, the option’s expected life, the current price of the underlying stock, the expected volatility of the underlying stock, expected dividends, and a risk-free interest rate.

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Fair Value Measurements

On January 1, 2008 we adopted FASB Statement No. 157 “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Currently, certain of our unconsolidated real estate entities use interest rate caps, floors and collars to manage the interest rate risk resulting from variable interest payments on floating rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

To comply with the provisions of FAS 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. We have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2008.

The table below presents the assets and liabilities associated with our unconsolidated investments measured at fair value on a recurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2008
Assets
Interest rate contracts	$	—	$	15	$	—	$	15
Liabilities
Interest rate contracts	$	—	$	3,618	$	—	$	3,618

Recent Accounting Pronouncements

In February 2008, the FASB issued FASB Staff Position No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“SFAS 157-1”). SFAS No. 157-1 amends SFAS 157, to exclude FASB Statement No. 13, “Accounting for Leases” (“SFAS 13”), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141 (R), “Business Combinations” (“SFAS 141R”), regardless of whether those assets and liabilities are related to leases. The adoption of FASB Staff Position No. 157-1 did not have a material impact on our financial position or results of operations.

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In December 2007, the FASB issued SFAS 141R, to create greater consistency in the accounting and financial reporting of business combinations. SFAS 141R requires a company to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity to be measured at their fair values as of the acquisition date. SFAS 141R also requires companies to recognize the fair value of assets acquired, the liabilities assumed and any noncontrolling interest in acquisitions of less than a one hundred percent interest when the acquisition constitutes a change in control of the acquired entity. In addition, SFAS 141R requires that acquisition-related costs and restructuring costs be recognized separately from the business combination and expensed as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. The implementation of SFAS 141R on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred rather than our past practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

In February 2007, the FASB issued FASB No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115” (“SFAS 159”). This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007, which for us meant an effective date of January 1, 2008. We did not elect the fair value measurement option for any financial assets or liabilities.

Adoption of FASB Statement No. 160 and FSP EITF 03-6-1

In December 2007, FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries within equity in the consolidated financial statements, but separate from the parent shareholders’ equity. SFAS 160 also requires any acquisitions or dispositions of noncontrolling interests that do not result in a change of control to be accounted for as equity transactions. In addition, SFAS 160 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. SFAS 160 applies to fiscal years beginning after December 15, 2008 and is adopted prospectively. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The adoption of SFAS 160 resulted in a reclassification of minority interests to a separate component of total equity on the balance sheet and net income attributable to noncontrolling interests is shown as a reduction from net income in calculating net income available to common stockholders on the statement of operations. All previous references to “minority interests” in the consolidated financial statements have been revised to “noncontrolling interests.” In connection with the issuance of SFAS 160, certain revisions were also made to EITF Topic D-98 “Classification and Measurement of Redeemable Securities” (EITF D-98). See Note 7- Earnings (Loss) Per Share and Note 8- Equity for additional details.

In June 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 addresses whether instruments granted in share-based payment awards are participating securities prior to vesting, and therefore, need to be included in the earnings allocation when computing earnings per share under the two-class method as described in SFAS 128. In accordance with FSP EITF 03-6-1, unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. Upon adoption on January 1, 2009, all prior-period earnings per share data presented was adjusted retrospectively with no material impact. See Note 7- Earnings (Loss) Per Share.

Management’s Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

We have identified certain critical accounting policies that affect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements. On an ongoing basis, we evaluate estimates related to critical accounting policies, including those related to revenue recognition and the allowance for doubtful accounts receivable and investments in real estate and asset impairment. The estimates are based on information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances.

We must make estimates related to the collectability of accounts receivable related to minimum rent, deferred rent, expense reimbursements, lease termination fees and other income. We specifically analyze accounts receivable and historical bad debts, tenant concentrations, tenant creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on our net income, because a higher bad debt allowance would result in lower net income.

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We are required to make subjective assessments as to the useful lives of the properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

We are required to make subjective assessments as to whether there are impairments in the values of our investments in real estate, including real estate held by the unconsolidated real estate entities accounted for using the equity method. These assessments have a direct impact on our net income because recording an impairment loss results in a negative adjustment to net income.

We are required to make subjective assessments as to the fair value of assets and liabilities in connection with purchase accounting related to interests in real estate entities acquired by us. These assessments have a direct impact on our net income subsequent to the acquisition of the interests as a result of depreciation and amortization being recorded on these assets and liabilities over the expected lives of the related assets and liabilities. We estimate the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs, similar to the income approach that is commonly utilized by appraisers.

Reclassifications

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

Segment Disclosure

SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” established standards for disclosure about operating segments and related disclosures about products and services, geographic areas and major customers. We currently operate in one operating segment: the acquisition, development, ownership, and management of commercial real estate. Additionally, we operate in one geographic area: the United States.

Our office portfolio includes revenues from the rental of office space to tenants, parking, rental of storage space and other tenant services.

Concentration of Credit Risk

Financial instruments that subject us to credit risk consist primarily of cash and accounts receivable. We maintain our unrestricted cash and restricted cash on deposit with high quality financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. There is a concentration of risk related to amounts that exceed the FDIC insurance coverage. We believe that the risk is not significant. Our cash equivalents are typically invested in AAA-rated short-term instruments, which provide daily liquidity, and are subject to the U.S. Treasury’s Temporary Guarantee Program for money market funds, which is scheduled to expire on April 30, 2009. This program provides enhanced capital protection.

We have two operating properties and one unconsolidated operating property located in downtown Philadelphia, Pennsylvania. In addition, the Murano residential high-rise project consists of condominium units held for sale in downtown Philadelphia, Pennsylvania. The ability of the tenants to honor the terms of their respective leases, and the ability of prospective buyers to close on the acquisition of a condominium unit, is dependent upon the economic, regulatory and social factors affecting the communities in which the tenants operate.

We generally require either a security deposit, letter of credit or a guarantee from our tenants. We require a 15% cumulative deposit of prospective buyers of our Murano condominium project, which is essentially non-refundable except in cases of our non-performance.

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4. Unconsolidated Real Estate Entities

The unconsolidated real estate entities include our share of the entities that own 2121 Market Street, and the TPG/CalSTRS properties. TPG/CalSTRS owns the following entities:

City National Plaza (purchased January 2003)

Reflections I (purchased October 2004)

Reflections II (purchased October 2004)

Four Falls Corporate Center (purchased March 2005)

Oak Hill Plaza (purchased March 2005)

Walnut Hill Plaza (purchased March 2005)

San Felipe Plaza (purchased August 2005)

2500 City West (purchased August 2005)

Brookhollow Central I, II and III (purchased August 2005)

Intercontinental Center (purchased August 2005, sold May 2007)

2500 City West land (purchased December 2005)

CityWestPlace (purchased June 2006)

Centerpointe I & II (purchased January 2007)

Fair Oaks Plaza (purchased January 2007)

TPG-Austin Portfolio Investor, LLC (inception date June 2007)

The following investment entity that holds a mortgage loan receivable is accounted for using the equity method of accounting:

BH Note B Lender, LLC (formed in October 2008)

TPG/CalSTRS also owns a 25% interest in the TPG-Austin Portfolio Syndication Partners JV LP (the “Austin Portfolio Joint Venture Properties”) which owns the following properties:

San Jacinto Center (purchased June 2007)

Frost Bank Tower (purchased June 2007)

One Congress Plaza (purchased June 2007)

One American Center (purchased June 2007)

300 West 6th Street (purchased June 2007)

Research Park Plaza I & II (purchased June 2007)

Park Centre (purchased June 2007)

Great Hills Plaza (purchased June 2007)

Stonebridge Plaza II (purchased June 2007)

Westech 360 I-IV (purchased June 2007)

Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the partnership and limited liability company agreements. Following are the stated ownership percentages, prior to any preferred or special allocations, as of December 31, 2008:

2121 Market Street	50.0	%
TPG/CalSTRS, LLC:
City National Plaza	21.3	%
All other properties, excluding Austin Portfolio Joint Venture Properties	25.0	%
Austin Portfolio Joint Venture Properties	6.3	%

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Investments in unconsolidated real estate entities as of December 31, 2008 and 2007 are as follows:

	December 31, 2008			December 31, 2007
TPG/CalSTRS
City National Plaza	$	(18,486	)	$	(16,156	)
Reflections I		1,512			1,402
Reflections II		1,666			1,609
Four Falls Corporate Center		579			1,069
Oak Hill Plaza/Walnut Hill Plaza		265			700
Valley Square Office Park		(9	)		(9	)
San Felipe Plaza		3,367			4,450
2500 City West		1,015			1,962
Brookhollow Central I, II and III/ Intercontinental Center		816			1,934
CityWestPlace		21,147			21,280
Centerpointe I & II		4,960			6,526
Fair Oaks Plaza		2,528			2,957
Austin Portfolio Investor		(2,148	)		(472	)
Frost Bank Tower		2,757			3,057
300 West 6th Street		2,240			2,611
San Jacinto Center		1,801			2,059
One Congress Plaza		2,276			2,587
One American Center		2,087			2,411
Stonebridge Plaza II		694			762
Park Centre		667			671
Research Park Plaza I & II		840			1,002
Westech 360 I-IV		477			540
Great Hills Plaza		359			397
TPG/CalSTRS		(1,156	)		51
BH Note B Lender		739			—
2121 Market Street and Harris Building Associates		(1,895	)		(1,189	)
	$	29,098		$	42,211

The following is a summary of the investments in unconsolidated real estate entities for the years ended December 31, 2008, 2007, and 2006:

Investment balance, December 31, 2005 (adjusted for fair market value change of redeemable noncontrolling interest)	$	38,288
Beginning balance adjustment for recalculated depreciation expense allocation		9,836
Contributions, including $24,150 for acquisition of new properties		46,130
Equity in net loss of unconsolidated real estate entities		(12,909	)
Distributions		(31,817	)
Fair market value change of redeemable noncontrolling interest		(4,902	)
Investment balance, December 31, 2006	$	44,626
Contributions, including $18,797 for acquisition of new properties		20,296
Equity in net loss of unconsolidated real estate entities		(14,853	)
Other comprehensive income/loss		(329	)
Distributions		(8,279	)
Fair market value change of redeemable noncontrolling interest		750
Investment balance, December 31, 2007	$	42,211
Contributions, including $714 for acquisition of Brookhollow Note B loan		1,965
Equity in net loss of unconsolidated real estate entities		(12,828	)
Other comprehensive income/loss		22
Distributions		(4,567	)
Fair market value change of redeemable noncontrolling interest		2,295
Investment balance, December 31, 2008	$	29,098

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TPG/CalSTRS was formed to acquire office properties on a nationwide basis classified as moderate risk (core plus) and high risk (value add) properties. Core plus properties consist of under-performing properties that we believe can be brought to market potential through improved management. Value-add properties are characterized by unstable net operating income for an extended period of time, occupancy less than 90% and/or physical or management problems which we believe can be positively impacted by introduction of new capital and/or management. We are required to use diligent efforts to sell each joint venture property within five years of that property reaching stabilization, except for certain stabilized properties, as to which, we are required to perform a hold/sell analysis at least annually and make a recommendation to the TPG/CalSTRS’ management committee regarding the appropriate holding period.

The total capital commitment to the joint venture was $378.3 million as of December 31, 2008. On February 1, 2008, we revised our agreement with CalSTRS providing for $25 million in additional capital commitments, $18.75 million and $6.25 million from CalSTRS and us, respectively, of which approximately $16.1 million and $5.4 million was unfunded by CalSTRS and us, respectively, as of December 31, 2008.

A buy-sell provision may be exercised by either CalSTRS or us. Under this provision, the initiating party sets a price for its interest in the joint venture, and the other party has a specified time to elect to either buy the initiating party’s interest or to sell its own interest to the initiating party. Upon the occurrence of certain events, CalSTRS also has a buy-out option to purchase our interest in the joint venture. The buyout price is based upon a 3% discount to the appraised fair market value. In addition, the noncontrolling owner of City National Plaza has the option to require the joint venture to purchase its interests for an amount equal to what would be payable to it upon liquidation of the assets at fair market value.

Lehman Brothers Holdings, Inc. filed for bankruptcy protection in September 2008. The Lehman affiliate that owns the equity interest in the Austin Portfolio Joint Venture is 100% indirectly owned by Lehman Brothers Holdings, Inc. In addition, two Lehman Brothers Holdings, Inc. affiliates consisting of Lehman Commercial Paper Inc. and Lehman Brothers Inc., are administrative agent and lead arranger, respectively, under the Austin Portfolio Joint Venture’s $292.5 million credit agreement, which includes a $100 million revolving credit facility and a $192.5 million term loan. The $192.5 million term loan has been fully funded by Lehman Commercial Paper Inc. and is secured by certain properties held in the joint venture and secondary liens on other joint venture properties. We submitted a borrowing notice on September 17, 2008 with respect to the full $100 million available under the revolving credit facility, which was not funded. On September 19, 2008, we sent Lehman Commercial Paper Inc. and Lehman Brothers Inc. a notice of default of their obligations under the credit agreement. Both Lehman Commercial Paper, Inc. and Lehman Brothers Inc. have filed bankruptcy proceedings which have stayed any action by the Austin Portfolio Joint Venture to enforce the obligation to fund the revolving credit facility. We cannot offer any assurance that these entities will honor any draw notices we may submit under the credit agreement. If we are unable to enforce our rights to obtain funds under the revolving credit facility, we will be forced to seek alternative debt financing or other financing which may be on less favorable terms, if available at all, and the Austin Portfolio Joint Venture may be obligated to make additional capital calls on the joint venture’s partners.

On November 17, 2008, the Austin Portfolio Joint Venture filed a motion with the U.S. Bankruptcy Court for the Southern District of New York (the Court) in the bankruptcy case of Lehman Brothers Holdings, Inc., et al. seeking to compel Lehman Brothers to accept and honor its obligation to fund the $100 million revolving credit facility under the Credit Agreement with the Austin Portfolio Joint Venture or in the alternative, asking for authority to allow the Austin Portfolio Joint Venture to obtain alternative financing, secured by liens superior to the existing liens in favor of Lehman Brothers. The Austin Portfolio Joint Venture and Lehman Commercial Paper Inc. and Lehman Brothers Inc. have agreed to postpone the hearing on the motion and related matters by the Court to March 25, 2009. Commencing in January 2009, the Austin Portfolio Joint Venture has withheld the payment of interest on the $192.5 million term loan as a partial offset for damages caused by the failure of Lehman Brothers to fund the $100 million revolving credit facility. In response, Lehman Brothers has issued a notice of default to Austin Portfolio Joint Venture based on the failure to pay interest, but has not yet taken any actions to enforce any remedies with respect to such alleged default. In the event we are unable to resolve the situation with Lehman Brothers as it relates to the Austin Portfolio Joint Venture, the operations and future prospects of the joint venture could be materially adversely affected, and our investment in the joint venture could be subject to potential impairment.

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Following is summarized financial information for the unconsolidated real estate entities as of December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006:

Summarized Balance Sheets

	2008		2007
ASSETS
Investments in real estate, net	$	2,335,067	$	2,326,679
Land held for sale		3,835		3,418
Receivables including deferred rents, net		72,764		62,954
Deferred leasing and loan costs, net		168,980		201,229
Other assets		101,430		129,308
Assets associated with discontinued operations		86		28
Total assets	$	2,682,162	$	2,723,616
LIABILITIES AND OWNERS’ EQUITY
Mortgage and other secured loans	$	2,237,717	$	2,162,556
Below market rents, net		80,467		99,002
Other liabilities		105,998		109,975
Liabilities associated with discontinued operations		121		23
Total liabilities		2,424,303		2,371,556
Redeemable noncontrolling interest		18,771		27,951
Owners’ equity:
Thomas Properties, including $308 and $329 of other comprehensive loss as of 2008 and 2007, respectively		34,839		47,053
Other owners, including $4,211 and $2,556 of other comprehensive loss as of 2008 and 2007, respectively		204,249		277,056
Total owners’ equity		239,088		324,109
Total liabilities and owners’ equity	$	2,682,162	$	2,723,616

Summarized Statements of Operations

	2008			2007			2006
Revenues	$	322,553		$	258,512		$	140,796
Expenses:
Operating and other expenses		170,019			138,942			89,931
Interest expense		126,386			118,182			56,795
Depreciation and amortization		125,565			107,633			55,501
Total expenses		421,970			364,757			202,227
Loss from continuing operations		(99,417	)		(106,245	)		(61,431	)
Redeemable noncontrolling interest		—			(104	)		(1,650	)
Impairment loss		(4,840	)		—			—
Gain on sale of real estate		—			7,932			—
Income (loss) from discontinued operations		(104	)		(270	)		4,722
Net loss	$	(104,361	)	$	(98,687	)	$	(58,359	)
Thomas Properties’ share of net loss, prior to intercompany eliminations	$	(16,168	)	$	(17,465	)	$	(14,473	)

40

Included in the preceding summarized balance sheets as of December 31, 2008 and 2007, are the following balance sheets of TPG/CalSTRS, LLC:

	2008		2007
ASSETS
Investments in real estate, net	$	1,224,401	$	1,194,028
Land held for sale		3,835		3,418
Receivables including deferred rents, net		65,741		55,582
Investments in unconsolidated real estate entities		45,347		61,662
Deferred leasing and loan costs, net		90,954		104,132
Other assets		69,506		70,251
Assets associated with discontinued operations		86		28
Total assets	$	1,499,870	$	1,489,101
LIABILITIES AND MEMBERS’ EQUITY
Mortgage and other secured loans	$	1,311,391	$	1,235,932
Other liabilities		73,354		83,914
Liabilities associated with discontinued operations		121		23
Total liabilities		1,384,866		1,319,869
Redeemable noncontrolling interest		18,771		27,951
Members’ equity:
Thomas Properties, including $308 and $329 of other comprehensive loss as of December 31, 2008 and December 31, 2007, respectively		36,073		47,262
CalSTRS, including $938 and $1,114 of other comprehensive loss as of December 31, 2008 and December 31, 2007, respectively		60,160		94,019
Total members’ equity		96,233		141,281
Total liabilities and members’ equity	$	1,499,870	$	1,489,101

Following is summarized financial information by real estate entity for the years ended December 31, 2008, 2007 and 2006:

	Year ended December 31, 2008
	2121 Market Street and Harris Building Associates			TPG/ CalSTRS, LLC			Austin Portfolio Properties			Eliminations		Total
Revenues	$	3,602		$	201,316		$	117,635		$	—	$	322,553
Expenses:
Operating and other expenses		1,453			114,579			53,987			—		170,019
Interest expense		1,203			67,102			58,081			—		126,386
Depreciation and amortization		2,371			63,690			59,504			—		125,565
Total expenses		5,027			245,371			171,572			—		421,970
Income (loss) from continuing operations		(1,425	)		(44,055	)		(53,937	)		—		(99,417	)
Equity in net loss of unconsolidated real estate entities		—			(18,123	)		—			13,283		(4,840	)
Loss from discontinued operations		—			(104	)		—			—		(104	)
Net (loss) income	$	(1,425	)	$	(62,282	)	$	(53,937	)	$	13,283	$	(104,361	)
Thomas Properties’ share of net loss	$	(707	)	$	(12,200	)	$	(3,261	)	$	—	$	(16,168	)
Intercompany eliminations													3,340
Equity in net loss of unconsolidated real estate entities												$	(12,828	)

41

	Year ended December 31, 2007
	2121 Market Street and Harris Building Associates			TPG/ CalSTRS, LLC			Austin Portfolio Properties			Eliminations		Total
Revenues	$	5,712		$	185,773		$	67,027		$	—	$	258,512
Expenses:
Operating and other expenses		3,515			106,865			28,562			—		138,942
Interest expense		1,182			81,247			35,753			—		118,182
Depreciation and amortization		962			67,955			38,716			—		107,633
Total expenses		5,659			256,067			103,031			—		364,757
Income (loss) from continuing operations		53			(70,294	)		(36,004	)		—		(106,245	)
Gain on sale of real estate		—			7,932			—			—		7,932
Equity in net loss of unconsolidated real estate entities		—			(9,001	)		—			9,001		—
Noncontrolling interest		(104	)		—			—			—		(104	)
Loss from discontinued operations		—			(270	)		—			—		(270	)
Net (loss) income	$	(51	)	$	(71,633	)	$	(36,004	)	$	9,001	$	(98,687	)
Thomas Properties’ share of net loss	$	(25	)	$	(15,190	)	$	(2,250	)	$	—	$	(17,465	)
Intercompany eliminations													2,612
Equity in net loss of unconsolidated real estate entities												$	(14,853	)

	Year ended December 31, 2006
	2121 Market Street and Harris Building Associates			Murano			TPG/ CalSTRS, LLC			Total
Revenues	$	5,607		$	—		$	135,189		$	140,796
Expenses:
Operating and other expenses		3,463			418			86,050			89,931
Interest expense		1,199			—			55,596			56,795
Depreciation and amortization		1,082			452			53,967			55,501
Total expenses		5,744			870			195,613			202,227
Loss from continuing operations		(137	)		(870	)		(60,424	)		(61,431	)
Gain on sale of real estate		—			—			6,328			6,328
Noncontrolling interest		(104	)		—			(1,546	)		(1,650	)
Loss from discontinued operations		—			—			(1,606	)		(1,606	)
Net loss	$	(241	)	$	(870	)	$	(57,248	)	$	(58,359	)
Thomas Properties’ share of net loss	$	(120	)	$	(435	)	$	(13,918	)	$	(14,473	)
Intercompany eliminations											1,564
Equity in net loss of unconsolidated real estate entities										$	(12,909	)

For the years ended December 31, 2008, 2007 and 2006, one tenant accounted for approximately 9.6%, 10.2% and 12.2%, respectively, of rent and tenant reimbursements (excluding tenant reimbursements for over-standard usage of certain operating expenses) of TPG/CalSTRS.

Following is a reconciliation of our share of owners’ equity of the unconsolidated real estate entities as shown above to amounts recorded by us as of December 31, 2008 and 2007:

	2008			2007
Our share of owners’ equity recorded by unconsolidated real estate entities	$	34,839		$	47,053
Intercompany eliminations and other adjustments		(5,741	)		(4,842	)
Investments in unconsolidated real estate entities	$	29,098		$	42,211

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5. Mortgage and Other Secured Loans

A summary of the outstanding mortgage and other secured loans as of December 31, 2008 and 2007 is as follows. None of these loans is recourse to us, except that we have given a guaranty of the Campus El Segundo mortgage loan and a partial guaranty of the Four Points Centre construction loan, which is currently limited to a maximum of $13.3 million. The Company also has potential obligations under certain limited guaranties given to the lender in connection with the Two Commerce Square mezzanine loans, as described in footnote (3) below. The loan guaranties are more fully described in Notes 9 and 14.

	Interest Rate at December 31, 2008	Outstanding Debt				Maturity Date	Maturity Date at End of Extension Options
Secured Debt		2008		2007
One Commerce Square mortgage loan (1)	5.7%	$	130,000	$	130,000	1/6/2016	1/6/2016
Two Commerce Square:
Mortgage Loan (2)	6.3		108,579		110,019	5/9/2013	5/9/2013
Senior mezzanine loan (3) (4)	19.3		31,573		35,449	1/9/2010	1/9/2010
Junior mezzanine loan (3) (5)	15.0		4,462		4,285	1/9/2010	1/9/2010
Campus El Segundo mortgage loan (6)	Prime Rate or LIBOR + 2.25		17,000		17,259	10/10/2009	10/10/2010
Four Points Centre Construction Loan (7)	Prime Rate or LIBOR + 1.50		28,527		4,895	6/11/2010	6/11/2012
Murano construction loan (8)	7.00 or LIBOR + 3.25		63,904		79,321	7/31/2009	7/31/2010
Loan secured by our preferred equity interest in Murano (9)	LIBOR + 4.00		—		10,879	7/7/2008	—
Total mortgage loans and other secured loans		$	384,045	$	392,107

(1) The mortgage loan is subject to interest only payments through January 2011, and thereafter, principal and interest payments are due based on a thirty-year amortization schedule. The loan is subject to yield maintenance payments for any prepayments prior to October 2015, and beginning January 2009, may be defeased.

(2) The mortgage loan may be defeased, and beginning February 2012, may be prepaid.

(3) The Company’s predecessor-in-interest and Mr. Thomas both gave certain limited guaranties to the lender on the Two Commerce Square mezzanine loans. The guaranties from Mr. Thomas are subject to an aggregate maximum liability of $7.5 million and the Company has agreed to indemnify Mr. Thomas for claims made on his guaranties. The guaranties from the Company and Mr. Thomas are limited to certain “bad boy” acts by the borrower or by the guarantors, including fraud, intentional misrepresentation, willful misconduct, Environmental Indemnity (as defined), misappropriation of Rents (as defined), or certain acts of insolvency by the borrower, such as filing a bankruptcy petition.

(4) The senior mezzanine loan bears interest at a rate such that the weighted average of the rate on this loan and the rate on the mortgage loan secured by Two Commerce Square equals 9.2% per annum. The effective interest rate on this loan as of December 31, 2008 was 19.3% per annum. The loan may not be prepaid prior to August 9, 2009, and thereafter is subject to yield maintenance payments unless the loan is prepaid within 60 days of maturity. The loan is secured by our ownership interest in the real estate entities that own Two Commerce Square.

(5) Interest at a rate of 10% per annum is payable currently, and additional interest of 5% per annum is deferred until maturity. The loan is subject to a prepayment penalty in the amount of the greater of 3% of the principal amount or a yield maintenance premium. The loan is secured by our ownership interest in the real estate entities that own Two Commerce Square.

(6) The interest rate as of December 31, 2008 was 3.3% per annum. The loan has a one-year extension option at our election, subject to us complying with certain loan covenants. We were in compliance with these covenants as of December 31, 2008 and expect to be in compliance at the extension date. We expect to exercise our option to extend this loan. The loan is also subject to an extension fee of 0.25% of the total commitment amount of the loan and at the lenders’ option, a written appraisal may be required. In the event the loan to value ratio exceeds 65%, we must pay down the outstanding principal to meet the 65% loan to value ratio. In addition, the lender may require an additional $2.5 million principal paydown.

(7) We may borrow an additional $14.1 million under this construction loan. The weighted average interest rate as of December 31, 2008 was 3.3% per annum. The loan has two one-year extension options at our election subject to certain conditions. The first extension option and the second extension option are subject to achievement of 75% and 90% occupancy levels, respectively, an extension fee of 0.125% of the loan commitments and at the lenders’ option, a written appraisal and a loan to value ratio not to exceed 75%. The second extension is also subject to a minimum debt yield ratio of 8.65%.

(8) We may borrow an additional $10.1 million under this construction loan. This loan has two six-month extension options at our election. The first and second extension options are each conditioned on the closing of 100 residential units, which has occurred. The extension options are subject to exit fees equal to 0.5% of the outstanding principal balance and unfunded commitments and may be reduced to 0.25% if certain conditions are met. We expect to exercise these options. The principal paydowns are also subject to an exit fee. The interest rate for this loan as of December 31, 2008 was 7.3%.

(9) A subsidiary of our Operating Partnership pledged its preferred equity interest in Murano to a lender for $17,434,000. During the fourth quarter of 2007, we paid $6.6 million to reduce the principal balance on this loan. The loan was fully amortized on the maturity date.

43

The loan agreement for Two Commerce Square requires that all receipts collected from this property be deposited in lockbox accounts under the control of the lenders to fund reserves, debt service and operating expenditures. Included in restricted cash at December 31, 2008 and 2007 is $2,218,000 and $3,263,000, respectively, which has been deposited in the lockbox account.

Certain mortgage and other secured loans were repaid or defeased, which resulted in repayment and defeasance costs. Such costs, along with the write-off of unamortized loan costs, net of loan premiums recorded, are presented as loss from early extinguishment of debt in the accompanying consolidated statements of operations.

As of December 31, 2008, principal payments due for the secured and unsecured outstanding debt are as follows:

	Amount Due at Original Maturity Date		Amount Due at Maturity Date After Exercise of Extension Options
2009	$	85,304	$	4,400
2010		65,029		117,406
2011		1,971		1,971
2012		2,160		30,687
2013		108,392		108,392
Thereafter		125,089		125,089
	$	387,945	$	387,945

6. Unsecured Loan

In October 2005, we purchased the entire interest of our unaffiliated noncontrolling partner in TPG-El Segundo Partners, LLC, of which $3.9 million was financed with an unsecured loan from the former noncontrolling partner. As of December 31, 2008, there was $0.7 million in accrued interest payable related to this loan. The loan bears interest at 5% per annum. Principal and interest of $4.7 million will be payable at maturity on October 12, 2009.

7. Earnings (Loss) per Share

On January 1, 2009, the Company adopted FSP EITF 03-6-1, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in earnings allocation in computing basic earnings per share under the two-class method. The Company has adjusted its calculation of basic and diluted earnings per share to conform to the guidance provided in FSP EITF 03-06-1, which also required retrospective application for all periods presented. The change in calculating basic and diluted earnings per share pursuant to the adoption of FSP EITF 03-6-1 changed the amounts previously reported for both basic and diluted earnings per share for the twelve months ended December 31, 2008, 2007 and 2006 by $(0.01). The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. Basic earnings per share under the two-class method is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accruing during the period. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the relative percentage of each security to the total number of outstanding participating securities. Basic earnings per share represents the summation of the distributed and undistributed earnings per share class divided by the total number of shares.

For the twelve months ended December 31, 2008, 2007 and 2006, the Company accrued and paid dividends in excess of net income, resulting in no undistributed earnings, as defined under the two-class method. In addition, all of the Company’s participating securities (including the incentive units) receive dividends/distributions at an equal dividend/distribution rate per share/unit. As a result, the portion of net income (loss) allocable to the weighted-average restricted stock outstanding has been deducted (added) from (to) net income (loss) allocable to common stockholders to calculate basic earnings/(loss) per share.

44

The following is a summary of the elements used in calculating basic and diluted earnings (loss) per share for the years ended December 31, 2008, 2007, and 2006 (in thousands except share and per share amounts):

	2008			2007			2006
Net (loss) income attributable to common shares	$	(5,486	)	$	(903	)	$	(2,049	)
Dividends to participating securities		(174	)		(173	)		(165	)
Net (loss) income attributable to common shares	$	(5,660	)	$	(1,076	)	$	(2,214	)
Weighted average common shares outstanding—basic		23,693,577			20,739,371			14,339,032
Potentially dilutive common shares (1):
Stock options		—			—			—
Restricted stock		—			—			—
Adjusted weighted average common shares outstanding—diluted		23,693,577			20,739,371			14,339,032
(Loss) earnings per share—basic and diluted	$	(0.24	)	$	(0.05	)	$	(0.15	)
Dividends declared per share	$	(0.24	)	$	(0.24	)	$	(0.24	)

(1) For the years ended December 31, 2008, 2007 and 2006, the potentially dilutive shares were not included in the loss per share calculation as their effect is antidilutive.

8. Equity

A Unit and a share of our common stock have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. A Unit may be redeemed by the holder in exchange for cash or shares of common stock at our election, on a one-for-one basis. We have issued 1,303,336 incentive units (including 45,000 incentive units previously redeemed) to certain employees as of December 31, 2008. Incentive units represent a profits interest in the Operating Partnership and generally will be treated as regular Units in the Operating Partnership and rank pari passu with the Units as to payment of distributions, including distributions of assets upon liquidation. Incentive units are subject to vesting, forfeiture and additional restrictions on transfer as may be determined by us as general partner of the Operating Partnership. The holder of an incentive unit has the right to convert all or a part of his vested incentive units into Units, but only to the extent of the incentive units’ economic capital account balance. As general partner, we may also cause any number of vested incentive units to be converted into Units to the extent of the incentive units’ economic capital account balance. We had 23,853,904 shares of common stock, and 14,496,666 Units outstanding as of December 31, 2008, and 1,258,336 incentive units outstanding which were issued under our Incentive Plan, defined below.

We adopted the 2004 Equity Incentive Plan of Thomas Properties Group, Inc. as amended, (the “Incentive Plan”) effective upon the closing of our initial public offering and amended it in May 2007 and June 2008 to increase the shares reserved under the plan. The Incentive Plan provides incentives to our employees and is designed to attract, reward and retain personnel. Our Incentive Plan permits the granting of awards in the form of options to purchase common stock, restricted shares of common stock and restricted incentive units in our Operating Partnership. We may issue up to 3,361,906 shares as either stock option awards, restricted stock awards or incentive unit awards. In addition, under our Non-Employee Directors Restricted Stock Plan (“the Non-Employee Directors Plan”) a total of 60,000 shares are reserved for grant.

Shares of newly issued common stock will be issued upon exercise of stock options.

Restricted Stock

Under the Incentive Plan, we have issued the following restricted shares to Mr. Thomas:

Grant Date	Shares	Aggregate Value (in thousands)		Vesting Status
October 2004	46,667	$	560	Fully vested
February 2006	60,000		740	See below
March 2007	100,000		1,580	See below
March 2008	100,000		855	See below
Issued from Inception to December 31, 2008	306,667	$	3,735

Vesting for the 60,000, 100,000 and 100,000 shares commenced as of February 22, 2006, March 7, 2007 and March 19, 2008 respectively. The restricted shares will vest in full on the third anniversary of the vesting commencement date, provided that vesting for the March 2007 and March 2008 grants could occur on the second anniversary of the vesting commencement date if certain performance goals are met. Mr. Thomas has full voting rights and will receive any dividends paid.

Under the Non-Employee Directors Plan, we have issued the following outstanding restricted shares to our non-employee directors:

	Shares	Aggregate Value (in thousands)		Vesting Status
Issued in October 2004	10,000	$	120	Fully vested
Issued in 2005	4,984		60	Fully vested
Issued in 2006	6,419		82	Fully vested
Issued in 2007	3,564		60	Fully vested
Issued in 2008	5,968		60	2009—see below
Issued from Inception to December 31, 2008	30,935	$	382

45

The 5,968 shares granted in 2008 will vest subject to the continued service of the directors up to and through the 2009 Annual Meeting of Stockholders. The holders of these shares have full voting rights and will receive any dividends paid.

As of December 31, 2008, there was $1,313,000 of total unrecognized compensation cost related to the nonvested restricted stock under both the Incentive Plan and Non-Employees Directors Plan. The cost is expected to be recognized over a weighted average period of 1.6 years. The weighted-average grant date fair value of restricted stock granted during the year ended December 31, 2008 was $8.63.

We recorded compensation expense totaling $1,063,000, $896,000 and $517,000 for the vesting of the restricted stock grants for the years ended December 31, 2008, 2007 and 2006, respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $451,000, $385,000 and $212,000 for the years ended December 31, 2008, 2007 and 2006, respectively.

Incentive Units

Under our Incentive Plan, we issued to certain executives 730,003 incentive units upon consummation of our initial public offering in October 2004, which fully vested on October 13, 2007. In February 2006 we issued 120,000 incentive units to certain executives, which units will vest on the third anniversary of the grant date. In March 2007 and 2008 we issued an additional 183,333 and 160,000 incentive units, respectively, to certain executives, which units vest over a three year period, with one third vesting each on the first, second, and third anniversary dates of the grant. In September 2008 we issued an additional 110,000 incentive units to a newly hired executive, which vest over a three to five year period and are subject to market based performance measures as well as individual and Company goals.

For the years ended December 31, 2008, 2007 and 2006 we recorded compensation expense of $2,214,000, $2,645,000 and $3,068,000, respectively. As of December 31, 2008, there was $2,029,000 of unrecognized compensation cost related to incentive units. The weighted-average grant date fair value of incentive units granted in the year ended December 31, 2008 was $8.56.

Stock options

Under our Incentive Plan, we have 670,609 stock options outstanding as of December 31, 2008. The options vest at the rate of one third per year over three years and expire ten years after the date of commencement of vesting. The fair market value of each option granted was estimated on the date of the grant using the Black-Scholes-Merton option pricing model with the following weighted-average assumptions for grants in 2008 and 2007:

	2008		2007		2006
Dividend yield	2.90	%	1.55	%	2.00	%
Expected life of option	5 to 8 years		2 to 4 years		1 to 3 years
Risk-free interest rate	3.20	%	4.62	%	4.40	%
Expected stock price volatility, historical basis	11	%	13	%	15	%

The following is a summary of stock option activity under our Incentive Plan as of December 31, 2008 and for the year ended December 31, 2008:

	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2008	501,197	$	13.52
Granted	169,412		10.45
Forfeitures	—
Exercised	—
Outstanding at December 31, 2008	670,609		12.74	7.4	—
Options exercisable at December 31, 2008	409,102		13.22	6.5	—

46

The following is a summary of stock option activity under our Incentive Plan as of and for the year ended December 31, 2007:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2007	389,166		$	12.41
Granted-March	101,475			15.45
Granted-June	50,000			17.19
Forfeitures	(13,333	)		12.26
Exercised	(26,111	)		12.26
Outstanding at December 31, 2007	501,197			13.52	6.9	—
Options exercisable at December 31, 2007	300,833			12.33	7.0	—

The following is a summary of stock option activity under our Incentive Plan as of and for the year ended December 31, 2006:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2006	334,027		$	12.26
Granted	73,333			13.07
Forfeitures	(13,817	)		12.26
Exercised	(4,377	)		12.26
Outstanding at December 31, 2006	389,166		$	12.41	8.1	$	1,400
Options exercisable at December 31, 2006	210,555		$	12.26	7.8	$	790

As of December 31, 2008, there was $112,000 of total unrecognized compensation cost related to the nonvested stock options. The cost is expected to be recognized over a weighted average period of 1.4 years. The weighted-average grant date fair value of options granted during the year ended December 31, 2008 was $1.00. There were no options exercised during the year ended December 31, 2008.

We recorded compensation expense totaling $218,000, $223,000 and $169,000 related to the stock options for the years ended December 31, 2008, 2007 and 2006. The total income tax benefit recognized in the statement of operations related to this compensation expense was $93,000, $96,000 and $69,000 for the years ended December 31, 2008, 2007 and 2006 respectively.

Noncontrolling Interests

Noncontrolling interests on our consolidated balance sheets relate primarily to the partnership and incentive units in the Operating Partnership (collectively, the “Units”) that are not owned by the Company. In conjunction with the formation of the Company, certain persons and entities contributing interests in properties to the Operating Partnership received partnership units. In addition, certain employees of the Operating Partnership have received incentive units in connection with services rendered or to be rendered to the Operating Partnership. Limited partners who have been issued incentive units have the right to require the Operating Partnership to redeem part or all of their incentive units upon vesting of the Units, if applicable. The Company may elect to acquire those incentive units in exchange for shares of the Company’s common stock on a one-for-one basis, subject to adjustment in the event of stock splits, stock dividends, issuance of stock rights, specified extraordinary distributions and similar events, or pay cash based upon the fair market value of an equivalent number of shares of the Company’s common stock at the time of redemption.

SFAS 160 was required to be applied prospectively after adoption, with the exception of the presentation and disclosure requirements, which were applied retrospectively for all periods presented. The Company has evaluated the terms of the Units and, as a result of the adoption of SFAS 160, the Company reclassified noncontrolling interests to permanent equity in the accompanying consolidated balance sheets. In periods subsequent to the adoption of SFAS 160, the Company will periodically evaluate individual noncontrolling interests for the ability to continue to recognize the noncontrolling interest as permanent equity in the consolidated balance sheets. Any noncontrolling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made.

A charge is recorded each period to the consolidated statements of income (loss) for the noncontrolling interests’ proportionate share of the Company’s net income (loss). An additional adjustment is made each period such that the carrying value of the noncontrolling interests equals the greater of (a) the noncontrolling interests’ proportionate share of equity as of the period end, or (b) the redemption value of the noncontrolling interests as of the period end, if classified as temporary equity.

9. Related Party Transactions

On December 31, 2007, we exercised our option to purchase the remaining 11% interest held by an affiliate of Mr. Thomas in One Commerce Square for $2.0 million, resulting in our 100% ownership of One Commerce Square. This obligation was reflected in the due to affiliate caption on our consolidated balance sheet at December 31, 2007 and paid during 2008. On August 6, 2008, we exercised our option to purchase the remaining 11% interest held by an affiliate of Mr. Thomas in Two Commerce Square for $2.0 million, resulting in our 100% ownership of Two Commerce Square. We are in the process of allocating the fair value of this acquired interest to the acquired tangible assets and identified intangible assets and liabilities.

An affiliate of Mr. Thomas leased retail space for a restaurant located at One Commerce Square and Two Commerce Square through June 30, 2008. The Operating Partnership wrote-off approximately $659,000 in outstanding accounts receivables related to this lease, of which $538,000 had been fully reserved in prior years and $121,000 was expensed to bad debt expense during the year ended December 31, 2008. The Operating Partnership also expensed $22,000 of unamortized tenant improvements and $5,000 of unamortized lease related costs related to this lease during the year ended December 31, 2008. The Operating Partnership incurred $212,000 related to the closure of the restaurant and currently holds a liquor license with an estimated value of $65,000 that was recorded to Other Assets.

Mr. Thomas has given “bad boy” guaranties with an aggregate maximum liability of $7,500,000 with respect to the mezzanine loans on Two Commerce Square and we have agreed to indemnify Mr. Thomas (see Note 5) for claims on those guaranties. The guaranties make the guarantor liable for the debt, up to the maximum liability, on the occurrence of certain acts by the borrower or the guarantor such as fraud or intentional misrepresentation, willful misconduct, Environmental Indemnity (as defined), misappropriation of Rents (as defined) and certain acts of insolvency such as the borrower filing a bankruptcy petition.

47

10. Income Taxes

All operations are carried on through the Operating Partnership and its subsidiaries. The Operating Partnership is not subject to income tax, and all of the taxable income, gains, losses, deductions and credits are passed through to its partners. We are responsible for our share of taxable income or loss of the Operating Partnership allocated to us in accordance with the Operating Partnership’s Agreement of Limited Partnership. As of December 31, 2008 and 2007, we held a 61.0% and 60.5%, respectively, capital interest in the Operating Partnership. For the years ended December 31, 2008, 2007 and 2006, we were allocated 61.0%, 55.5% and 45.15%, respectively, of the income and losses from the Operating Partnership.

Our effective tax rate is 15%, 274% and (25)%, respectively, for the years ended December 31, 2008, 2007 and 2006. The resulting tax rate is primarily due to the amortization of the incentive units granted to the executives (refer to Note 8) and the interest related to the Company’s unrecognized tax benefits.

The provision for income taxes is based on reported income before income taxes. Deferred income tax assets and liabilities reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amount recognized for tax purposes, as measured by applying the currently enacted tax laws.

The benefit (provision) for income taxes consists of the following for the years ended December 31, 2008, 2007 and 2006:

	2008			2007			2006
Current income taxes:
Federal	$	(123	)	$	(5,616	)	$	—
State		(171	)		(1,177	)		—
Total current income taxes	$	(294	)	$	(6,793	)	$	—
Deferred income tax benefit (provision):
Federal		2,092			4,728			(541	)
State		502			1,179			(94	)
Total deferred income tax benefit (provision)	$	2,594		$	5,907		$	(635	)
Interest expense, gross of related tax effects		(415	)		(335	)		—
Benefit (provision) for income taxes	$	1,885		$	(1,221	)	$	(635	)

A reconciliation of the benefit (provision) for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income (loss) before income taxes for the years ended December 31, 2008, 2007 and 2006 are as follows:

	2008			2007			2006
Tax benefit (provision) at statutory rate of 35%	$	4,288		$	(155	)	$	882
Noncontrolling interests		(1,708	)		44			(387	)
State income taxes, net of federal tax benefit & reduction in state valuation allowance		160			15			(149	)
Restricted incentive unit compensation		(473	)		(521	)		(1,073	)
Interest expense, gross of related tax effects		(415	)		(335	)		—
Other		33			(269	)		92
Benefit (provision) for income taxes	$	1,885		$	(1,221	)	$	(635	)
Effective income tax rate		15	%		274	%		(25	)%

The significant components of the net deferred tax (asset) as of December 31, 2008 and 2007 are as follows:

	2008			2007
Deferred tax (asset):
Net operating loss carry forward	$	(6,787	)	$	(7,113	)
State taxes		(596	)		325
Stock compensation		(1,170	)		(662	)
Income (loss) from Operating Partnership		172			(2,403	)
Impairment loss		(2,854	)		—
Interest income from loan receivable		(3,649	)		(2,708	)
Other, net		(650	)		(59	)
Deferred tax (asset), net	$	(15,534	)	$	(12,620	)

48

The net deferred tax asset is included with other assets on the Company’s balance sheet. The future tax benefits of the net operating loss carryforwards expire in 2015-2028.

FASB Statement No. 109, “Accounting for Income Taxes” (SFAS 109), requires that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. Realization of the deferred tax asset is dependent on us generating sufficient taxable income in future years as the deferred income tax charges become currently deductible for tax reporting purposes. Although realization is not assured, management believes that it is more likely than not that the net deferred tax asset will be realized.

In June 2006, the FASB issued Financial Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company files U.S. federal income tax returns and returns in various states jurisdictions. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2008 and 2007, we recorded $415,000 and $335,000, respectively, of interest related to unrecognized tax benefits as a component of income tax expense.

The Company adopted the provisions of FIN 48 on January 1, 2007, which resulted in unrecognized tax benefits of approximately $9.0 million and accrued interest of $200,000, of which $120,000 was recorded as a reduction to the opening balance of retained earnings, and if recognized, would affect our effective tax rate.

As of December 31, 2008 and 2007, the Company has recorded unrecognized tax benefits of approximately $15.7 million and $15.6 million, respectively, and if recognized, would not affect our effective tax rate.

As of December 31, 2008 and 2007, the Company has recorded $1.5 million and $728,000, respectively, of accrued interest with respect to unrecognized tax benefits. We have not recorded any penalties with respect to unrecognized tax benefits.

We do not anticipate any significant increases or decreases to the amounts of unrecognized tax benefits within the next twelve months.

We conduct business in California, Pennsylvania, Texas and Virginia. For federal and state purposes, the years ended December 31, 2004, through 2008 remain subject to examination by the respective tax jurisdictions.

A reconciliation of the Company’s unrecognized tax benefits as of December 31, 2008 and 2007 are as follows:

	2008			2007
Unrecognized Tax Benefits—Opening Balance	$	15,577		$	9,022
Gross increases—tax positions in prior period		80			437
Gross decreases—tax positions in prior period		(134	)		(62	)
Gross increases—current period tax positions		520			6,676
Gross decreases—current period tax positions		(383	)		(496	)
	$	15,660		$	15,577

11. Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, requires us to disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.

Our estimates of the fair value of financial instruments at December 31, 2008 and 2007, respectively, were determined by performing discounted cash flow analyses using an appropriate market discount rate. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, due from affiliates, accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments.

49

As of December 31, 2008 and 2007, the estimated fair value of our mortgage and other secured loans and unsecured loan aggregates $364.1 million and $399.3 million, respectively, compared to the aggregate carrying value of $387.9 million and $396.0 million, respectively.

12. Minimum Future Lease Rentals

We have entered into various lease agreements with tenants as of December 31, 2008. The minimum future cash rents receivable under non-cancelable operating leases in each of the next five years and thereafter are as follows:

Year ending December 31,
2009	$	29,330
2010		27,574
2011		27,511
2012		26,005
2013		24,082
Thereafter		71,119
	$	205,621

The leases generally also require reimbursement of the tenant’s proportional share of common area, real estate taxes and other operating expenses, which are not included in the amounts above.

13. Revenue Concentrations

(a) Rental revenue concentrations:

A significant portion of our rental revenues and tenant reimbursements were generated from one tenant, Conrail. The revenue recognized related to this tenant for the years ended December 31, 2008, 2007, and 2006 were $19,206,000, $25,320,000, and $24,920,000, respectively.

In March 1990, Two Commerce Square entered into a long-term lease agreement with Conrail to occupy approximately 753,000 square feet of office space in Two Commerce Square, a portion of which expired in 2008 and the remainder will expire in 2009. As an inducement to enter into the lease, Two Commerce Square agreed to pay Conrail $34,000,000 no later than the fifth anniversary of the commencement of the lease, as defined, plus accrued interest at 8% per annum, compounded annually, under certain circumstances.

In accordance with the agreement, $34,000,000 was paid to Conrail in 1997. This lease concession has been reflected in the accompanying financial statements as a deferred rent receivable, and is being recognized ratably over Conrail’s lease period as a reduction in rental revenue. Interest is payable only in the event of sufficient cash flow from Two Commerce Square, as defined. We have not paid any interest through December 31, 2008 and believe that an accrual for interest expense at December 31, 2008 is not required. Conrail has entered into sublease agreements for substantially all of the space leased.

As of December 31, 2008 and 2007, $1,377,000 and $5,583,000 respectively, of the deferred rents relates to Conrail. As of December 31, 2008 and 2007, we had received prepaid rents of $1,329,000 and $2,581,000 respectively, from Conrail.

(b) Concentrations related to investment advisory, property management, leasing and development services revenue:

Under agreements with CalSTRS, we provide property acquisition, investment advisory, property management, leasing and development services for CalSTRS under a separate account relationship and through a joint venture relationship. At December 31, 2008 and 2007, there were three office properties, respectively, subject to the separate account relationship. At December 31, 2008 and 2007, there were twenty-two office properties, respectively, subject to the joint venture relationship. We asset manage all of these properties.

Under the separate account relationship, we earn acquisition fees over the first three years after a property is acquired, if the property meets or exceeds the pro forma operating results that were submitted at the time of acquisition and a performance index associated with the region in which the property is located. Under the joint venture relationship, we are paid acquisition fees at the time a property is acquired, as a percent of the total acquisition price. For the years ended December 31, 2007 and 2006, we earned acquisition fees of $7,265,000 and $1,106,000, respectively, including $1,703,000 and $1,106,000 from TPG/CalSTRS. We did not earn any acquisition fees during the year ended December 31, 2008.

Under the separate account relationship, we earn asset management fees paid on a quarterly basis, based on the annual net operating income of the properties. Under the joint venture relationship, asset management fees are paid on a monthly basis, initially based upon a percentage of a property’s annual appraised value for properties that are unstabilized at the time of acquisition. At the point of stabilization of the property, asset management fees are calculated based on net operating income. For the years ended

50

December 31, 2008, 2007 and 2006, we earned asset management fees under these agreements of $5,348,000, $5,937,000 and $4,349,000, respectively, including $4,757,000, $5,211,000 and $3,379,000, respectively, from TPG/CalSTRS.

We perform property management and leasing services for fourteen of the fifteen properties subject to the asset management agreements with CalSTRS. We are entitled to property management fees calculated based on 2% or 3% of the gross revenues of the particular property, paid on a monthly basis. In addition, we are reimbursed for compensation paid to certain of our employees and direct out-of-pocket expenses. The management and leasing agreements expire on the third anniversary of each property’s acquisition. The agreements are automatically renewed for successive periods of one year each, unless we elect not to renew the agreements. For the years ended December 31, 2008, 2007 and 2006, we earned property management fees under these agreements of $8,251,000, $6,455,000 and $3,960,000, respectively, including $7,593,000, $5,586,000 and $2,891,000, respectively, from TPG/CalSTRS. In addition, for the years ended December 31, 2008, 2007 and 2006, we were reimbursed $5,631,000, $3,524,000 and $2,265,000, respectively, including $4,975,000, $2,928,000 and $1,639,000, respectively, from TPG/CalSTRS. The reimbursements represent primarily the cost of on-site property management personnel incurred on behalf of the managed properties.

For properties in which we are responsible for the leasing and development services, we are entitled to receive market leasing commissions and development fees as defined in the agreements with CalSTRS. For the years ended December 31, 2008, 2007 and 2006, we earned leasing commissions under the agreements of $4,652,000, $4,289,000 and $4,450,000, respectively, including $4,104,000, $4,126,000 and $4,084,000, respectively, from TPG/CalSTRS. For the years ended December 31, 2008, 2007 and 2006, we earned development fees under these agreements of $1,909,000, $1,387,000 and $1,291,000, respectively, including $1,810,000, $1,297,000 and $1,142,000, respectively, from our joint venture with CalSTRS.

Under the separate account relationship, we receive incentive compensation based upon performance above a minimum hurdle rate, at which time we begin to participate in cash flow from the relevant property. Incentive compensation is paid at the time an investment is sold. For the year ended December 31, 2007, we earned incentive compensation of $5,563,000 related to the sale of Valencia Town Center. None was earned during the years ended December 31, 2008 or 2006. Under the joint venture relationship, incentive compensation is based on a minimum return on investment to CalSTRS, following which we participate in cash flow above the stated return, subject to a clawback provision if returns for a property fall below the stated return. We earned an incentive compensation fee of $571,000 related to the sale of our joint venture property, Intercontinental Center, during the year ended December 31, 2007. We earned incentive compensation of $521,000 related to the sale of our joint venture property, Valley Square, during the year ended December 31, 2006. Of these amounts, 25% was eliminated in consolidation and the remaining 75% was recorded as deferred revenue due to the clawback provision. We did not earn any incentive fees from CalSTRS during the year ended December 31, 2008.

At December 31, 2008 and 2007, we had accounts receivable, including amounts generated under the above agreements, of $5,306,000 and $7,219,000, respectively, including $4,371,000 and $6,610,000, respectively, due from TPG/CalSTRS.

We also provide property management and leasing services for the CalEPA building for the City of Sacramento. The property management agreement expires on June 30, 2016, is extendable through June 30, 2020 and is subject to early termination on June 30, 2011 based on the terms in the agreement. Property management fees are fixed and subject to an annual increase. For the years ended December 31, 2008, 2007 and 2006, we earned property management fees from the City of Sacramento of $922,000, $894,000 and $970,000, respectively, and were reimbursed $448,000, $353,000 and $355,000, respectively. The reimbursements represent the cost of on-site property management personnel incurred on behalf of the managed property. At December 31, 2008 and 2007, we had accounts receivable from the CalEPA building of $45,000 and $29,000, respectively.

14. Commitments and Contingencies

We have been named as a defendant in a number of lawsuits in the ordinary course of business. We believe that the ultimate settlement of these suits will not have a material adverse effect on our financial position and results of operations.

We sponsor a 401(k) plan for our employees. Our contributions were $61,000, $688,000 and $322,000 for the years ended December 31, 2008, 2007 and 2006, respectively. Our contributions decreased by approximately 91.1% in 2008 compared to 2007 primarily due to company wide cost reduction measures. Our contributions increased by approximately 214% in 2007 compared to 2006 primarily due to an increase in personnel related to property acquisitions in 2007, and a revision to our 401(k) plan, which allows eligible personnel to participate sooner.

We are a tenant in City National Plaza through May 2009 and in One Commerce Square through December 2009. For the years ended December 31, 2008, 2007, and 2006 we incurred rent expense of $284,000, $241,000 and $227,000, respectively, to City National Plaza. These expense amounts are included in rent—unconsolidated real estate entities. The rent expense related to One Commerce Square is eliminated in consolidation.

The minimum future rents payable as of December 31, 2008 is $53,000 under the City National Plaza lease.

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In connection with the ownership, operation and management of the real estate properties, we may be potentially liable for costs and damages related to environmental matters. We have not been notified by any governmental authority of any non-compliance, liability or other claim in connection with any of the properties, and we are not aware of any other existing environmental condition with respect to any of the properties that management believes will have a material adverse effect on our assets or results of operations.

A mortgage loan, with an outstanding balance of $18,826,000 and $19,122,000 as of December 31, 2008 and 2007, respectively, secured by a first trust deed on 2121 Market Street is guaranteed by our Operating Partnership and our co-general partner in the partnership that owns 2121 Market Street, up to a maximum amount of $3.3 million.

In connection with our Campus El Segundo mortgage loan (see Note 5), we have guaranteed and promised to pay the principal, interest and any other sum payable under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so.

In connection with our Murano construction loan (see Note 5), we and two individuals affiliated with our unaffiliated limited partner in the Murano development project, collectively agreed to guarantee the completion of the required work, as defined in the applicable agreement, in favor of the construction loan lender, in the event of any default of the borrower. If the borrower, which is a consolidated subsidiary for us, fails to complete the required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the guaranty agreement.

In connection with our Four Points Centre construction loan (see Note 5), we have guaranteed in favor of and promised to pay to the lender 46.5% of the principal, interest and any other sum payable under the loan in the event the borrower, a wholly-owned entity of our Operating Partnership, does not do so. Upon the occurrence of certain events, as defined in the repayment and completion guaranty agreement, our maximum liability as guarantor will be reduced to 31.5% of all sums payable under the loan, and upon the occurrence of even further events, as defined, our maximum liability as guarantor will be reduced to 25.0% of all sums payable under the loan. Furthermore, we agreed to guarantee the completion of the construction improvements, as defined in the agreement, in the event of any default of the borrower. If the borrower fails to complete the required work, the guarantor agrees to perform timely all of the completion obligations, as defined in the agreement.

In connection with a standby letter of credit (the “Credit”) issued by the lender on City National Plaza, one of our unconsolidated real entities, for the benefit of the trustee under a certain pooling and servicing agreement established in connection with commercial mortgage pass-through certificates, we have agreed to reimburse the lender in an amount not to exceed $3,773,065 for the amount of each payment the lender makes on the Credit. The Credit expires on July 17, 2009, and may be renewed under certain circumstances, but in no event beyond July 17, 2010.

15. Quarterly Financial Information

The tables below reflect the selected quarterly information for us for the years ended December 31, 2008 and 2007. Certain amounts have been reclassified to conform to the current year presentation (in thousands, except for share and per share amounts) (unaudited).

	Three Months Ended
	December 31, 2008			September 30, 2008			June 30, 2008		March 31, 2008
Total revenue	$	21,307		$	25,720		$	100,902	$	23,631
(Loss) income before gain on sale of real estate, gain (loss) on early extinguishment of debt, interest income, equity in net loss of unconsolidated real estate entities, noncontrolling interests and provision for income tax		(16,898	)		(3,785	)		14,762		(170	)
(Loss) income before noncontrolling interests and provision/benefit for income taxes		(20,164	)		(7,166	)		14,232		847
Net income (loss)		(7,710	)		(2,941	)		4,948		219
Net income (loss) per share-basic	$	(0.33	)	$	(0.13	)	$	0.20	$	0.01
Net income (loss) per share-diluted	$	(0.33	)	$	(0.13	)	$	0.20	$	0.01
Weighted-average shares outstanding-basic		23,724,453			23,701,294			23,678,260		23,658,963
Weighted-average shares outstanding-diluted		23,724,453			23,701,294			23,678,260		23,658,963

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	Three Months Ended
	December 31, 2007			September 30, 2007			June 30, 2007		March 31, 2007
Total revenue	$	23,398		$	28,521		$	23,262	$	22,301
(Loss) income before gain on sale of real estate, interest income, equity in net loss of unconsolidated real estate entities, noncontrolling interests and provision for income tax		(1,238	)(1)		5,481			343		257
(Loss) income before noncontrolling interests and provision/benefit for income taxes		(4,006	)		3,425			2,130		(1,104	)
Net income (loss)		(1,569	)		(271	)		650		(255	)
Net income (loss) per share-basic	$	(0.07	)	$	(0.01	)	$	0.02	$	(0.02	)
Net income (loss) per share-diluted	$	(0.07	)	$	(0.01	)	$	0.02	$	(0.02	)
Weighted-average shares outstanding-basic		23,643,502			23,626,645			20,540,116		14,373,318
Weighted-average shares outstanding-diluted		23,643,502			23,626,645			20,600,982		14,373,318

(1) Certain unrecorded expenses, primarily interest, related to the first, second and third quarters were recorded in the fourth quarter. We believe the amounts were not material.

16. Issuance of Common Stock and Change in Limited Voting Stock

On April 25, 2007, we sold 9.2 million shares of common stock (including the shares issued upon exercise of the underwriters’ over-allotment option), pursuant to an effective registration statement previously filed with the Securities and Exchange Commission, at $16.00 per share. We received net proceeds, after deducting underwriting discounts and commissions and offering expenses, of $139.4 million from this offering of which $33.7 million was used to redeem 2,170,000 units in our Operating Partnership held by our CEO, and 45,000 units held by another senior executive. The redemption in Operating Partnership units, which are paired with limited voting stock on a one-for-one basis, resulted in a decrease in the total limited voting stock from 16,666,666 shares at December 31, 2006 to 14,496,666 shares at December 31, 2007. Following the closing of the offering, we held a 60.5% interest in our Operating Partnership at April 25, 2007.

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SCHEDULE III—INVESTMENTS IN REAL ESTATE

(In thousands)

	One Commerce Square			Two Commerce Square			Murano			2100 JFK Boulevard			Four Points Centre		Campus El Segundo			Metro Studio @ Lankershim
Property Type		High-rise office			High-rise office			Condominium Units Held for Sale			Parking lot			Office/ Retail/Hotel/ Development		Office/ Retail/Hotel/ Development			Office/Prod. Facility/ Residential/ Retail Development
Location		Philadelphia, PA			Philadelphia, PA			Philadelphia, PA			Philadelphia, PA			Austin, TX		El Segundo, CA			Los Angeles, CA
Encumbrances, net	$	130,000		$	144,614		$	63,904		$	—		$	28,527	$	17,000		$	—
Initial cost to the real estate entity that acquired the property:
Land and improvements		14,259			15,758			6,213			4,872			10,523		39,937			—
Buildings and improvements		87,653			147,951			—			—			—		—			—
Cost capitalized subsequent to acquisition:
Land and improvements		528			703			726			56			15,071		19,875			14,327
Buildings and improvements		31,675	(1)		40,625	(1)		94,173			—			31,621		3,310			—
Gross amount at which carried at close of period:
Land and improvements		14,787			16,461			6,939			4,928			25,594		59,812			14,327
Buildings and improvements		119,328			188,576			94,173			—			31,621		3,310			—
Accumulated depreciation and amortization (2)		(26,637	)		(74,479	)		—			(15	)		—		(60	)		—
Date construction completed		1987			1992			2008			N/A			N/A		N/A			N/A
Investments in real estate:
	2008			2007			2006
Balance, beginning of the year	$	574,983		$	442,798		$	417,486
Additions during the year:
Improvements		100,841			136,725			34,042
Deductions during the year:
Cost of real estate sold		(62,436	)		—			—
Asset impairment		(11,023	)		—			—
Retirements		(22,509	)		(4,540	)		(8,730	)
Balance, end of the year	$	579,856		$	574,983		$	442,798
Accumulated depreciation related to investments in real estate:
	2008			2007			2006
Balance, beginning of the year	$	(111,619	)	$	(106,644	)	$	(104,325	)
Additions during the year		(8,729	)		(9,515	)		(11,049	)
Retirements during the year		19,157			4,540			8,730
Balance, end of the year	$	(101,191	)	$	(111,619	)	$	(106,644	)

(1) Included in the total are write-offs for fully depreciated tenant improvements.

(2) The depreciable life for buildings ranges from 40 to 50 years, 5 to 40 years for building improvements, and the shorter of the useful lives or the terms of the related leases for tenant improvements.

The aggregate gross cost of our investments in real estate for federal income tax purposes approximated $435 million as of December 31, 2008 (unaudited).

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Members of TPG/CalSTRS, LLC.

We have audited the accompanying consolidated balance sheets of TPG/CalSTRS, LLC. (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of income and comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of TPG/CalSTRS, LLC. at December 31, 2008 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, as a result of the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 160,“Non Controlling Interests in Consolidated Financial Statements, an Amendment of Accounting Research Bulletin No. 51” on January 1, 2009, the Company retrospectively adjusted its consolidated financial statements to reflect the presentation and disclosure requirements of this new accounting standard.

/s/ Ernst & Young LLP

Los Angeles, California

March 20, 2009, except for the retrospective

adjustments described in Note 2,

as to which the date is October 15, 2009

55

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

CONSOLIDATED BALANCE SHEETS

December 31, 2008 and 2007

(In thousands)

	2008		2007
ASSETS
Investments in real estate:
Operating properties, net of accumulated depreciation of $143,040 and $100,885 as of December 31, 2008 and 2007 respectively	$	1,199,402	$	1,169,532
Land improvements—development properties		24,999		24,496
Land held for sale		3,835		3,418
		1,228,236		1,197,446
Investments in unconsolidated real estate entities		45,347		61,662
Cash and cash equivalents, unrestricted		10,668		6,813
Restricted cash		51,583		57,268
Accounts receivable, net of allowance for doubtful accounts of $121 and $59 as of 2008 and 2007, respectively		3,681		4,947
Deferred leasing costs and value of in-place leases, net of accumulated amortization of $57,312 and $47,709 as of 2008 and 2007, respectively		88,587		98,606
Deferred loan costs, net of accumulated amortization of $5,339 and $7,659 as of 2008 and 2007, respectively		2,367		5,526
Deferred rents		62,060		50,101
Acquired above market leases, net of accumulated amortization of $5,835 and $5,012 as of 2008 and 2007, respectively		2,435		3,531
Prepaid expenses and other assets		4,820		3,173
Assets associated with discontinued operations		86		28
Total assets	$	1,499,870	$	1,489,101
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans	$	1,053,396	$	1,025,983
Other secured loans		257,995		209,949
Accounts payable and other liabilities		49,569		55,789
Due to affiliate		4,967		7,397
Acquired below market leases, net of accumulated amortization of $9,931 and $10,300 as of 2008 and 2007, respectively		12,548		15,211
Prepaid rent		6,270		5,517
Liabilities associated with discontinued operations		121		23
Total liabilities		1,384,866		1,319,869
Redeemable noncontrolling interest		18,771		27,951
Members’ equity, including $1,246 and $1,443 accumulated other comprehensive loss as of 2008 and 2007, respectively		96,233		141,281
Total liabilities and members’ equity	$	1,499,870	$	1,489,101

See accompanying notes to consolidated financial information.

56

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended December 31, 2008, 2007 and 2006

(In thousands)

	2008			2007			2006
Revenues:
Rental	$	131,617		$	127,570		$	92,338
Tenant reimbursements		49,375			36,143			25,056
Parking		15,455			13,934			11,578
Other		3,704			5,365			4,608
Total revenues		200,151			183,012			133,580
Expenses:
Operating		77,585			73,153			58,153
Real estate taxes		24,624			20,683			16,726
General and administrative		9,212			10,412			8,401
Parking		3,158			2,606			2,564
Depreciation		46,440			43,483			29,266
Amortization		17,250			24,483			24,907
Interest		67,102			81,247			55,596
Total expenses		245,371			256,067			195,613
Loss from continuing operations before redeemable noncontrolling interest		(45,220	)		(73,055	)		(62,033	)
Interest income		1,165			2,761			1,609
Equity in net loss of unconsolidated real estate entities		(18,123	)		(9,001	)		—
Redeemable noncontrolling interest attributable to continuing operations		—			—			(1,546	)
Loss from continuing operations		(62,178	)		(79,295	)		(61,970	)
(Loss) income from discontinued operations		(104	)		7,662			4,722
Net loss	$	(62,282	)	$	(71,633	)	$	(57,248	)

See accompanying notes to consolidated financial information.

57

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY AND COMPREHENSIVE LOSS

Years Ended December 31, 2008, 2007 and 2006

(In thousands)

	CalSTRS			TPG			Total
Balance-December 31, 2005 (adjusted for fair market value change of redeemable noncontrolling interest)	$	98,302		$	48,687		$	146,989
Contribution		99,806			43,001			142,807
Distribution		(71,847	)		(24,470	)		(96,317	)
Fair market value change of redeemable noncontrolling interest		(14,705	)		(4,902	)		(19,607	)
Net loss		(43,328	)		(13,920	)		(57,248	)
Other comprehensive loss		(770	)		(336	)		(1,106	)
Comprehensive loss		(44,098	)		(14,256	)		(58,354	)
Balance-December 31, 2006		67,458			48,060			115,518
Contribution		90,904			20,566			111,470
Distribution		(10,692	)		(4,161	)		(14,853	)
Fair market value change of redeemable noncontrolling interest		2,251			750			3,001
Syndication fee		(1,678	)		(559	)		(2,237	)
Net loss		(54,193	)		(17,440	)		(71,633	)
Other comprehensive (loss) income		(31	)		46			15
Comprehensive loss		(54,224	)		(17,394	)		(71,618	)
Balance-December 31, 2007		94,019			47,262			141,281
Contribution		5,892			1,965			7,857
Fair market value change of redeemable noncontrolling interest		6,885			2,295			9,180
Net loss		(46,711	)		(15,571	)		(62,282	)
Other comprehensive income (loss)		75			122			197
Comprehensive loss		(46,636	)		(15,449	)		(62,085	)
Balance-December 31, 2008	$	60,160		$	36,073		$	96,233

See accompanying notes to consolidated financial information.

58

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31, 2008, 2007 and 2006

(In thousands)

	2008			2007			2006
Cash flows from operating activities:
Net loss	$	(62,282	)	$	(71,633	)	$	(57,248	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Gain on sale of real estate		—			(7,932	)		(6,133	)
Redeemable noncontrolling interest		—			—			1,546
Depreciation and amortization expense		63,622			67,955			55,283
Amortization of above and below market leases		(1,566	)		(4,422	)		317
Amortization of loan costs		3,701			4,681			4,409
Equity in net loss in unconsolidated real estate entities		18,123			9,001			—
Deferred rents		(8,782	)		(12,281	)		(15,518	)
Changes in assets and liabilities:
Accounts receivable		1,266			3,243			(4,310	)
Prepaid expenses and other assets		(856	)		14,922			(16,600	)
Deferred rents and deferred lease costs		(10,664	)		(16,825	)		(19,884	)
Accounts payable and other liabilities		1,514			(260	)		(960	)
Due to affiliates		(2,375	)		1,835			1,086
Prepaid rent		753			1,393			1,857
Net cash provided by (used in) operating activities		2,454			(10,323	)		(56,155	)
Cash flows from investing activities:
Expenditures for real estate		(85,182	)		(246,543	)		(352,183	)
Proceeds from sale of real estate		—			23,594			11,362
Distributions received from unconsolidated real estate entities		570			369			—
Investments in unconsolidated real estate entities		(2,988	)		(73,750	)		—
Net cash used in investing activities		(87,600	)		(296,330	)		(340,821	)
Cash flows from financing activities:
Proceeds from mortgage and other secured loans		80,072			219,886			719,236
Repayment of mortgage loan		(4,613	)		(14,570	)		(316,909	)
Members’ contributions		7,857			111,472			142,807
Members’ distributions		—			(14,853	)		(96,317	)
Redeemable noncontrolling interest contributions		—			—			2,379
Redeemable noncontrolling interest distributions		—			—			(13,500	)
Change in restricted cash		5,685			3,202			(28,162	)
Payment of loan costs		—			(1,591	)		(8,448	)
Net cash provided by financing activities		89,001			303,546			401,086
Net increase (decrease) in cash and cash equivalents		3,855			(3,107	)		4,110
Cash and cash equivalents, at beginning of period		6,813			9,920			5,810
Cash and cash equivalents, at end of period	$	10,668		$	6,813		$	9,920
Supplemental disclosure of cash flow information:
Cash paid during the period for interest, including capitalized interest of $2,020, $3,075 and $4,345 for the years ended December 31, 2008, 2007 and 2006	$	67,015		$	78,546		$	55,576
Supplemental disclosure of non-cash investing and financing activities:
Investments in real estate included in accounts payable and other liabilities		7,377			3,855			2,357
Decrease in investments in real estate and accumulated depreciation for removal of fully amortized improvements		3,944			4,887			2,042
Other comprehensive income		197			15			(1,106	)
Syndication fee related to the investment in Austin Portfolio Joint Venture Properties		—			2,237			—
Increase in lease inducements included in deferred rent		1,001			6,668			—

See accompanying notes to consolidated financial information.

59

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL INFORMATION

Years Ended December 31, 2008, 2007 and 2006

(Tabular amounts in thousands)

1. Organization

TPG/CalSTRS, LLC (“TPG/CalSTRS” or “the Company”) was formed on December 23, 2002 as a Delaware limited liability company for the purpose of acquiring office properties on a nationwide basis classified as moderate risk (core plus) and high risk (value add) properties. Core plus properties consist of under-performing properties that we believe can be brought to market potential through improved management. Value add properties are characterized by unstable net operating income for an extended period of time, occupancy less than 90% and/or physical or management problems which can be positively impacted by introduction of new capital and/or management.

The original members of TPG/CalSTRS were Thomas Properties Group, LLC, a Delaware limited liability company, with a 5% ownership interest and California State Teachers’ Retirement System (“CalSTRS”), with a 95% ownership interest.

TPG/CalSTRS is the sole member of TPGA, LLC, a Delaware limited liability company, which is the managing member of TPG Plaza Investments, LLC (“TPG Plaza”), a Delaware limited liability company. TPGA, LLC has an 85.4% ownership interest in TPG Plaza. TPG/CalSTRS’ financial statements are consolidated with the accounts of TPGA, LLC and TPG Plaza. The ownership interests of the other members of TPG Plaza are reflected in the accompanying balance sheets as redeemable noncontrolling interest.

On January 28, 2003, TPG Plaza purchased an office building complex located in Los Angeles, California, commonly known as City National Plaza. On October 13, 2004, Thomas Properties Group, LLC contributed its interest in TPG/CalSTRS to Thomas Properties Group, L.P. (“TPG”), a Maryland limited partnership, in connection with the initial public offering of TPG’s sole general partner, Thomas Properties Group, Inc. CalSTRS contributed to TPG/CalSTRS its interest in office buildings located in Reston, Virginia, commonly known as Reflections I and Reflections II. In addition, TPG increased its ownership interest in TPG/CalSTRS from 5% to 25%. TPG acts as the managing member of TPG/CalSTRS. During 2005, TPG/CalSTRS acquired four properties in suburban Philadelphia, Pennsylvania, and four properties in Houston, Texas, including a 6.3 acre (unaudited) development site in Houston, Texas. During 2006, TPG/CalSTRS sold a suburban office property in suburban Philadelphia, Pennsylvania, and acquired a four-building campus and 24.0 acre (unaudited) development site in Houston, Texas. During 2007, TPG/CalSTRS acquired two suburban office properties in Fairfax, Virginia and sold one office property in Houston Texas. In addition, TPG/CalSTRS acquired a 25% interest in the Austin Portfolio Joint Venture which owns a portfolio of ten office properties in Austin, Texas.

As of December 31, 2008, TPG/CalSTRS owned an interest in the following properties:

Property	Type	Location
TPG/CalSTRS, LLC:
City National Plaza	High-rise office	Los Angeles Central Business District, California
Reflections I	Suburban office–single tenancy	Reston, Virginia
Reflections II	Suburban office–single tenancy	Reston, Virginia
Four Falls Corporate Center	Suburban office	Conshohocken, Pennsylvania
Oak Hill Plaza	Suburban office	King of Prussia, Pennsylvania
Walnut Hill Plaza	Suburban office	King of Prussia, Pennsylvania
San Felipe Plaza	High-rise office	Houston, Texas
2500 City West	Suburban office	Houston, Texas
Brookhollow Central I, II and III	Suburban office	Houston, Texas
CityWestPlace	Suburban office and undeveloped land	Houston, Texas
Centerpointe I & II	Suburban office	Fairfax, Virginia
Fair Oaks Plaza	Suburban office	Fairfax, Virginia

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TPG/CalSTRS, LLC also owns a 25% interest in a joint venture which owns the following properties (“Austin Portfolio Joint Venture Properties”):

San Jacinto Center	High-rise office	Austin Central Business District, Texas,(“ACBD”)
Frost Bank Tower	High-rise office	ACBD
One Congress Plaza	High-rise office	ACBD
One American Center	High-rise office	ACBD
300 West 6th Street	High-rise office	ACBD
Research Park Plaza I & II	Suburban office	Austin, Texas
Park Centre	Suburban office	Austin, Texas
Great Hills Plaza	Suburban office	Austin, Texas
Stonebridge Plaza II	Suburban office	Austin, Texas
Westech 360 I—IV	Suburban office	Austin, Texas

The redeemable noncontrolling member of TPG Plaza has the option to require TPG Plaza or TPGA, LLC to redeem or purchase, as applicable, its member interest for an amount equal to what would be payable to it upon liquidation of the assets of TPG Plaza at fair market value.

Either member of TPG/CalSTRS may trigger a buy-sell provision. Under this provision, the initiating party sets a price for its interest in TPG/CalSTRS, and the other party has a specified time to either elect to buy the initiating party’s interest, or sell its own interest to the initiating party. Under certain events, CalSTRS has a buy-out option to purchase TPG’s interest in TPG/CalSTRS. The buy-out price is generally based on a 3% discount to appraised fair market value.

TPG is required to use diligent efforts to sell each joint venture property within five years of that property reaching stabilization, except that for stabilized properties, TPG is required to perform a hold/sell analysis at least annually, and make a recommendation to the management committee regarding the appropriate holding period for these properties.

Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the limited liability company agreements. Following are the stated ownership percentages, prior to any preferred or special allocations, as of December 31, 2008:

City National Plaza:
CalSTRS	64.1	%
TPG	21.3	%
Redeemable noncontrolling member	14.6	%
All other properties, excluding Austin Portfolio Joint Venture Properties:
CalSTRS	75.0	%
TPG	25.0	%
Austin Portfolio Joint Venture Properties:
CalSTRS	18.7	%
TPG	6.3	%
Other members	75.0	%

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of Consolidation

The accompanying consolidated financial statements include all the accounts of TPG/CalSTRS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

We hold interests, together with certain third parties, in a limited liability company which we consolidate in our financial statements. Such interests are subject to the provisions of FASB Interpretation No. 46R, “Consolidation of Variable Interest Entities” (“FIN 46R”) and AICPA Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures”. Based on the provisions set forth in these rules, we consolidate the limited liability company because it is considered a variable interest entity and we are the primary beneficiary.

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Cash Equivalents

TPG/CalSTRS considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists of property lockbox deposits under the control of lenders to fund reserves, debt service and operating expenditures. See Note 3 for additional information on restrictions under the terms of certain secured notes payable.

Investments in Real Estate

Investments in real estate are carried at cost, less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straight-line basis over the estimated useful lives as follows:

Buildings	40 years
Building improvements	5 to 40 years
Tenant improvements	Shorter of the useful lives or the terms of the related leases.

Improvements and replacements are capitalized when they extend the useful life, increase capacity or improve the efficiency of the asset. Repairs and maintenance are charged to expense as incurred.

Costs related to the acquisition, development, construction and improvement of properties are capitalized. Interest, real estate taxes, insurance and other development related costs incurred during construction periods are capitalized and depreciated on the same basis as the related assets. Included in investments in real estate is capitalized interest of $11,336,000 and $9,316,000 as of December 31, 2008 and 2007, respectively. In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141R, Business Combinations, as revised (“SFAS 141R”). SFAS No. 141R is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141R on January 1, 2009 will, among other things, require us to prospectively expense all acquisition costs for business combinations. The implementation of SFAS 141R on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred rather than our past practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

Investments in Real Estate- Land held for sale

TPG/CalSTRS considers assets to be held for sale pursuant to the provisions of SFAS No. 144, Impairments of Long-Lived Assets and Discontinued Operations (“SFAS 144”). The held for sale classification for real estate owned is evaluated quarterly.

Impairment of Long-Lived Assets

TPG/CalSTRS assesses whether there has been impairment in the value of its long-lived assets whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Management believes no impairment in the net carrying values of the investments in real estate has occurred for the periods presented.

Included in Equity in net loss of unconsolidated real estate entities for the year ended December 31, 2008, is a non-cash impairment charge of $4.8 million related to the Company’s joint venture investments. We were required to record the joint venture investments at their estimated fair value on December 31, 2008, as the joint venture investments met the other-than-temporary impairment criteria of Accounting Principles Board Opinion No. 18—“The Equity Method of Accounting for Investments in Common Stock”.

Deferred Leasing and Loan Costs

Deferred leasing commissions and other direct costs associated with the acquisition of tenants are capitalized and amortized on a straight-line basis over the terms of the related leases. Costs associated with unsuccessful leasing opportunities are expensed. Loan costs are capitalized and amortized to interest expense over the terms of the related loans using a method that approximates the effective-interest method.

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Purchase Accounting for Acquisition of Interests in Real Estate Entities

Purchase accounting was applied, on a pro rata basis, to the assets and liabilities related to real estate entities for which TPG/CalSTRS acquired interests, based on the percentage interest acquired. For purchases of additional interests that were consummated subsequent to June 30, 2001, the effective date of SFAS No. 141, “Business Combinations”, the fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building, tenant and site improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, other value of in-place leases and value of tenant relationships, based in each case on their fair values.

The fair value of the tangible assets of an acquired property (which includes land, building, tenant and site improvements) is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, building, tenant and site improvements based on management’s determination of the relative fair values of these assets. Management determines the as-if-vacant fair value of a property using methods similar to those used by independent appraisers. Factors considered by management in performing these analyses include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute leases including leasing commissions, legal and other related costs.

In allocating the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. The capitalized above-market lease values are amortized as a reduction of rental income over the remaining non-cancelable terms of the respective leases. The capitalized below-market lease values are amortized as an increase to rental income over the terms in the respective leases. As of December 31, 2008 and 2007, we had an asset related to above market leases of $2,435,000 and $3,531,000, respectively, net of accumulated amortization of $5,835,000 and $5,012,000, respectively, and a liability related to below market leases of $12,548,000 and $15,211,000, respectively, net of accumulated accretion of $9,931,000 and $10,300,000, respectively. The weighted average amortization period for the above and below market leases was approximately 4.5 years as of December 31, 2008 and 2007.

The aggregate value of other acquired intangible assets, consisting of in-place leases and tenant relationships, is measured by the excess of (i) the purchase price paid for a property after adjusting existing in-place leases to market rental rates over (ii) the estimated fair value of the property as if vacant, determined as set forth above. This aggregate value is allocated between in-place lease values and tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease; however, the value of tenant relationships has not been separated from in-place lease value for the additional interests in real estate entities acquired by TPG/CalSTRS because such value and its consequence to amortization expense is immaterial for these particular acquisitions. Should future acquisitions of properties result in allocating material amounts to the value of tenant relationships, an amount would be separately allocated and amortized over the estimated life of the relationship. The value of in-place leases exclusive of the value of above-market and below-market in-place leases is amortized to expense over the remaining non-cancelable periods of the respective leases. If a lease were to be terminated prior to its stated expiration, all unamortized amounts relating to that lease would be written off.

The table below presents the expected amortization related to the acquired in-place lease value and acquired above and below market leases at December 31, 2008:

	2009			2010			2011			2012			2013			Thereafter			Total
Amortization expense:
Acquired in-place lease value	$	8,305		$	6,802		$	5,592		$	4,928		$	4,494		$	13,331		$	43,452
Adjustments to rental revenues
Above market leases	$	(623	)	$	(451	)	$	(401	)	$	(293	)	$	(195	)	$	(472	)	$	(2,435	)
Below market leases		2,304			2,132			1,939			1,747			1,623			2,803			12,548
Net adjustment to rental revenues	$	1,681		$	1,681		$	1,538		$	1,454		$	1,428		$	2,331		$	10,113

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $9,849,000, $13,156,000, and $13,594,000 for the years ended December 31, 2008, 2007, and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $1,566,000 for the year ended December 31, 2008, increased revenue by $4,420,000 for the year ended December 31, 2007 and decreased revenue by $304,000 for the year ended December 31, 2006. The

63

excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that the revenues should have been presented in tenant reimbursements instead of other. Accordingly, we reclassified such reimbursements from the other revenue caption to the tenant reimbursements revenue caption, and the corresponding expense from the other revenue caption to the operating expense caption for the year ended December 31, 2006 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “other” and “operating” in the consolidated statements of operations for the year ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.4 million, $(0.2) million, and $5.2 million, respectively. This reclassification had no impact on operating income and net income or members’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold.

Derivative Instruments and Hedging Activities

SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended and interpreted by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS No. 133, TPG/CalSTRS records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income, outside of earnings, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. TPG/CalSTRS assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. For derivatives not designated as hedges, changes in fair value are recognized in earnings. We use a variety of methods and assumptions based on market conditions and risks existing at each balance sheet date to determine the approximate fair values of our cash flow hedges.

The objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, TPG/CalSTRS primarily uses interest rate caps as part of its cash flow hedging strategy. Under SFAS No. 133, our interest rate caps qualify as cash flow hedges. No derivatives were designated as fair value hedges or hedges of net investments in foreign operations. Additionally, TPG/CalSTRS does not use derivatives for trading or speculative purposes and currently does not have any derivatives that are not designated as hedges.

At December 31, 2008 and 2007, interest rate caps with a fair value of $(11,000) and $10,000, respectively, were included in deferred loan costs. The change in net unrealized gain (loss) of $197,000, $15,000 and $(1,106,000) in 2008, 2007 and 2006,

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respectively, for these derivatives designated as cash flow hedges is separately disclosed in the statements of members’ equity and comprehensive loss. At December 31, 2008, interest rate caps with a notional amount of $825 million and $195 million expire in 2009 and 2010, respectively.

Asset Retirement Obligation

In March 2005, the FASB issued FIN 47, “Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143” (“FIN 47”), which provides clarification with respect to the timing of liability recognition for legal obligations associated with the retirement of tangible long-lived assets when the timing and/or method of settlement of the obligation is conditional on a future event. FIN 47 requires that the fair value of a liability for a conditional asset retirement obligation be recognized in the period in which it was incurred if a reasonable estimate of fair value can be made. TPG/CalSTRS has determined that conditional legal obligations exist for City National Plaza related primarily to asbestos-containing materials. TPG/CalSTRS adopted this interpretation on December 31, 2005 and recorded a non cash impact of $1,279,000, which is reported as a cumulative effect of a change in accounting principle in the statement of operations, and a liability for conditional asset retirement obligations of $4,239,000.

The following table illustrates the effect on net loss as if FIN 47 had been applied during the year ended December 31, 2005:

	2005
Loss from continuing operations before redeemable noncontrolling interest, as reported	$	(36,456	)
Less: depreciation and accretion expense		(431	)
Pro forma loss from continuing operations before redeemable noncontrolling interest		(36,887	)
Pro forma redeemable noncontrolling interest attributable to continuing operations		3,274
Pro forma loss from continuing operations		(33,613	)
Loss from discontinued operations		(1,566	)
Pro forma loss	$	(35,179	)

As of December 31, 2008 and 2007, the liability for conditional asset retirement obligations for City National Plaza was $1.0 million and $2.6 million, respectively.

Income Taxes

Income taxes are not recorded by TPG/CalSTRS. TPG/CalSTRS is not subject to federal or state income taxes, except certain California corporate franchise taxes. Income or loss is allocated to the members and included in their respective income tax returns.

Fair Value Measurements

On January 1, 2008 we adopted FASB Statement No. 157 “Fair Value Measurement” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. SFAS 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Level 1 inputs utilize quoted prices (unadjusted) for identical assets or liabilities in active markets that we have the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals.

Currently, we use interest rate caps, floors and collars to manage the interest rate risk of our investments in unconsolidated investments resulting from variable interest payments on our floating rate debt. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities.

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To comply with the provisions of FAS 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees. We have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. We do not have any fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2008.

The table below presents the assets and liabilities associated with our subsidiaries and our unconsolidated investments measured at fair value on a recurring basis as of December 31, 2008, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands).

	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance at December 31, 2008
Assets
Interest rate contracts	$	—	$	15	$	—	$	15
Liabilities
Interest rate contracts	$	—	$	3,618	$	—	$	3,618

Fair Value of Financial Instruments

SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, requires us to disclose fair value information about all financial instruments, whether or not recognized in the balance sheets, for which it is practicable to estimate fair value.

Our estimates of the fair value of financial instruments at December 31, 2008 were determined by performing discounted cash flow analyses using an appropriate market discount rate. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

The carrying amounts for cash and cash equivalents, restricted cash, rents and other receivables, due from affiliates, accounts payable and other liabilities approximate fair value because of the short-term nature of these instruments.

As of December 31, 2008 the estimated fair value of our mortgage and other secured loans aggregates $1.2 billion compared to the aggregate carrying value of $1.3 billion.

Management’s Estimates and Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

TPG/CalSTRS has identified certain critical accounting policies that affect management’s more significant judgments and estimates used in the preparation of the consolidated financial statements. On an ongoing basis, TPG/CalSTRS will evaluate estimates related to critical accounting policies, including those related to revenue recognition and the allowance for doubtful accounts receivable and investments in real estate and asset impairment. The estimates are based on information that is currently available and on various other assumptions that TPG/CalSTRS believes is reasonable under the circumstances.

TPG/CalSTRS must make estimates related to the collectability of accounts receivable related to minimum rent, deferred rent, expense reimbursements, lease termination fees and other income. TPG/CalSTRS specifically analyze accounts receivable and historical bad debts, tenant concentrations, tenant creditworthiness, and current economic trends when evaluating the adequacy of the allowance for doubtful accounts receivable. These estimates have a direct impact on our net income, because a higher bad debt allowance would result in lower net income.

TPG/CalSTRS is required to make subjective assessments as to the useful lives of the properties for purposes of determining the amount of depreciation to record on an annual basis with respect to its investments in real estate. These assessments have a direct impact on net income because if TPG/CalSTRS were to shorten the expected useful lives of its investments in real estate, TPG/CalSTRS would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

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TPG/CalSTRS is required to make subjective assessments as to whether there are impairments in the values of its investments in real estate. These assessments have a direct impact on net income because recording an impairment loss results in a negative adjustment to net income.

TPG/CalSTRS is required to make subjective assessments as to the fair value of assets and liabilities in connection with purchase accounting related to interests in real estate entities acquired. These assessments have a direct impact on net income subsequent to the acquisition of the interests as a result of depreciation and amortization being recorded on these assets and liabilities over the expected lives of the related assets and liabilities. TPG/CalSTRS estimates the fair value of rental properties utilizing a discounted cash flow analysis that includes projections of future revenues, expenses and capital improvement costs, similar to the income approach that is commonly utilized by appraisers.

Reclassifications

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

Concentration of Credit Risk

Financial instruments that subject TPG/CalSTRS to credit risk consist primarily of cash and accounts receivable. Unrestricted cash and restricted cash is maintained on deposit with high quality financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. There is a concentration of risk related to amounts that exceed the FDIC insurance coverage.

For the years ended December 31, 2008, 2007 and 2006, one tenant accounted for approximately 9.6%, 10.2% and 12.2%, respectively, of rent and tenant reimbursements (excluding tenant reimbursements for over-standard usage of certain operating expenses) of TPG/CalSTRS.

TPG/CalSTRS generally requires either a security deposit, letter of credit or a guarantee from its tenants.

Expenses

Expenses include all costs incurred by TPG/CalSTRS in connection with the management, operation, maintenance and repair of the properties and are expensed as incurred.

Recent Accounting Pronouncements

In February 2008, the FASB issued FASB Staff Position No. 157-1, “Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13” (“SFAS 157-1”). SFAS No. 157-1 amends SFAS 157, to exclude FASB Statement No. 13, “Accounting for Leases” (“SFAS 13”), and other accounting pronouncements that address fair value measurements for purposes of lease classification or measurement under SFAS 13. However, this scope exception does not apply to assets acquired and liabilities assumed in a business combination that are required to be measured at fair value under FASB Statement No. 141 (R), “Business Combinations” (“SFAS 141R”), regardless of whether those assets and liabilities are related to leases. The adoption of SFAS 157-1 did not have a material impact on our financial position or results of operations.

In December 2007, the FASB issued SFAS 141R, to create greater consistency in the accounting and financial reporting of business combinations. SFAS 141R requires a company to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquired entity to be measured at their fair values as of the acquisition date. SFAS 141R also requires companies to recognize the fair value of assets acquired, the liabilities assumed and any noncontrolling interest in acquisitions of less than a one hundred percent interest when the acquisition constitutes a change in control of the acquired entity. In addition, SFAS 141R requires that acquisition-related costs and restructuring costs be recognized separately from the business combination and expensed as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning after December 15, 2008. The implementation of SFAS 141R on January 1, 2009 could materially impact our future financial results to the extent that we acquire significant amounts of real estate, as related acquisition costs will be expensed as incurred rather than our past practice of capitalizing such costs and amortizing them over the estimated useful life of the assets acquired.

In February 2007, the FASB issued FAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115 (“SFAS 159”). This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007, which for us means our fiscal year 2008. We did not elect the fair value measurement option for any financial assets or liabilities.

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Adoption of FASB Statement No. 160

In December 2007, FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements—an Amendment of Accounting Research Bulletin No. 51” (“SFAS 160”). SFAS 160 requires all entities to report noncontrolling interests in subsidiaries within equity in the consolidated financial statements, but separate from the parent shareholders’ equity. SFAS No. 160 also requires any acquisitions or dispositions of noncontrolling interests that do not result in a change of control to be accounted for as equity transactions. In addition, SFAS No. 160 requires that a parent company recognize a gain or loss in net income when a subsidiary is deconsolidated upon a change in control. SFAS No. 160 applies to fiscal years beginning after December 15, 2008 and is adopted prospectively. The presentation and disclosure requirements shall be applied retrospectively for all periods presented. The adoption of SFAS 160 resulted in a reclassification of the minority interest in one of our joint ventures to temporary equity in a mezzanine section of the consolidated balance sheet (and adjusted to the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period), as this redeemable noncontrolling interest does not meet the requirements for equity classification under EITF Topic D-98 “Classification and Measurement of Redeemable Securities”, and net loss attributable to the redeemable noncontrolling interest is shown as a reduction from net loss on the statement of operations. All previous references to “minority interest” in the consolidated financial statements have been revised to “redeemable noncontrolling interest.”

3. Mortgage and Other Secured Loans

A summary of the outstanding mortgage and other secured loans as of December 31, 2008 and 2007 is as follows. None of these loans are recourse to TPG/CalSTRS.

	Interest Rate at December 31, 2008		Outstanding Debt				Maturity Date	Maturity Date at End of Extension Options
			2008		2007
City National Plaza (1)
Senior mortgage loan	LIBOR + 1.07	% (2)	$	355,300	$	355,300	7/9/2009	7/9/2010
Senior mezzanine loan (Note A) (3)	LIBOR + 2.59	% (2)		66,446		42,673	7/9/2009	7/9/2010
Senior mezzanine loan (Note B)	LIBOR + 1.90	% (2)		24,000		24,000	7/9/2009	7/9/2010
Senior mezzanine loan (Note C)	LIBOR + 2.25	% (2)		24,000		24,000	7/9/2009	7/9/2010
Senior mezzanine loan (Note D)	LIBOR + 2.50	% (2)		24,000		24,000	7/9/2009	7/9/2010
Senior mezzanine loan (Note E)	LIBOR + 3.05	% (2)		22,700		22,700	7/9/2009	7/9/2010
Junior mezzanine loan (4)	LIBOR + 5.00	% (2)		56,954		36,576	7/9/2009	7/9/2010
CityWestPlace
Fixed	6.16	%		121,000		121,000	7/6/2016	7/6/2016
Floating	LIBOR + 1.25	% (2)(5)		92,400		90,225	7/1/2009	7/1/2011
San Felipe Plaza
Mortgage loan (Note A)	5.28	%		101,500		101,500	8/11/2010	8/11/2010
Mortgage loan (Note B) (6)	LIBOR + 3.00	%		16,200		9,655	8/11/2010	8/11/2010
2500 City West
Mortgage loan (Note A)	5.28	%		70,000		70,000	8/11/2010	8/11/2010
Mortgage loan (Note B) (7)	LIBOR + 3.00	%		11,378		9,671	8/11/2010	8/11/2010
Brookhollow Central I, II and III
Mortgage loan (Note A)	LIBOR + 0.44	% (2)(8)		24,154		24,154	8/9/2009	8/9/2010
Mortgage loan (Note B) (6)	LIBOR + 4.25	% (2)(8)		17,494		—	8/9/2009	8/9/2010
Mortgage loan (Note C)	LIBOR + 4.86	% (2)(8)		16,746		16,746	8/9/2009	8/9/2010
Four Falls Corporate Center
Mortgage loan (Note A)	5.31	%		42,200		42,200	3/6/2010	3/6/2010
Mortgage loan (Note B) (6) (9)	LIBOR + 3.25	% (2)(10)		9,867		9,867	3/6/2010	3/6/2010
Oak Hill Plaza/Walnut Hill Plaza
Mortgage loan (Note A)	5.31	%		35,300		35,300	3/6/2010	3/6/2010
Mortgage loan (Note B) (6) (9)	LIBOR + 3.25	% (2)(11)		9,152		9,152	3/6/2010	3/6/2010
Reflections I mortgage loan	5.23	%		22,169		22,527	4/1/2015	4/1/2015
Reflections II mortgage loan	5.22	%		9,236		9,386	4/1/2015	4/1/2015
Centerpointe I & II (12)
Senior mortgage loan	LIBOR + 0.60	% (2)		55,000		55,000	2/9/2010	2/9/2012
Mezzanine loan (Note A) (13)	LIBOR + 1.51	% (2)		14,501		13,085	2/9/2010	2/9/2012
Mezzanine loan (Note B) (14)	LIBOR + 4.32	% (2)		12,539		11,315	2/9/2010	2/9/2012
Mezzanine loan (Note C) (15)	LIBOR + 3.26	% (2)		12,855		11,600	2/9/2010	2/9/2012
Fair Oaks Plaza (16)	5.52	%		44,300		44,300	2/9/2017	2/9/2017
			$	1,311,391	$	1,235,932

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The LIBOR rate for the loans above was 0.44% at December 31, 2008.

(1) The City National Plaza loans collectively have maximum borrowings of $580 million. The senior mortgage loan and Notes B, C, D and E under the senior mezzanine loan are subject to exit fees equal to .25% of the loan amounts. Note A under the senior mezzanine loan and the junior mezzanine loan are subject to an exit fee equal to .50% of the loan amount. Under certain circumstances all of the exit fees will be waived. All of the City National Plaza loans have a one-year extension option at our election subject to a 75% loan to value ratio for all senior debt combined and 80% loan to value ratio for senior debt and junior mezzanine debt combined.

(2) The partnership that owns each property has purchased interest rate cap agreements for the funded portion of these loans.

(3) TPG/CalSTRS may borrow an additional $3.6 million.

(4) TPG/CalSTRS may borrow an additional $3.0 million.

(5) This loan has two one-year extension options at the Company’s election. The Company plans to exercise the extension options in 2009.

(6) This loan has been fully funded as of December 31, 2008.

(7) TPG/CalSTRS may borrow an additional $4.1 million under this loan.

(8) These loans have a one-year extension option at the Company’s election. The Company plans to exercise the extension options in 2009.

(9) These loans are subject to exit fees equal to 1% of the loan amounts, however, under certain circumstances the exit fees will be waived. These loans bear interest at the greater of the one month LIBOR or 2.25% per annum, plus the applicable margin. As of December 31, 2008, one month LIBOR is below 2.25%, per annum.

(10) This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the partnership which owns Oak Hill Plaza/Walnut Hill Plaza.

(11) This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the partnership which owns Four Falls Corporate Center.

(12) The loans are subject to exit fees of up to 0.5% through February 9, 2009. The Centerpointe I & II senior mortgage loan bears interest at a rate equal to one month LIBOR plus 0.60%. The mezzanine loans bear interest at a rate such that the weighted average of the rate on these loans and the rate on the senior mortgage loan secured by Centerpointe I & II equals LIBOR plus 1.59% per annum. The weighted average interest rate on the senior mezzanine loans as of December 31, 2008 was 3.4% per annum. The weighted average interest rate on all of the loans was 2.0% per annum. All of these loans have two one-year extension options at the Company’s election subject to a debt service coverage ratio of 1:1.

(13) TPG/CalSTRS may borrow an additional $10.5 million under this loan.

(14) TPG/CalSTRS may borrow an additional $9.1 million under this loan.

(15) TPG/CalSTRS may borrow an additional $9.3 million under this loan.

(16) This loan may be defeased in full after three years (or January 31, 2010), or prepaid in full after 9 years and 8 months (or October 2016).

The loan agreements generally require that all receipts collected from the properties be deposited in a lockbox account under the control of the lender to fund reserves, debt service and operating expenditures. These amounts are reflected as restricted cash in the accompanying balance sheets.

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As of December 31, 2008, scheduled principal payments for the secured outstanding debt are as follows:

	Amount Due at Original Maturity Date			Amount Due at Maturity Date After Exercise of Extension Options
2009	$	724,194	(1)		—
2010		390,492			927,391
2011		—			92,400
2012		—			94,895
2013		—			—
Thereafter		196,705			196,705
	$	1,311,391		$	1,311,391

(1) TPG/CalSTRS has extension options for this full amount, and it plans to exercise these options.

4. Related Party Transactions

TPG/CalSTRS incurred acquisition fees to an affiliate of TPG of $833,000 and $1,475,000 for the years ended December 31, 2007 and 2006, respectively, which have been capitalized to real estate. Such fees were paid upon acquisition of two properties in 2007 and one property in 2006. During the year ended December 31, 2007, an acquisition fee of $1,438,000 was incurred upon the acquisition of a 25% equity investment in the Austin Portfolio Joint Venture, which owns a portfolio of 10 properties. In 2008 TPG/CalSTRS did not incur any acquisition fees.

TPG provides asset management services to TPG/CalSTRS. For the years ended December 31, 2008, 2007 and 2006, TPG/CalSTRS incurred asset management fees of $5,841,000, $6,256,000, and $4,402,000, respectively, to TPG, which are included in general and administrative expenses and loss from discontinued operations. An additional $353,000 and $544,000 were incurred for asset management fees for the Austin Portfolio Joint Venture Properties for the year ended December 31, 2008 and 2007, respectively.

Pursuant to a management and leasing agreement, TPG performs property management and leasing services for TPG/CalSTRS. TPG is entitled to property management fees calculated based on 3% of gross property revenues, paid on a monthly basis. In addition, TPG is reimbursed for compensation paid to certain of its employees and direct out-of-pocket expenses. For the years ended December 31, 2008, 2007 and 2006, TPG charged TPG/CalSTRS $5,730,000, $5,030,000, and $3,792,000, respectively, for property management fees and $2,943,000, $2,140,000, and $1,639,000, respectively, representing the cost of on-site property management personnel incurred on behalf of TPG/CalSTRS, which are included in operating expenses and loss from operations. An additional $3,435,000 and $1,871,000 were incurred for property management fees and $2,032,000 and $787,000 for costs of on-site property management personnel for the Austin Portfolio Joint Venture Properties for the year ended December 31, 2008 and 2007, respectively.

For new leases entered into by TPG/CalSTRS, TPG is entitled to leasing commissions, calculated at 4% of base rent during years 1 through 10 of a lease and 3% of base rent thereafter, where TPG acts as the procuring broker, and 2% of lease rent during years 1 through 10 of a lease and 1.5% of base rent thereafter, where TPG acts as the co-operating broker. For lease renewals, where TPG is the procuring broker and there is no co-operating broker, TPG is entitled to leasing commissions, calculated at 4% of base rent. For lease renewals, where there is both a procuring and co-operating broker, if TPG is the procuring broker, it is entitled to receive 3% of base rents and if it’s the co-operating broker, it is entitled to receive 1.5% of base rents. Commissions are paid 50% at signing and 50% upon occupancy. The leasing commissions will be split on the customary basis between TPG and tenant representative when applicable. For the years ended December 31, 2008, 2007 and 2006, TPG/CalSTRS incurred leasing commissions to TPG of $1,575,000, $3,821,000 and $4,084,000, respectively, which are included in deferred leasing costs. An additional $2,529,000 and $304,000 were earned by TPG for leasing commissions for the Austin Portfolio Joint Venture Properties for the year ended December 31, 2008 and 2007, respectively. At December 31, 2008 and 2007, $4,963,000 and $7,396,000, respectively, are payable to TPG pursuant to the management and leasing agreements discussed above.

The management and leasing agreement expires on January 27, 2009, and is automatically renewed for successive periods of one year each, unless TPG elects not to renew the agreement.

TPG receives incentive compensation based on a minimum return on investment to CalSTRS, following which TPG would participate in cash flow above the stated return, subject to a clawback provision in the joint venture agreement if returns for a property fall below the stated return. TPG earned incentive compensation of $571,000 related to the sale of Intercontinental Center during the year ended December 31, 2007. For the year ended December 31, 2006, TPG earned incentive compensation of $521,000 related to the sale of Valley Square. None was earned for the year ended December 31, 2008.

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TPG acts as the development manager for the properties. TPG/CalSTRS pays TPG a fee based upon a market rate percentage of the total direct and indirect costs of the property, including the cost of all tenant improvements therein. For the years ended December 31, 2008, 2007 and 2006, TPG/CalSTRS incurred development management fees of $2,040,000, $1,600,000, and $1,472,000, respectively, to TPG, which have been capitalized to real estate. An additional $259,000 and $66,000 were incurred for the Austin Portfolio Joint Venture Properties for the years ended December 31, 2008 and 2007, respectively.

In connection with a retail restaurant tenant at City National Plaza, affiliates of TPG have acquired membership interests in the limited liability company comprising the tenant. In order to help balance the construction budget for the restaurant improvements and to allow for payment of outstanding construction obligations, TPG agreed to waive $150,000 of construction management fees it earned through December 15, 2008, and it also agreed to defer receipt of the remaining balance of fees owed of approximately $170,000 until such time as sufficient proceeds exist from the sale of additional membership units.

TPG/CalSTRS obtains insurance as part of a master insurance policy that includes all the properties in which TPG and affiliated entities have an investment and for which they perform investment advisory or property management services. Property insurance premiums are allocated to TPG/CalSTRS based on estimated insurable values. Liability insurance premiums are allocated to TPG/CalSTRS based on relative square footage. The allocated premiums for the years ended December 31, 2008, 2007 and 2006 are $5,307,000, $7,131,000, and $6,720,000, respectively, and are included in operating expenses and loss from discontinued operations.

TPG is a tenant in City National Plaza through May 2009. For the years ended December 31, 2008, 2007, and 2006, rental revenues from TPG were $409,000, $378,000, and $355,000, respectively.

At December 31, 2008, we had accounts receivable for advisor fee revenue of $549,000 due from the Austin Portfolio Joint Venture Properties.

5. Discontinued Operations

In January 2007, TPG/CalSTRS classified Intercontinental Center as held for sale, upon the decision to market the property for sale. In accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”, the results of operations for Intercontinental Center are reflected in the consolidated statements of operations as discontinued operations since acquisition of the property in August 2005. The property was sold in April 2007. The residual amounts for the sale of Valley Square Office Park in 2006 are also reflected in discontinued operations for 2007. The results of operations for Valley Square Office Park are reflected in the consolidated statements of operations as discontinued operations from acquisition of the property in March 2005 through the date of sale in April 2006.

The following table summarizes the income and expense components that comprise income (loss) from discontinued operations before redeemable noncontrolling interest for the year ended December 31, 2008, 2007 and 2006:

	2008			2007		2006
Revenues:
Rental	$	—		$	1,002	$	3,969
Tenant reimbursements		—			146		320
Other		1			29		124
Total revenues		1			1,177		4,413
Expenses:
Operating and other expenses		105			1,022		2,740
Interest expense		—			425		1,768
Depreciation and amortization		—			—		1,316
Total expenses		105			1,447		5,824
Gain on sale of property		—			7,932		6,133
Income (loss) from discontinued operations	$	(104	)	$	7,662	$	4,722

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The following table summarizes the components that comprise the assets and liabilities associated with discontinued operations as of December 31, 2008 and 2007:

	2008			2007
ASSETS
Receivables including deferred rents	$	86		$	16
Other assets		—			12
Total assets associated with discontinued operations	$	86		$	28
LIABILITIES AND EQUITY
Liabilities:
Other liabilities	$	185		$	23
Total liabilities associated with discontinued operations		185			23
Members’ equity		(99	)		5
Total liabilities and members’ equity associated with discontinued operations	$	86		$	28

6. Minimum Future Lease Rentals

TPG/CalSTRS has entered into various lease agreements with tenants as of December 31, 2008. The minimum future cash rents receivable on non-cancelable leases, including leases relating to the property held for sale, in each of the next five years and thereafter are as follows:

Year ending December 31,
2009	$	126,562
2010		125,841
2011		120,219
2012		113,469
2013		104,471
Thereafter		446,920
	$	1,037,482

The leases generally also require reimbursement of the tenant’s proportionate share of common area, real estate taxes and other operating expenses, which are not included in the amounts above.

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7. Commitments and Contingencies

TPG/CalSTRS has been named as a defendant in a number of lawsuits in the ordinary course of business. TPG/CalSTRS believes that the ultimate settlement of these suits will not have a material adverse effect on its financial position and results of operations.

In connection with the ownership, operation and management of the real estate properties, TPG/CalSTRS may be potentially liable for costs and damages related to environmental matters. TPG/CalSTRS has not been notified by any governmental authority of any noncompliance, liability or other claim in connection with any of the properties, and TPG/CalSTRS is not aware of any other environmental condition with respect to any of the properties that management believes will have a material adverse effect on TPG/CalSTRS’ assets or results of operations.

8. Unconsolidated Real Estate Entities

As of the formation date in October 2008, TGP/CalSTRS indirectly owns a 25% interest in Square Mile Brookhollow LLC, an entity which purchased a mortgage loan (commonly referred to as Note B) which is secured by Brookhollow Central I, II and III. Our investment balance as of December 31, 2008 is $2.5 million.

TPG/CalSTRS also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following ten properties all of which were purchased on June 1, 2007 (“Austin Portfolio Joint Venture Properties”):

San Jacinto Center

Frost Bank Tower

One Congress Plaza

One American Center

300 West 6th Street

Research Park Plaza I & II

Park Centre

Great Hills Plaza

Stonebridge Plaza II

Westech 360 I-IV

Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the partnership and limited liability company agreements.

The following is a summary of the investments in the Austin Joint Venture Properties for the period from inception (June 1, 2007) to December 31, 2008:

Investment balance, June 1, 2007 (date of acquisition)	$	71,512
Contributions		—
Equity in net loss of unconsolidated real estate entities		(9,001	)
Other comprehensive income/loss		(481	)
Distributions		(368	)
Investment balance, December 31, 2007	$	61,662
Equity in net loss of unconsolidated real estate entities		(18,193	)
Other comprehensive income/loss		(610	)
Investment balance, December 31, 2008	$	42,859

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Following is summarized financial information for the Austin Joint Venture Properties as of December 31, 2008 and 2007 and for the period from June 1, 2007 (date of inception) to December 31, 2008:

Summarized Balance Sheet

	2008		2007
ASSETS
Investments in real estate, net	$	1,094,556	$	1,115,672
Receivables including deferred rents		6,560		4,140
Deferred leasing and loan costs, net		77,803		97,102
Other assets		30,436		56,517
Total assets	$	1,209,355	$	1,273,431
LIABILITIES AND OWNERS’ EQUITY
Mortgage and other secured loans	$	907,500	$	907,500
Below market rents, net		67,919		83,791
Other liabilities		43,683		35,492
Total liabilities		1,019,102		1,026,783
Owners’ equity:
TPG/CalSTRS, including $1,091 and $481 of other comprehensive loss as of 2008 and 2007, respectively		47,563		61,662
Other owners, including $3,271 and $1,442 of other comprehensive loss as of 2008 and 2007, respectively		142,690		184,986
Total owners’ equity		190,253		246,648
Total liabilities and owners’ equity	$	1,209,355	$	1,273,431

Summarized Statement of Operations

	2008			Period From Inception (June 1, 2007) Through December 31, 2007
Revenues	$	117,635		$	67,027
Expenses:
Operating and other expenses		53,987			28,562
Interest expense		58,081			35,753
Depreciation and amortization		59,504			38,716
Total expenses		171,572			103,031
Net loss	$	(53,937	)	$	(36,004	)
TPG/CalSTRS’ share of net loss	$	(13,484	)	$	(9,001	)
Intercompany eliminations		131			—
Impairment loss		(4,840	)		—
Equity in net loss of Austin Portfolio Joint Ventures	$	(18,193	)	$	(9,001	)

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