Thomas Properties 10-Q 2012 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________________________________________________________

Form 10-Q

_________________________________________________________________________

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                     to
Commission file number 0-50854

________________________________________________________________________

Thomas Properties Group, Inc.

(Exact name of registrant as specified in its charter)

_________________________________________________________________________

Delaware	20-0852352
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
515 South Flower Street, Sixth Floor, Los Angeles, CA	90071
(Address of principal executive offices)	(Zip Code)

(213) 613-1900

Registrant’s telephone number, including area code

____________________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o		Accelerated filer  x
Non-accelerated filer  o	(Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 3, 2012
Common Stock, $.01 par value per share	45,990,647

THOMAS PROPERTIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2012

TABLE OF CONTENTS

		Page No.
PART I.	FINANCIAL INFORMATION
ITEM 1.	Consolidated Financial Statements of Thomas Properties Group Inc. and Subsidiaries
	Consolidated Balance Sheets as of June 30, 2012 (unaudited) and December 31, 2011 (audited)	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 (unaudited)	4
	Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	35
ITEM 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
ITEM 1A.	Risk Factors	36
ITEM 4.	Mine Safety Disclosures	47
ITEM 5.	Other Information	47
ITEM 6.	Exhibits	47
SIGNATURES		48

2

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)

	June 30, 2012			December 31, 2011
ASSETS
Investments in real estate:
Land and improvements	$	33,077		$	33,077
Land and improvements—development properties	80,395			80,254
Buildings and improvements	316,158			308,692
Tenant improvements	39,729			39,004
Total investments in real estate	469,359			461,027
Less accumulated depreciation	(121,430		)	(115,571		)
Investments in real estate, net	347,929			345,456
Condominium units held for sale	44,011			45,217
Investments in unconsolidated real estate entities	2,102			11,372
Cash and cash equivalents, unrestricted	129,871			79,320
Restricted cash	7,721			10,616
Rents and other receivables, net	1,369			1,903
Receivables from unconsolidated real estate entities	3,388			2,918
Deferred rents	18,696			17,866
Deferred leasing and loan costs, net	10,836			12,283
Other assets, net	19,004			17,465
Assets associated with land held for sale	—			1,107
Total assets	$	584,927		$	545,523
LIABILITIES AND EQUITY
Liabilities:
Mortgage loans	$	287,250		$	289,523
Accounts payable and other liabilities, net	35,241			34,981
Prepaid rent and deferred revenue	3,452			3,019
Obligations associated with land held for sale	—			27
Total liabilities	325,943			327,550
Commitments and Contingencies (Note 9)	—			—
Equity:
Stockholders’ equity:
Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding as of June 30, 2012 and December 31, 2011	—			—
Common stock, $.01 par value, 225,000,000 shares authorized, 45,990,647 and 37,094,995 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively	460			371
Limited voting stock, $.01 par value, 20,000,000 shares authorized, 12,313,331 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively	123			123
Additional paid-in capital	258,205			208,473
Retained deficit and dividends, including $ 21 and $20 of other comprehensive income as of June 30, 2012 and December 31, 2011, respectively	(64,522		)	(55,472		)
Total stockholders’ equity	194,266			153,495
Noncontrolling interests:
Unitholders in the Operating Partnership	50,153			52,983
Partners in consolidated real estate entities	14,565			11,495
Total noncontrolling interests	64,718			64,478
Total equity	258,984			217,973
Total liabilities and equity	$	584,927		$	545,523

See accompanying notes to consolidated financial information.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)

	Three months ended June 30,						Six months ended  June 30,
	2012			2011			2012			2011
Revenues:
Rental	$	7,684		$	7,475		$	15,530		$	14,787
Tenant reimbursements	4,981			5,056			10,402			11,385
Parking and other	745			715			1,485			1,517
Investment advisory, management, leasing and   development services	733			1,313			1,664			2,124
Investment advisory, management, leasing and   development services — unconsolidated real   estate entities	4,219			4,705			8,321			9,366
Reimbursement of property personnel costs	1,356			1,492			2,867			3,024
Condominium sales	1,045			2,558			1,964			3,038
Total revenues	20,763			23,314			42,233			45,241
Expenses:
Property operating and maintenance	5,751			5,586			12,015			12,173
Real estate and other taxes	1,965			1,875			3,885			3,762
Investment advisory, management, leasing and   development services	3,000			3,610			5,994			6,639
Reimbursable property personnel costs	1,356			1,492			2,867			3,024
Cost of condominium sales	721			1,653			1,393			1,987
Interest	4,216			4,634			8,454			9,298
Depreciation and amortization	4,152			3,348			7,662			6,741
General and administrative	4,892			3,947			9,131			7,877
Total expenses	26,053			26,145			51,401			51,501
Interest income	8			7			13			20
Equity in net income (loss) of unconsolidated real   estate entities	(794		)	(891		)	(816		)	(1,585		)
Income (loss) before income taxes and    noncontrolling interests	(6,076		)	(3,715		)	(9,971		)	(7,825		)
Benefit (provision) for income taxes	(31		)	(109		)	(74		)	(205		)
Net income (loss)	(6,107		)	(3,824		)	(10,045		)	(8,030		)
Noncontrolling interests’ share of net (income) loss:
Unitholders in the Operating Partnership	1,550			982			2,591			2,058
Partners in consolidated real estate entities	(247		)	(164		)	(470		)	(319		)
	1,303			818			2,121			1,739
TPGI share of net income (loss)	$	(4,804	)	$	(3,006	)	$	(7,924	)	$	(6,291	)
Income (loss) per share-basic and diluted	$	(0.12	)	$	(0.08	)	$	(0.21	)	$	(0.17	)
Dividends paid per common share	$	0.015		$	—		$	0.03		$	—
Weighted average common shares outstanding—    basic and diluted	38,591,868			36,647,394			37,664,573			36,591,261

See accompanying notes to consolidated financial information.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
	Six months ended
	June 30,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	(10,045	)	$	(8,030	)
Adjustments to reconcile net income (loss) to net cash provided by (used in)     operating activities:
Gain on sale of condominiums	(572		)	(1,051		)
Equity in net (income) loss of unconsolidated real estate entities	816			1,585
Deferred rents	(355		)	(148		)
Deferred taxes (and interest on unrecognized benefits)	38			93
Deferred interest	25			467
Depreciation and amortization expense	7,662			6,741
Amortization of loan costs	320			427
Non-cash amortization of share-based compensation	531			476
Distributions from operations of unconsolidated real estate entities	250			4,000
Changes in operating assets and liabilities:
Rents and other receivables	569			201
Receivables from unconsolidated real estate entities	(470		)	143
Deferred leasing costs	(1,875		)	(419		)
Other assets	(3,495		)	(3,290		)
Accounts payable and other liabilities	787			(1,961		)
Prepaid rent and deferred revenue	427			764
Net cash provided by (used in) operating activities	(5,387		)	(2		)
Cash flows from investing activities:
Expenditures for improvements to real estate	(6,532		)	(2,973		)
Proceeds from sale of condominiums	1,836			2,856
Proceeds from sale of real estate	1,107			—
Return of capital from unconsolidated real estate entities	8,640			2,906
Contributions to unconsolidated real estate entities	(199		)	(437		)
Net cash provided by (used in) investing activities	4,852			2,352
Cash flows from financing activities:
Proceeds from equity offering, net of expenses	49,409			(24		)
Contributions by noncontrolling interests	2,600			370
Proceeds from mortgage loans	404			20,853
Payment of dividends to common stockholders and distributions to limited partners	(1,499		)	—
Principal payments of mortgage loans	(2,702		)	(25,552		)
Payment of loan costs	—			(329		)
Change in restricted cash	2,874			4,079
Net cash provided by (used in) financing activities	51,086			(603		)
Net increase (decrease) in cash and cash equivalents	50,551			1,747
Cash and cash equivalents at beginning of year	79,320			42,363
Cash and cash equivalents at end of period	$	129,871		$	44,110

See accompanying notes to consolidated financial information.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

FOR THE SIX MONTHS ENDEDJUNE 30, 2012

(Tabular amounts in thousands, except share and per share amounts)

1. Organization and Description of Business

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

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.

We were incorporated in the State of Delaware on March 9, 2004. On October 13, 2004, we completed our initial public offering (the “Offering”). Our operations are carried on through our Operating Partnership of which we are the sole general partner. The Operating Partnership holds our direct and indirect interest in real estate properties, and it carries on our investment advisory, property management, leasing and real estate development operations. As of June 30, 2012, we held a 78.5% interest in the Operating Partnership which we consolidate, as we have control over the major decisions of the Operating Partnership.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As of June 30, 2012, 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	Residential condominiums held for sale	PCBD
2100 JFK Boulevard (1)	Undeveloped land; Residential/Office/Retail	PCBD
Four Points Centre (2)	Suburban office; Undeveloped land; Office/Retail/Research and Development/Hotel/Residential	Austin, Texas
Campus El Segundo (1)	Developable land; Site infrastructure complete; Office/Retail/ Research and Development/Hotel	El Segundo, California
Unconsolidated properties:
2121 Market Street (1)	Residential and retail	PCBD
TPG/CalSTRS, LLC (“TPG/CalSTRS”):
City National Plaza	High-rise office	Los Angeles Central Business District, California
Reflections I	Suburban office	Reston, Virginia
Reflections II	Suburban office	Reston, Virginia
San Felipe Plaza	High-rise office	Houston, Texas
CityWestPlace	Suburban office and undeveloped land	Houston, Texas
Fair Oaks Plaza	Suburban office	Fairfax, Virginia
TPG-Austin Portfolio Syndication Partners JV, LP (“Austin Portfolio Joint Venture”) (3):
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 (4)	Suburban Office	Austin, Texas
Park Centre	Suburban Office	Austin, Texas
Great Hills Plaza	Suburban Office	Austin, Texas
Stonebridge Plaza II (4)	Suburban Office	Austin, Texas
Westech 360 I-IV	Suburban Office	Austin, Texas

(1) The Company has engaged a broker to market this property for sale.

(2) Certain undeveloped land parcels at Four Points Centre are being targeted for sale.

(3) Lehman Brothers exercised its right under the Syndication Agreement to initiate a process for sale of the Austin Portfolio. See Note 3 for a further discussion.

(4) These properties were sold in July 2012.

2. Summary of Significant Accounting Policies

Interim Financial Data

The accompanying unaudited interim financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in the

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

financial statements prepared in accordance with GAAP may have been condensed or omitted pursuant to SEC rules and regulations, although we believe that the disclosures are adequate to make their presentation not misleading. The accompanying unaudited financial statements include, in our opinion, all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information set forth therein. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. The interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto in the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

The preparation of financial statements in conformity with GAAP requires us to make certain estimates and assumptions. These estimates and assumptions are subjective and affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Principles of Consolidation

We evaluate each entity to determine if the entity is deemed a variable interest entity ("VIE"), and if the Company is the primary beneficiary of the VIE based on whether the Company has both (i) the power to direct those matters that most significantly impacted the activities of the VIE and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our determination of the primary beneficiary of a VIE considers all relationships between us and the VIE, including management agreements. When an entity is not deemed to be a VIE, the Company considers the provisions of the accounting standards to determine whether a general partner, or the general partners as a group, controls a limited partnership or similar entity when the limited partners have certain rights. The Company consolidates (i) entities that are VIEs and of which the Company is deemed to be the primary beneficiary and (ii) entities that are non-VIEs and controlled by the Company and in which the limited partners neither have the ability to dissolve the entity or remove the Company without cause nor any substantive participating rights.

The equity method of accounting is utilized to account for investments in real estate entities that are VIEs and of which the Company is not deemed to be the primary beneficiary and entities that are non-VIEs which the Company does not control, but over which the Company has the ability to exercise significant influence. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

The 25% preferred equity interests in One Commerce Square and Two Commerce Square (beginning December 2010), owned by Brandywine Operating Partnership LP ("Brandywine") are reflected under the "Noncontrolling Interests" caption on our consolidated balance sheets. Our interest in these two partnerships is a variable interest, which we consolidate because we are considered to be the primary beneficiary.

We also consolidate our Murano residential condominium project which we control. Our unaffiliated partner's interest is reflected in our consolidated balance sheets under the "Noncontrolling Interests" caption. After full repayment of the Murano mortgage loan, which has a balance of $13.8 million at June 30, 2012, net proceeds from the project will be distributed, to the extent available, as follows:

i. First, to the Company as repayment of our first priority capital and a return on such capital, which has a balance of $13.8 million as of June 30, 2012;

ii. Second, to the Company and our partner equally for repayment of second priority capital and a return on such capital. The Company's share of this tranche is $1.6 million as of June 30, 2012;

iii. Third, the next $3.0 million to be split equally between the Company and our partner;

iv. Fourth, to the Company for repayment of our original preferred equity contribution and a return on such capital, which has a balance of $29.6 million as of June 30, 2012;

v. Fifth, the next $3.0 million to be split equally between the Company and our partner;

vi. Sixth, to TPGI for repayment of the final half of the original preferred equity contribution, which has a balance of $8.2 million as of June 30, 2012; and

vii. Any residual amounts will be allocated to the Company and our partner 73% and 27%, respectively.

Refer to Note 3 for discussion of the TPG/CalSTRS joint venture and the Austin Portfolio Joint Venture, which were determined to be variable interest entities for which we are not considered the primary beneficiary.

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

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

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 held for sale are reported at the lower of the carrying amount or fair value, less costs to sell. We record the Murano condominium units at the lower of carrying amount or estimated fair value as the condominium units meet the held for sale criteria of Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 360, “Property, Plant, and Equipment.”

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 FASB ASC 323, “Investments—Equity Method and Joint Ventures”, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of our investment.

We did not record an impairment for any real estate assets or equity investments during the six months ended June 30, 2012 and 2011.

Dispositions

In January 2012, we closed on the sale of a 4,800 square foot retail site at Four Points Centre. As of December 31, 2011, the carrying value of the property of $1.1 million comprises the caption labeled "Assets associated with land held for sale" on our consolidated balance sheets, and is equal to the ultimate net proceeds received.

Development Activities

Costs associated with the development and construction of a real estate project are capitalized on our consolidated balance sheets. In addition, interest, loan fees, real estate taxes, and general and administrative expenses that are directly associated with and incremental to our development activities and other costs are capitalized during the period in which activities necessary to get the property ready for its intended use are in progress, including the pre-development and lease-up phases. Once the development and construction of the building shell is completed, the costs capitalized to construction in progress are transferred to operating properties. Cumulative capitalized interest as of June 30, 2012 and December 31, 2011, is $16.9 million and $17.1 million, respectively. There was no interest capitalized for the six months ended June 30, 2012 and $27,000 capitalized in the same period of 2011.

Revenue Recognition - Condominium Sales

We have one high-rise condominium project, Murano, for which we use the deposit method of accounting to recognize sales revenue and costs. Under the provisions of FASB ASC 360-20, “Property, Plant and Equipment” subsection “Real Estate and Sales”, revenue and costs for projects are recognized when all parties are bound by the terms of the contract, all consideration has been exchanged, any permanent financing for which the seller is responsible has been arranged and all conditions precedent to closing have been performed. This results in profit from the sale of condominium units recognized at the point of settlement as compared to the point of sale. Revenue is recognized on the contract price of individual units. Total estimated costs, net of impairment charges, are allocated to individual units which have closed on a relative value basis. Total estimated revenue and construction costs are reviewed periodically, and any change is applied to current and future periods.

Earnings (Loss) Per Share

The computation of basic income (loss) per share is based on net income (loss) and the weighted average number of shares of our common stock outstanding during the period. The computation of diluted income (loss) per share includes the assumed exercise of outstanding stock options and the effect of the vesting of restricted stock and incentive units that have been granted to employees in connection with stock based compensation, all calculated using the treasury stock method. In accordance with FASB ASC 260-10-45, “Earnings Per Share”, the Company's unvested restricted stock and unvested incentive units are considered to be participating securities and are included in the computation of earnings per share to calculate a two class earnings per share. We only present the earnings per share attributable to the common shareholders. See Note 5 - Income (Loss) Per Share and Dividends Declared.

Recent Accounting Pronouncements

Changes to U.S. generally accepted accounting principles (“GAAP”) are established by the FASB in the form of accounting standards updates ("ASU"s) to the FASB's Accounting Standards Codification. We consider the applicability and impact of all ASUs. Newly issued ASUs not previously disclosed are not listed below as they are expected to have no impact on our consolidated financial position and results of operations, because either the ASU is not applicable or the impact is expected

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

to be immaterial.

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards” ("ASU No. 2011-04"). ASU No. 2011-04 provides a consistent definition of fair value to ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU No. 2011-04 is effective for interim and annual periods beginning after December 15, 2011. The adoption of this update did not have a material impact on our financial statements.

In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income” ("ASU No. 2011-05"). ASU No. 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of stockholders’ equity. It requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05” ("ASU No. 2011-12"), to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company does not have any material transactions resulting in reportable comprehensive income (loss).

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation for unconsolidated real estate entities and for activity associated with real estate held for disposition.

3. Unconsolidated Real Estate Entities

The unconsolidated real estate entities include our share of the entities that own 2121 Market Street, the TPG/CalSTRS properties and the Austin Portfolio Joint Venture properties. TPG/CalSTRS owns the following properties as of June 30, 2012:

• City National Plaza (acquired January 2003)

• Reflections I (acquired October 2004)

• Reflections II (acquired October 2004)

• San Felipe Plaza (acquired August 2005)

• CityWestPlace land (acquired June 2006)

• CityWestPlace (acquired June 2006)

• Fair Oaks Plaza (acquired January 2007)

The following properties were disposed by TPG/CalSTRS during the fourth quarter of 2011 or in the case of Brookhollow Central, the first quarter of 2012:

• Four Falls Corporate Center (acquired March 2005, disposed of October 2011)

• Oak Hill Plaza (acquired March 2005, disposed of October 2011)

• Walnut Hill Plaza (acquired March 2005, disposed of October 2011)

• 2500 CityWest and two adjacent land parcels (acquired August 2005, disposed of November 2011)

• Brookhollow Central I, II and III (acquired August 2005, disposed of January 2012)

• Centerpointe I and II (acquired January 2007, disposed of December 2011)

TPG/CalSTRS also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following properties that were acquired in June 2007:

• San Jacinto Center

• Frost Bank Tower

• One Congress Plaza

• One American Center

• 300 West 6th Street

• Research Park Plaza I & II (disposed of July 2012)

• Park Centre

• Great Hills Plaza

• Stonebridge Plaza II (disposed of July 2012)

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

• 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. Following are the stated ownership percentages, prior to any preferred or special allocations, as of June 30, 2012.

2121 Market Street	50.00	%
TPG/CalSTRS:
Austin Portfolio Joint Venture Properties	6.25	%
City National Plaza	7.94	%
All properties, excluding Austin Portfolio Joint Venture and City National Plaza	25.00	%

Investments in unconsolidated real estate entities as of June 30, 2012 and December 31, 2011 are as follows (in thousands):

	June 30, 2012			December 31, 2011
TPG/CalSTRS	$	(3,744	)	$	3,499
Austin Portfolio Joint Venture	5,846			7,873
Total TPG/CalSTRS and Austin Portfolio Joint Venture, reflected in investments in     unconsolidated real estate entities	2,102			11,372
2121 Market Street, reflected in accounts payable and other liabilities, net	(2,768		)	(2,538		)
Net investment in unconsolidated real estate entities	$	(666	)	$	8,834

The following is a summary of the investment in unconsolidated real estate entities for the six months ended June 30, 2012 (in thousands):

Net investment balance, December 31, 2011	$	8,834
Contributions	199
Equity in net loss of unconsolidated real estate entities	(816		)
Distributions	(8,879		)
Other comprehensive income (loss)	1
	(5		)
Net investment balance, June 30, 2012	$	(666	)

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.

The total capital commitment to the joint venture was $511.7 million as of June 30, 2012, of which approximately $21.7 million and $13.4 million was unfunded by CalSTRS and us, respectively.

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 connection with the provisions of ASC 810, TPG/CalSTRS and the Austin Portfolio Joint Venture are deemed to be variable interest entities for which we are not considered to be the primary beneficiary. In connection with the TPG/CalSTRS joint venture, CalSTRS and TPG acting together are considered to have the power to direct the activities of the joint venture

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

that most significantly impact the joint venture economic performance and therefore neither TPG nor CalSTRS is considered to be the primary beneficiary. We determined the key activities that drive the economic performance of the joint venture to be (1) the acquisition and development of real estate (including capital improvements), (2) financing, and (3) leasing. In connection with these key activities, the TPG/CalSTRS venture agreement requires unanimous approval by the two members.

In connection with the Austin Portfolio Joint Venture, TPG/CalSTRS is not considered to be the primary beneficiary due to the fact that the power to direct the activities of the joint venture is shared among multiple unrelated parties such that no one party has the power to direct the activities that most significantly impact the joint venture's economic performance. In connection with the Austin Portfolio Joint Venture, we determined the key activities that drive the economic performance of the joint venture to be (1) the acquisition and development of real estate (including capital improvements), (2) financing, and (3) leasing. In connection with these key activities, the Austin Portfolio Joint Venture partnership agreement requires either unanimous or majority approval of decisions by the respective partners.

As of June 30, 2012, our total maximum exposure to loss to TPG/CalSTRS and the Austin Portfolio Joint Venture is:

(1) Our net equity investment in the various properties controlled by TPG/CalSTRS and the Austin Portfolio Joint Venture as of June 30, 2012, which was $2.1 million, as presented earlier in this note.

(2) The potential loss of future fee revenues which we earn in connection with the management and leasing agreements with the various properties controlled by the respective joint ventures. As of June 30, 2012, we had total receivables of $1.1 million and $2.1 million related to TPG/CalSTRS and the Austin Portfolio Joint Venture, respectively. TPG/CalSTRS earns an annual administration fee payable quarterly from the Austin Portfolio Joint Venture (or the “APJV Partnership”) based on 0.5% per annum times the aggregate capital contributions made to the APJV Partnership by all partners, and the funded amount of the priority credit facility (the “Senior Priority Financing”). TPG receives 50% of this amount. As the Senior Priority Financing was not repaid in full by the June 1, 2012 maturity date, CalSTRS and TPG are required to repay an affiliate of Lehman Brothers Holdings, Inc. (“Lehman”), which holds a limited partner interest in the APJV Partnership, the lesser of (a) the unpaid balance of the Senior Priority Financing owed to Lehman and (b) the amount of all administration fees paid to TPG/CalSTRS with respect to the capital contribution made by Lehman and the portion of the Senior Priority Financing advanced by Lehman or any affiliate. We estimate TPG's share of such payment to be approximately $1.0 million. This payment will have no impact on our revenues as we previously reserved for this potential claw back. The exercise of remedies, if any, due to this maturity default would require the consent of at least two of three partners/lenders.

(3) Unfunded capital commitment to the TPG/CalSTRS joint venture was $13.4 million as of June 30, 2012. There were no unfunded capital commitments to the Austin Portfolio Joint Venture as of June 30, 2012. We and our partners in the Austin Portfolio Joint Venture have funded $60.0 million of Senior Priority Financing, which together with accrued interest has a balance of $80.1 million as of June 30, 2012, and is senior to the Austin Portfolio bank loan. Our share of the funding and accrued interest was $5.0 million, and is accounted for as equity. The funds advanced under the Senior Priority Facility have a first priority mortgage lien on three of the Austin buildings and a first priority right to payment on a pledge of the equity interests in the other five Austin buildings owned by the Austin Partnership.

In June 2012, Lehman Brothers (“Lehman”) exercised its right under an agreement between Lehman and the Austin Joint Venture to initiate a process for the sale of the Austin portfolio. The Company and our partners have a right of first offer and are actively negotiating to acquire Lehman's interest in the Austin Joint Venture pursuant to this process. Separately, as part of the strategic plan of the Austin Joint Venture to concentrate on ownership of downtown properties, we completed the sale of Research Park Plaza and Stonebridge Plaza II in the suburbs of Austin, Texas, which sales closed in July. These transactions resulted in the repayment of $89 million of mortgage debt and generated approximately $18 million of net proceeds to the Austin Joint Venture, after costs, including a disposition fee of $0.6 million to the Company. The net proceeds have been distributed to the Company and the other partners.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Following is summarized financial information for the unconsolidated real estate entities as of June 30, 2012 and December 31, 2011 and for the three and six months ended June 30, 2012 and 2011 (in thousands):

Summarized Balance Sheets

	June 30, 2012		December 31, 2011
	(Unaudited)		(Audited)
ASSETS
Investments in real estate, net	$	1,696,544	$	1,723,107
Receivables including deferred rents, net	84,411		83,082
Deferred leasing and loan costs, net	90,192		92,562
Other assets	46,604		52,532
Assets associated with real estate held for disposition	110,343		190,110
Total assets	$	2,028,094	$	2,141,393
LIABILITIES AND OWNERS’ EQUITY
Mortgage and other secured loans	$	1,606,552	$	1,591,881
Below market rents, net	28,711		34,019
Accounts payable and other liabilities	62,554		72,668
Liabilities associated with real estate held for disposition	92,696		135,506
Total liabilities	1,790,513		1,834,074
Owners’ equity:
Thomas Properties, including $0 and $1 of other comprehensive loss as of June 30, 2012 and December 31, 2011, respectively	4,778		15,267
Other owners, including $0 and $21 of other comprehensive loss as of June 30, 2012 and December 31, 2011, respectively	232,803		292,052
Total owners' equity	237,581		307,319
Total liabilities and owners’ equity	$	2,028,094	$	2,141,393

Summarized Statements of Operations

(unaudited)

	Three months ended						Six months ended
	June 30,						June 30,
	2012			2011			2012			2011
Revenues (1)	$	65,686		$	63,046		$	131,794		$	127,247
Expenses:
Operating and other expenses	37,098			32,127			71,212			63,651
Interest expense	26,222			24,176			51,743			47,999
Depreciation and amortization	21,452			21,913			43,551			43,896
Total expenses	84,772			78,216			166,506			155,546
Income (loss) from continuing operations	(19,086		)	(15,170		)	(34,712		)	(28,299		)
Income (loss) associated with real estate held for disposition	(7,541		)	(5,631		)	(6,849		)	(7,315		)
Net income (loss)	$	(26,627	)	$	(20,801	)	$	(41,561	)	$	(35,614	)
Thomas Properties’ share of net loss, prior to intercompany eliminations	$	(1,384	)	$	(1,483	)	$	(2,602	)	$	(2,898	)
Intercompany eliminations	590			592			1,786			1,313
Equity in net income (loss) of unconsolidated real estate entities	$	(794	)	$	(891	)	$	(816	)	$	(1,585	)

_______________________

(1) Total includes interest income of $11 and $13 for the three months ended June 30, 2012, and 2011, respectively, and $21 and $29 for the six months ended June 30, 2012, and 2011, respectively.

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Included in the preceding summarized balance sheets as of June 30, 2012 and December 31, 2011, are the following balance sheets of TPG/CalSTRS, LLC (in thousands) (unaudited):

	June 30, 2012		December 31, 2011
ASSETS
Investments in real estate, net	$	790,316	$	804,961
Receivables including deferred rents, net	63,890		64,595
Investments in unconsolidated real estate entities	36,485		41,278
Deferred leasing and loan costs, net	52,404		55,417
Other assets	27,024		23,643
Assets associated with real estate held for disposition	200		72,652
Total assets	$	970,319	$	1,062,546
LIABILITIES AND MEMBERS’ EQUITY
Mortgage and other secured loans	$	768,080	$	768,188
Accounts payable and other liabilities	35,028		42,296
Liabilities associated with real estate held for disposition	232		42,141
Total liabilities	803,340		852,625
Members’ equity:
Thomas Properties, including $0 and $1 of other comprehensive loss as of June 30, 2012 and December 31, 2011, respectively	6,910		17,137
CalSTRS, including $0 and $4 of other comprehensive loss as of June 30, 2012 and December 31, 2011, respectively	160,069		192,784
Total members’ equity	166,979		209,921
Total liabilities and members’ equity	$	970,319	$	1,062,546

14

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Following is summarized financial information by real estate entity for the three and six months endedJune 30, 2012 and 2011 (in thousands):

	Three months ended June 30, 2012
	2121 Market Street			TPG/ CalSTRS, LLC			Austin Portfolio Joint Venture			Eliminations			Total
Revenues (1)	$	1,052		$	39,702		$	24,932		$	—		$	65,686
Expenses:
Operating and other expenses	564			22,608			12,299			1,627			37,098
Interest expense	271			11,433			15,280			(762		)	26,222
Depreciation and amortization	243			11,670			9,539			—			21,452
Total expenses	1,078			45,711			37,118			865			84,772
Income (loss) from continuing operations	(26		)	(6,009		)	(12,186		)	(865		)	(19,086		)
Equity in net loss of unconsolidated real estate entities	—			(2,905		)	—			2,905			—
Income (loss) associated with real estate held for    disposition	—			56			(7,597		)	—			(7,541		)
Net income (loss)	$	(26	)	$	(8,858	)	$	(19,783	)	$	2,040		$	(26,627	)
Thomas Properties’ share of net income (loss)	$	(12	)	$	(136	)	$	(1,236	)	$	—		$	(1,384	)
Intercompany eliminations													590
Equity in net income (loss) of unconsolidated real estate entities													$	(794	)
	Three months ended June 30, 2011
	2121 Market Street			TPG/ CalSTRS, LLC			Austin Portfolio Joint Venture			Eliminations			Total
Revenues (1)	$	999		$	39,503		$	22,706		$	(162	)	$	63,046
Expenses:
Operating and other expenses	314			21,080			11,166			(433		)	32,127
Interest expense	276			11,433			12,994			(527		)	24,176
Depreciation and amortization	243			11,609			10,061			—			21,913
Total expenses	833			44,122			34,221			(960		)	78,216
Income (loss) from continuing operations	166			(4,619		)	(11,515		)	798			(15,170		)
Equity in net (loss) income of unconsolidated real    estate entities	—			(1,984		)	—			1,984			—
Income(loss) associated with real estate held for disposition	—			(1,384		)	(4,247		)	—			(5,631		)
Net income (loss)	$	166		$	(7,987	)	$	(15,762	)	$	2,782		$	(20,801	)
Thomas Properties’ share of net income (loss)	$	83		$	(921	)	$	(645	)	$	—		$	(1,483	)
Intercompany eliminations													592
Equity in net income (loss) of unconsolidated real estate entities													$	(891	)

_______________________

(1) Total includes interest income of $11 and $13 for the three months ended June 30, 2012, and 2011, respectively.

15

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Six months ended June 30, 2012
	2121 Market Street			TPG/ CalSTRS, LLC			Austin Portfolio Joint Venture			Eliminations			Total
Revenues (2)	$	2,126		$	81,033		$	48,635		$	—		$	131,794
Expenses:
Operating and other expenses	1,102			45,068			24,021			1,021			71,212
Interest expense	551			22,857			29,798			(1,463		)	51,743
Depreciation and amortization	497			23,276			19,778			—			43,551
Total expenses	2,150			91,201			73,597			(442		)	166,506
Income (loss) from continuing operations	(24		)	(10,168		)	(24,962		)	442			(34,712		)
Equity in net loss of unconsolidated real estate entities	—			(5,316		)	—			5,316			—
Income (loss) associated with real estate held for    disposition	—			237			(7,086		)	—			(6,849		)
Net income (loss)	$	(24	)	$	(15,247	)	$	(32,048	)	$	5,758		$	(41,561	)
Thomas Properties’ share of net income (loss)	$	(11	)	$	(588	)	$	(2,003	)	$	—		$	(2,602	)
Intercompany eliminations													1,786
Equity in net income (loss) of unconsolidated real estate entities													$	(816	)
	Six months ended June 30, 2011
	2121 Market Street			TPG/ CalSTRS, LLC			Austin Portfolio Joint Venture			Eliminations			Total
Revenues (2)	$	2,015		$	79,310		$	46,246		$	(324	)	$	127,247
Expenses:
Operating and other expenses	664			41,484			22,366			(863		)	63,651
Interest expense	567			22,775			25,656			(999		)	47,999
Depreciation and amortization	469			23,189			20,238			—			43,896
Total expenses	1,700			87,448			68,260			(1,862		)	155,546
Income (loss) from continuing operations	315			(8,138		)	(22,014		)	1,538			(28,299		)
Equity in net (loss) income of unconsolidated real    estate entities	—			(3,924		)	—			3,924			—
Income(loss) associated with real estate held for disposition	—			(3,171		)	(4,144		)	—			(7,315		)
Net income (loss)	$	315		$	(15,233	)	$	(26,158	)	$	5,462		$	(35,614	)
Thomas Properties’ share of net income (loss)	$	157		$	(1,760	)	$	(1,295	)	$	—		$	(2,898	)
Intercompany eliminations													1,313
Equity in net income (loss) of unconsolidated real estate entities													$	(1,585	)

_______________________

(2) Total includes interest income of $21 and $29 for the six months ended June 30, 2012, and 2011, respectively.

16

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. Mortgage Loans

A summary of the outstanding mortgage loans as of June 30, 2012 and December 31, 2011 is as follows (in thousands). None of these loans are recourse to us, except that we have guaranteed the Campus El Segundo mortgage loan, partially guaranteed the Four Points Centre mortgage loan, under which our liability is currently limited to a maximum of $11.3 million, and provided a limited guaranty for the Murano mortgage loan. See footnote 5 to the table below for further details regarding the Murano limited guaranty. In connection with some of the loans listed in the table below, our operating partnership is subject to customary non-recourse carve out obligations.

			Outstanding Debt				Maturity Date	Maturity Date at End of Extension Options
Secured Debt	Interest Rate at June 30, 2012		As of June 30, 2012		As of December 31, 2011
One Commerce Square mortgage    loan (1)		5.67%	$	127,711	$	128,529	1/6/2016	1/6/2016
Two Commerce Square mortgage    loan (2)		6.30%	106,862		107,112		5/9/2013	5/9/2013
Campus El Segundo mortgage    loan (3)	LIBOR +	3.75%	14,500		14,500		10/31/2012	10/31/2014
Four Points Centre mortgage    loan (4)	LIBOR +	3.50%	24,337		23,908		7/31/2012	7/31/2014
Murano mortgage loan (5)	LIBOR +	3.75%	13,840		15,474		12/15/2013	12/15/2013
Total secured debt			$	287,250	$	289,523

The 30 day LIBOR rate for the loans above was 0.25% at June 30, 2012.

_________________________

(1) The mortgage loan may be defeased, and is subject to yield maintenance payments for any prepayments prior to October 2015.

(2) Prior to March 9, 2013, the borrower may defease the entire loan. On or after March 9, 2013, the borrower may prepay the loan, which matures on May 9, 2013.

(3) The interest rate as of June 30, 2012 was 4.00% per annum. The loan has twoone-year extension options remaining, subject to our compliance with certain covenants, with a final maturity date of October 31, 2014 if all extension options are exercised. A payment of up to $2.5 million is due at the time of each extension in order that the loan balance not exceed $12.0 million and $9.5 million at October 31, 2012 and October 31, 2013, respectively. We have guaranteed this loan. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of June 30, 2012.

(4) The interest rate as of June 30, 2012 was 3.75% per annum. As of June 30, 2012, $6.4 million is available to be drawn to fund tenant improvement costs and certain other project costs related to two office buildings. The loan has twoone-year extension options at our election subject to certain conditions. The first option to extend is subject to a 75% loan-to-value ratio and a minimum debt yield of 8.0%, among other things. The second option to extend is subject to a 75% loan-to-value ratio, executed leases representing at least 90% of the net rentable area, and a minimum debt yield among other things. If the loan-to-value ratio or the minimum debt yield is not met, we can pay down the principal balance in an amount sufficient to satisfy the requirement. The debt yield is calculated by dividing the net operating income of the property by the outstanding principal balance of the loan. As of June 30, 2012, the property had a net operating loss. We have guaranteed completion of the tenant improvements and 46.5% of the balance of the outstanding principal balance and interest payable on the loan, which results in a maximum guarantee of $11.3 million as of June 30, 2012. Upon the occurrence of certain events, our maximum liability as guarantor will be reduced to 31.5% of all sums payable under this loan, and upon the occurrence of further events, our maximum liability as guarantor will be reduced to 25% of all sums payable under the loan. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of June 30, 2012. We have also provided additional collateral of approximately 62.4 acres of fully entitled unimproved land, which is immediately adjacent to the office buildings. We and the lender have agreed to terms to extend and modify the mortgage loan. While documentation of this extension and modification is in process, the lender has agreed to waive the maturity default associated with the loan through August 30, 2012.

17

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(5) The interest rate as of June 30, 2012 was 4.00% per annum. The loan is scheduled to mature on December 15, 2013. On each June 30th and December 31st through and including June 30, 2013, the loan is subject to a maximum balance. On June 30, 2012, a rebalancing payment was not required. At the next amortization date, December 31, 2012, the maximum allowable outstanding principal amount is $8.6 million. Additionally, repayment of this loan is being made with proceeds from the sales of condominium units. TPG gave the lender a limited guaranty which (i) guarantees repayment of the loan in the event of certain bankruptcy events affecting the borrower, (ii) guarantees payment of the lender's damages from customary “bad boy” actions of the borrower or TPG (such as fraud, physical waste of the property, misappropriation of funds and similar bad acts); and (iii) guarantees payment of the amount, if any, by which the loan balance at the time exceeds 80% of the bulk sale value of the collateral upon an acceleration of the loan triggered by a borrower default.

The loan agreements for One Commerce Square and Two Commerce Square require that all receipts collected from these properties be deposited in lockbox accounts under the control of the lenders to fund reserves such as capital improvements, taxes, insurance, leasing commissions, debt service and operating expenditures. Included in restricted cash on our consolidated balance sheets at June 30, 2012 and December 31, 2011, are lockbox, reserve funds and/or security deposits as follows (in thousands):

	June 30, 2012		December 31, 2011
One Commerce Square	$	3,069	$	5,471
Two Commerce Square	4,589		5,030
Murano	63		115
Restricted cash - consolidated properties	$	7,721	$	10,616

As of June 30, 2012, subject to certain extension options exercisable by the Company, principal payments due for the secured outstanding debt are as follows (in thousands):

	Amount Due  at Original  Maturity Date		Amount Due at Maturity Date After Exercise of Extension Options
2012	$	45,153	$	8,816
2013	117,008		119,508
2014	1,884		35,721
2015	1,996		1,996
2016	121,209		121,209
Thereafter	—		—
	$	287,250	$	287,250

5. Income (Loss) per Share and Dividends Declared

Basic earnings per share is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of common shares and participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accrued during the respective period. Participating securities include restricted stock, incentive units and stock options. 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 securities. Basic earnings per common share and participating securities, including restricted stock, incentive units and stock options, represent the summation of the distributed and undistributed earnings per common share and participating security divided by the total weighted average number of common shares outstanding and the total weighted average number of participating securities outstanding during the respective periods. We only present the earnings per share attributable to the common shareholders.

Net losses, after deducting the dividends to participating securities, are allocated in full to the common shares since the participating security holders do not have an obligation to share in the losses, based on the contractual rights and obligations of the participating securities. Because we incurred losses for the three and six months ended June 30, 2012 and 2011, all potentially dilutive instruments are anti-dilutive and have been excluded from our computation of weighted average dilutive shares outstanding.

18

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Our board of directors declared and paid two quarterly dividends to common stockholders in the six months ended June 30, 2012, each of $0.015 per common share. There were no such dividends declared or paid in the six months ended June 30, 2011.

The following is a summary of the elements used in calculating basic and diluted loss per share for the three and six months ended June 30, 2012 and 2011 (in thousands except share and per share amounts):

	Three months ended June 30,						Six months ended June 30,
	2012			2011			2012			2011
Net income (loss) attributable to common shares	$	(4,804	)	$	(3,006	)	$	(7,924	)	$	(6,291	)
Dividends to participating securities:
Unvested restricted stock	(8		)	—			(16		)	—
Unvested incentive units	(1		)	—			(2		)	—
Net income (loss) attributable to common shares, net of    dividends to participating securities	$	(4,813	)	$	(3,006	)	$	(7,942	)	$	(6,291	)
Weighted average common shares outstanding—basic and    diluted	38,591,868			36,647,394			37,664,573			36,591,261
Income (loss) per share—basic and diluted	$	(0.12	)	$	(0.08	)	$	(0.21	)	$	(0.17	)
Dividends declared per share	$	0.015		$	—		$	0.03		$	—

The following is a summary of elements that were anti-dilutive due to our net loss position and thereby excluded from the calculation of basic and diluted loss per share for the three and six months ended June 30, 2012 and 2011 (in thousands):

	June 30,
	2012	2011
Nonvested restricted stock units	519	448
Vested incentive units	291	249
Nonvested incentive units	69	111

6. Equity

Common Stock and Operating Partnership Units

The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of our common stock vote together as a single class with holders of our limited voting stock on those matters upon which the holders of limited voting stock are entitled to vote. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably any dividends when, if, and as may be declared by the board of directors out of funds legally available for dividend payments. An Operating Partnership 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. An Operating Partnership 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. As of June 30, 2012 and December 31, 2011, we held a 78.5% and 74.7% interest in the Operating Partnership respectively.

On May 29, 2012, the Company sold in a private placement an aggregate of 8,695,653 shares of common stock at a price of $5.75 per share, for aggregate gross proceeds of $50.0 million. The Company did not pay any underwriting discounts or commissions with respect to the sale of the common stock, but the Company has agreed to reimburse the investors for certain transaction expenses totaling $0.5 million. In connection with the transaction, on August 2, 2012, the Company's Board of Directors elected Bradley H. Carroll to the Board. The Company also granted certain registration rights to the investor group generally requiring the company to register their shares with the Securities and Exchange Commission within 24 months of May 29, 2012.

Limited Voting Stock

Each Operating Partnership unit issued in connection with the formation of our Operating Partnership at the time of our initial public offering in 2004 was paired with one share of limited voting stock. Operating Partnership units issued under other circumstances, including upon the conversion of incentive units granted under the Incentive Plan, are not paired with shares of limited voting stock. These shares of limited voting stock are not transferable separate from the limited partnership units they are paired with, and each Operating Partnership unit is redeemable together with one share of limited voting stock by its holder

19

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

for cash, or, at our election, one share of our common stock. Each share of limited voting stock entitles its holder to one vote on the election of directors, certain extraordinary transactions, including a merger or sale of our Company, and amendments to our certificate of incorporation. Shares of limited voting stock are not entitled to any regular or special dividend payments or other distributions, including any dividends or other distributions declared or paid with respect to shares of our common stock or any other class or series of our stock, and are not entitled to receive any distributions in the event of liquidation or dissolution of our Company. Shares of limited voting stock have no class voting rights, except to the extent required by Delaware law. Any redemption of a unit in our Operating Partnership will be redeemed together with a share of limited voting stock in accordance with the redemption provisions of the Operating Partnership agreement, and the share of limited voting stock will be canceled and not subject to reissuance.

Incentive Partnership Units

We have issued a total of 1,377,714 incentive units as of June 30, 2012 to certain executives. Incentive units represent a profits interest in the Operating Partnership and generally will be treated as regular Operating Partnership units in the Operating Partnership and rank pari passu with the Operating Partnership 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 Operating Partnership 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 Operating Partnership units to the extent of the incentive units’ economic capital account balance. We had 45,990,647 shares of common stock and 12,313,331 Operating Partnership units outstanding as of June 30, 2012, and 359,934 incentive units outstanding which were issued under our Incentive Plan. The share of the Company owned by the Operating Partnership unit holders is reflected as a separate component called noncontrolling interests in the equity section of our consolidated balance sheets.

Stock Compensation

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. We may issue up to 3,361,906 shares as either stock option awards, restricted stock awards or incentive unit awards of which 266,400 remain available for grant as of June 30, 2012 (see table below for details). 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, of which 29,065 remain available for grant.

	June 30, 2012
Total awards authorized for issuance	3,361,906
Less:
Incentive unit grants	1,377,714
Restricted stock grants	1,168,267
Stock option awards, net of forfeitures	549,525
Awards available for grant	266,400

For more information on our stock incentive plan, please refer to the notes to the consolidated financial statements in our 2011 Annual Report on Form 10-K, which was filed with the SEC on March 9, 2012, and our proxy statement, which was filed with the SEC on April 30, 2012.

On February 1, 2012, we granted 199,999 restricted shares with a total fair market value of approximately $0.2 million. During the first quarter of 2011, we granted 151,601 restricted shares with a total fair market value of approximately $0.2 million and 74,378 incentive units with a total fair market value of approximately $0.1 million. For these grants, fifty percent of the restricted shares vest based on stock performance. The other fifty percent are discretionary vesting shares/units based on individual and Company goals, which are currently reserved and will be considered granted upon vesting.

During January 2012, 50,000 restricted shares, subject to time vesting, vested. During February 2012, 18,595 incentive units and 78,898 restricted shares, subject to discretionary vesting, were approved for vesting by the compensation committee of the board of directors.

20

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Phantom Shares

During the first quarter of 2011, a Phantom Share Plan was approved by the compensation committee of the board of directors and adopted by the full board of directors, effective as of March 1, 2011. The purpose of the Plan is to reward and retain senior executive officers of the Company. This Plan is an incentive award plan that pays cash or, if the stockholders of the Company approve and authorize the issuance of additional shares, common stock. Generally, the recipient must still be employed with the Company to receive the cash or stock. There were 677,933 phantom shares granted under the plan in 2011 with a total grant date fair value of approximately $1.0 million. Each phantom share award vests upon the earlier of (i) ratably, one-third on each anniversary of the grant date, subject to achievement of (x) with respect to 50% of each award, a Company stock appreciation target rate of up to 12% pro-rated, and (y) with respect to 50% of each award, other goals determined by the Compensation Committee, in each case only to the extent that at or after such time the Company's stockholders have approved the issuance of sufficient shares of common stock under the Company's 2004 Equity Incentive Plan, as amended, or any successor thereto, to settle awards under the Plan in common stock, and (ii) the fifth anniversary of the grant date, subject to such grantee's continued employment with the Company and achievement of the Company and other goals. During the first quarter of 2012, an additional 437,950 phantom shares were granted under the plan with the same terms as the 2011 grants with a total grant date fair value of approximately $0.9 million.

We have determined these grants should be treated as liability awards rather than equity awards in accordance with ASC 718 "Compensation - Stock Compensation", and as such, the obligation is reflected in the accounts payable and other liabilities caption on our consolidated balance sheet.

Compensation Expense

We recognized non-cash compensation expense and the related income tax benefit for the amortization of restricted stock and phantom stock grant expense as well as the remeasurement of the phantom stock awards at fair value for the three and six months ended June 30, 2012 and 2011 as follows (in thousands).

	Three months ended June 30,				Six months ended June 30,
	2012		2011		2012		2011
Restricted Stock and Stock Options:
Compensation expense	$	64	$	80	$	439	$	371
Income tax benefit	25		32		174		148
Phantom Shares:
Compensation expense	$	192	$	49	$	380	$	58
Income tax benefit	76		20		151		23

For the three and six months ended June 30, 2012 and 2011, a full valuation allowance was recorded against the income tax benefit.

Noncontrolling Interests

Noncontrolling interests on our consolidated balance sheets relate primarily to the partnership and incentive units in the Operating Partnership 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 Operating 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 incentive 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.

The redemption value of the 359,934 outstanding incentive units not owned by the Company at June 30, 2012 was approximately $2.0 million based on the closing price of the Company’s common stock of $5.44 per share as of June 30, 2012.

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).

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Equity is allocated between controlling and noncontrolling interests as follows (in thousands):

	Stockholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2011	$	153,495		$	64,478		$	217,973
Net income (loss)	(7,924		)	(2,121		)	(10,045		)
Proceeds from sale of common stock, net of offering expenses	49,409			—			49,409
Amortization of stock-based compensation	399			132			531
Dividends	(1,128		)	(371		)	(1,499		)
Other comprehensive income recognized	1			—			1
Contributions from noncontrolling interests	—			2,600			2,600
Excess tax benefit due to restricted stock vesting	14			—			14
Balance, June 30, 2012	$	194,266		$	64,718		$	258,984

7. 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. However, the Operating Partnership and some of its subsidiaries are subject to income taxes in the state of Texas. We are responsible for our share of the Operating Partnership's taxable income or loss allocated to us in accordance with the Operating Partnership’s Agreement of Limited Partnership. As of June 30, 2012, we held a 78.5% capital interest in the Operating Partnership. For the six months ended June 30, 2012, we were allocated a weighted average of 75.2% of the income and losses from the Operating Partnership.

Our effective tax rate for the three and six months ended June 30, 2012 was (0.49)% and (0.73)%, compared to the federal statutory rate of 35%. The difference from the statutory rate is due primarily to income attributable to the non-controlling interests and the valuation allowance related to the Company's deferred tax assets for which no benefit could be provided due to their realization not meeting the “more-likely-than-not” threshold.

A net deferred tax asset, related solely to uncertain tax positions (see paragraph below regarding uncertainty in income taxes), is included in “other assets” on the Company's balance sheet. In 2007, an ownership change pursuant to Internal Revenue Code Section 382 (“Section 382”) occurred. The Company's federal and state net operating loss carryforwards in existence at that time were subject to a gross annual limitation of $9.9 million. Net operating loss carryforwards generated subsequent to the 2007 deemed ownership change were not subject to the Section 382 limitation. On June 12, 2012, as a result of the acquisition of 8,695,653 shares of common stock by affiliates of Madison International Realty, the Company believes a second change in ownership pursuant to Section 382 occurred. Accordingly, as of June 12, 2012, the Company’s federal and state net operating loss carryforwards and, potentially, certain post June 12, 2012 deductions and losses (to the extent such losses are considered recognized built-in losses and to the extent of the company’s net unrealized built-in loss (if any) under Section 382) are subject to an annual Section 382 limitation of approximately $5.7 million. As the new annual limitation is less than the previous $9.9 million annual limitation imposed on 2007 and prior net operating losses, the new annual limitation of $5.7 million is now applied against all federal and state net operating loss carryforwards in existence as of June 12, 2012. Net operating losses generated after June 12, 2012 are generally not subject to the Section 382 limitation. As of December 31, 2011, the Company anticipates having net operating loss carryforwards of $17.9 million for federal purposes and $15.5 million for state purposes. The Company’s net operating loss carryforwards are subject to varying expirations from 2018 through 2031.

FASB ASC 740-10-30-17, “Accounting for Income Taxes,” 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. Future realization of the deferred tax asset is dependent on the reversal of existing taxable temporary differences, carryback potential, tax-planning strategies and on us generating sufficient taxable income in future years as the deferred income tax charges become currently deductible for tax reporting purposes. Due to uncertainty of future realization, we have recorded a valuation allowance in an amount by which the deferred tax assets exceed their liability for unrecognized tax benefits (see paragraph below regarding uncertainty in income taxes).

FASB ASC 740-10-25 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements. 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 Company's policy is to

22

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense, which for the three and six months ended June 30, 2012 was $12,000 and $24,000. We have not recorded any penalties with respect to unrecognized tax benefits. For the six months ended June 30, 2012, the Company has reported a decrease of $1.6 million to our unrecognized tax benefits. We do not anticipate any significant increases or decreases to the remaining amounts of the existing unrecognized tax benefits within the next twelve months, other than a reversal of accrued interest relating to unrecognized tax benefits for which the statute of limitations period will lapse during 2012.

8. Fair Value of Financial Instruments

Our estimates of the fair value of financial instruments as of June 30, 2012 were determined using available market information and appropriate valuation methods. 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. A fair value measurement is based on the assumptions that market participants would use in pricing an asset or liability. The hierarchy consists of three broad levels as follows:

1.Level 1 Inputs - Quoted prices in active markets for identical assets or liabilities

2. Level 2 Inputs - Significant other observable inputs (can include quoted prices for similar assets or liabilities in active markets, as well as inputs that are observable for the asset or liability, such as discounts and borrowing rates with similar terms and maturities)

3. Level 3 Inputs - Significant unobservable inputs (based on an entity's own assumptions, since there is little, if any, related market activity)

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

The Company uses a discounted cash flow analysis to estimate the fair value of our mortgage loans. The inputs used in preparing the discounted cash flows include actual maturity dates and scheduled interest and principal payments as well as estimates for market loan-to-value ratios and discount rates. The discount rate, which is the most significant input, is estimated based on our knowledge of the market including discussions with market participants. As this input has more attributes of a Level 3 input than a Level 2 input, we classify it as such.

As of June 30, 2012 and December 31, 2011, the book and fair values of our mortgage loans were as follows (in thousands):

	June 30, 2012				December 31, 2011
	Book Value		Fair Value		Book Value		Fair Value
Mortgage Loans	$	287,250	$	281,807	$	289,523	$	284,146

9. Commitments and Contingencies

Pending Litigation

On June 7, 2012, the Company commenced an action for declaratory relief in Los Angeles County Superior Court in order to contest a consultant's invoice in the amount of $5,052,827 for incentive compensation pursuant to a consulting agreement. On June 8, 2012, the consultant commenced an action in the Eastern District of Virginia for breach of contract due to the Company's failure to pay the consultant's invoice. The Company intends to vigorously defend the consultant's claim for undue incentive compensation.

General

We have also 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.

A mortgage loan, with an outstanding balance of $17.6 million as of June 30, 2012, 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. 2121 Market Street is an unconsolidated real estate entity in which we have a

23

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

50% interest. See Note 4 for disclosure of guarantees related to our consolidated debt.

Insurance

We maintain general liability insurance with limits of $200.0 million per occurrence and all risk property and rental value

insurance with limits of $1.3 billion per occurrence, with terrorism limits of $1.2 billion per occurrence, and flood insurance with a limit of $200.0 million per occurrence. Our California properties have earthquake insurance with coverage of $200.0 million per occurrence, subject to a deductible in the amount of 5% of the value of the affected property, up to a $200.0 million annual aggregate.

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ITEM 2. 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-Q 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.”

When you read the financial statements and the information included in this report, you should be aware that our operations are significantly affected by both macro and micro economic forces. Our operations are directly affected by actual and perceived trends in various national and regional economic conditions that affect national and regional markets for commercial real estate services, including interest rates, the availability of credit to finance commercial real estate transactions, and the impact of tax laws affecting real estate. Periods of economic slowdown or recession, rising interest rates, tightening of the credit markets, declining demand for or increased supply of real estate, or the public perception that any of these events may occur can adversely affect our business. These conditions could result in a general decline in rents, which in turn would reduce revenue from property management fees and brokerage commissions derived from leases. In addition, these conditions could lead to a decline in property values as well as a decline in funds invested in commercial real estate and related assets, which in turn may reduce revenues from investment advisory, property management, leasing and development fees.

Forward-Looking Statements

Forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated and you should not rely on them as predictions of future events. Although information is based on our current estimates, forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise. You are cautioned not to place undue reliance on this information as we cannot guarantee that any future expectations and events described will happen as described or that they will happen at all. You can identify forward-looking statements by the use of forward-looking terminology such as “believes”, “expects”, “may”, “should”, “seeks”, “approximately”, “intends”, “plans”, “pro forma”, “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Overview and Background

We are a full-service real estate operating company that owns, acquires, develops and manages primarily office, as well as mixed-use and residential properties on a nationwide basis. Our company’s primary areas of focus are the acquisition and ownership of interests in premier properties, property development and redevelopment, and investment and property management activities. We conduct our business through our Operating Partnership, of which we own 78.5% as of June 30, 2012 and have control over the major decisions of the Operating Partnership.

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.

Development. We continually evaluate the size, timing and scope of our development initiatives to determine if we are able to lease committed development properties at expected rental rates or within projected time frames or complete projects on schedule or within budgeted amounts. The inability to achieve these outcomes could adversely affect our financial condition, results of operations and cash flows. We currently have sole ownership interest in three development projects, Campus El Segundo, Four Points Centre and 2100 JFK Boulevard, as of June 30, 2012, in which we had incurred, on a consolidated basis, approximately $80.4 million of costs related to land acquisition, predevelopment and infrastructure that are reflected in "Land Improvements - Development Properties" on our consolidated balance sheet. We are targeting one or more parcels at each of these three projects for potential sale. To the extent that we do not proceed with projects as planned or do not achieve sufficient

25

proceeds from any contemplated disposition, development 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 (the date of acquisition is listed for each with the exception of 2121 Market Street whose date represents the year it was co-developed with our joint venture partner):

•2121 Market Street (as of 2001)

•City National Plaza (as of January 2003)

•Reflections I (as of October 2004)

•Reflections II (as of October 2004)

•San Felipe Plaza (as of August 2005)

•CityWestPlace (as of June 2006)

•Fair Oaks Plaza (as of January 2007)

The following properties were disposed by TPG/CalSTRS during the fourth quarter of 2011 or, in the case of Brookhollow Central, the first quarter of 2012, and were accounted for using the equity method of accounting for the periods presented:

•Four Falls Corporate Center (as of March 2005, disposed of October 2011)

•Oak Hill Plaza (as of March 2005, disposed of October 2011)

•Walnut Hill Plaza (as of March 2005, disposed of October 2011)

•2500 CityWest (as of August 2005, disposed of November 2011)

•2500 CityWest land (as of December 2005, disposed of November 2011)

•Brookhollow Central I, II and III (as of August 2005, disposed of January 2012)

•Centerpointe I & II (as of January 2007, disposed of December 2011)

TPG/CalSTRS, LLC also owns a 25% interest in the Austin Portfolio Joint Venture which owns the following properties that were acquired in June 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 (disposed of July 2012)

•Park Centre

•Great Hills Plaza

•Stonebridge Plaza II (disposed of July 2012)

•Westech 360 I-IV

This information should be read in conjunction with the accompanying consolidated financial statements and notes included elsewhere in this report.

Comparison of the three months ended June 30, 2012 to the three months ended June 30, 2011.

Overview

The main drivers of our consolidated results of operations are (1) two high-rise office towers, commonly referred to as

Commerce Square, located in Philadelphia, Pennsylvania, (2) Murano, a high-rise condominium project, also located in

Philadelphia, and (3) our investment advisory, management, leasing and development services business. The following table

reflects the change in leasing status of our three consolidated office properties from June 30, 2012 to June 30, 2011.

26

			Percent Leased
			As of June 30,
	Location	Rentable Square Feet	2012		2011
Consolidated Operating Properties:
One Commerce Square	Philadelphia, PA	942,866	95.8	%	88.1	%
Two Commerce Square	Philadelphia, PA	953,276	77.3	%	85.5	%
Four Points Centre	Austin, TX	193,862	31.5	%	24.8	%
		2,090,004

We have sold 239 units at Murano as of June 30, 2012. Revenue from unit settlements decreased from five units settled in the three months ended June 30, 2011 as compared to two units in the three months ended June 30, 2012. Fee revenue from our investment advisory, management, leasing and development services business decreased $1.1 million or 18.3% for the three months ended June 30, 2012 compared to the same period for 2011. The decrease was primarily attributable to lower revenue from investment advisory, management, leasing and development services fees from unconsolidated properties which were sold in 2011 and the first quarter of 2012.

Revenues

Total revenues decreased by approximately $2.5 million to $20.8 million for the three months ended June 30, 2012 from $23.3 million for the same period for 2011. The decrease was primarily due to $1.6 million decrease in condominium sales, and a decrease of $1.1 million in investment advisory, management, leasing and development services primarily as a result of properties which were sold in 2011 and the first quarter of 2012.

Expenses

Total expenses remained consistent during the three months ended June 30, 2012 in comparison to the same period in 2011. Increases of $0.2 million in property operating costs, $0.9 million of depreciation and amortization expense and $1.0 million of general and administrative expenses were primarily offset by decreases of $0.6 million in investment advisory expenses, $1.0 million in cost of condominium sales, and $0.4 million in interest expense.

Equity in net income (loss) of unconsolidated real estate entities

Set forth below is a summary of the combined financial information for the unconsolidated real estate entities, our share of net income (loss) and our equity in net income (loss), after intercompany eliminations, for three months ended June 30, 2012 and 2011 (in thousands):

	Three months ended June 30,
	2012			2011
Revenue	$	65,686		$	63,046
Expenses:
Operating and other expenses	37,098			32,127
Interest expense	26,222			24,176
Depreciation and amortization	21,452			21,913
Total expenses	84,772			78,216
Loss from continuing operations	(19,086		)	(15,170		)
Income (loss) associated with real estate held for disposition	(7,541		)	(5,631		)
Net income (loss)	$	(26,627	)	$	(20,801	)
Thomas Properties’ share of net income (loss)	$	(1,384	)	$	(1,483	)
Intercompany eliminations	590			592
Equity in net income (loss) of unconsolidated real estate entities	$	(794	)	$	(891	)

Aggregate revenues for the unconsolidated real estate entities for the three months ended June 30, 2012 increased approximately $2.7 million or 4.3% to $65.7 million compared to $63.0 million for the three months ended June 30, 2011. The increase is primarily due to higher tenant reimbursement revenue from the Austin properties due to the increase in real estate

27

tax expense, as well as higher revenues within our TPG/CalSTRS joint venture resulting from increased occupancy and rental rates at City West Place and City National Plaza. Operating and other expenses for unconsolidated real estate entities increased by $5.0 million, or 15.6%, to $37.1 million for the three months ended June 30, 2012 compared to $32.1 million for three months ended June 30, 2011. The increase was due primarily to increases in property tax expense for the Austin properties resulting from higher assessed values in 2012, as well as increases at City West Place, primarily for cafeteria expenses and HVAC repairs, and City National Plaza, primarily for contract cleaning, earthquake insurance and parking operations. Interest expense increased by approximately $2.0 million, or 8.3%, to $26.2 million for the three months ended June 30, 2012 as compared to $24.2 million for the three months ended June 30, 2011. The increase was due primarily to higher interest rates and greater outstanding loan balances on the Austin Portfolio Bank Term Loan and the Austin Senior Secured Priority Facility. Loss associated with real estate held for disposition increased by approximately $1.9 million, or 33.9%, to a loss of $7.5 million for the three months ended June 30, 2012 compared to a loss of $5.6 million for the three months ended June 30, 2011. The net loss for the three months ended June 30, 2011 included a full quarter's operating results from 2500 City West Boulevard, Centerpointe and Brookhollow, which were sold during the second half of 2011 and first quarter of 2012. Additionally, the loss associated with real estate held for disposition for the three months ended June 30, 2012 includes impairment charges for the Stonebridge Plaza and Research Park Plaza properties in Austin, which have been classified as held for sale in the current quarter, as they were both under contract to be sold in July 2012.

Benefit (provision) for income taxes

Provision for income taxes decreased to $0.03 million for the three months ended June 30, 2012 from $0.1 million for the same period in 2011. This change is primarily due to interest expense on certain unrecognized tax benefits that no longer exist as of June 30, 2012.

Comparison of the six months ended June 30, 2012 to the six months ended June 30, 2011.

Revenues

Total revenues decreased by approximately $3.0 million to $42.2 million for the six months ended June 30, 2012 from $45.2 million for the same period for 2011. The decrease was primarily due to $1.0 million decrease in tenant reimbursement revenue during the six months ended June 30, 2012, due to billing adjustments in the prior year, a $1.0 million decrease in condominium sales due to the settlement of four units during the six months ended June 30, 2012 compared to six units during the comparable period in 2011, and a decrease of $1.5 million in investment advisory, management, leasing and development services, fees from properties which were sold in 2011 and the first quarter of 2012. These decreases were offset by a $0.7 million increase of rental revenue at Commerce Square due to new leases.

Expenses

Total expenses remained consistent during the six months ended June 30, 2012 in comparison to the same period in 2011. Increases of $1.0 million in depreciation and amortization expense and $1.2 million in general and administrative expenses were primarily offset by decreases of $0.6 million in investment advisory expenses, $0.6 million of cost of condominium sales, and $0.8 million of lower interest expense.

28

Equity in net income (loss) of unconsolidated real estate entities

Set forth below is a summary of the combined financial information for the unconsolidated real estate entities, our share of net income (loss) and our equity in net income (loss), after intercompany eliminations, for six months ended June 30, 2012 and 2011 (in thousands):

	Six months ended June 30,
	2012			2011
Revenue	$	131,794		$	127,247
Expenses:
Operating and other expenses	71,212			63,651
Interest expense	51,743			47,999
Depreciation and amortization	43,551			43,896
Total expenses	166,506			155,546
Loss from continuing operations	(34,712		)	(28,299		)
Income (loss) associated with real estate held for disposition	(6,849		)	(7,315		)
Net income (loss)	$	(41,561	)	$	(35,614	)
Thomas Properties’ share of net income (loss)	(2,602		)	(2,898		)
Intercompany eliminations	1,786			1,313
Equity in net income (loss) of unconsolidated real estate entities	$	(816	)	$	(1,585	)

Aggregate revenues for the unconsolidated real estate entities for the six months ended June 30, 2012 increased approximately $4.6 million or 3.6% to $131.8 million compared to $127.2 million for the six months ended June 30, 2011. The increase is primarily due to higher tenant reimbursement revenue from the Austin properties due to the increase in real estate tax expense, as well as higher revenues within our TPG/CalSTRS joint venture resulting from increased occupancy and rental rates at City West Place and City National Plaza. Operating and other expenses for unconsolidated real estate entities increased by $7.5 million, or 11.8%, to $71.2 million for the six months ended June 30, 2012 compared to $63.7 million for six months ended June 30, 2011. The increase was due primarily to increases in the property tax expense for the Austin properties resulting from higher assessed values in 2012, as well as increases at City West Place, primarily for cafeteria expenses and HVAC repairs, and City National Plaza, primarily for contract cleaning, earthquake insurance, and parking operations. Interest expense increased by approximately $3.7 million, or 7.7%, to $51.7 million for the six months ended June 30, 2012 as compared to $48.0 million for the six months ended June 30, 2011. The increase was due primarily to higher interest rates and greater outstanding loan balances on the Austin Portfolio Bank Term Loan and the Austin Senior Secured Priority Facility. Loss associated with real estate held for disposition decresed by approximately $0.5 million, or 6.8%, to a loss of $6.8 million for the six months ended June 30, 2012 compared to a loss of $7.3 million for the six months ended June 30, 2011, due to aggregate losses during the six months ended June 30, 2011 from 2500 City West Boulevard, Centerpointe and Brookhollow, which were sold during the second half of 2011 and the first quarter of 2012. Additionally, the six months ended June 30, 2012 include impairment charges for the Stonebridge Plaza and Research Park Plaza properties in Austin, which have been classified as held for sale in the six months ended June 30, 2012, as they were both under contract to be sold in July 2012.

Benefit (provision) for income taxes

Provision for income taxes decreased to $0.07 million for the six months ended June 30, 2012 from $0.2 million for the same period in 2011. This change is primarily due to interest expense on certain unrecognized tax benefits that no longer exist as of June 30, 2012.

Liquidity and Capital Resources

Analysis of liquidity and capital resources

As of June 30, 2012, we have unrestricted cash and cash equivalents of $129.9 million. We believe that we will have sufficient capital to satisfy our liquidity needs over the next 12 months through cash flows from operations. We expect to meet our long-term liquidity requirements, including debt service, property acquisitions and additional future development and redevelopment activity, through cash flow from operations, additional secured and unsecured long-term borrowings, proceeds from dispositions of non-strategic assets, and the potential issuance of additional debt, or common or preferred equity securities, including convertible securities.

During July 2012, Research Park Plaza I & II and Stonebridge Plaza II were sold and are no longer part of the Austin Portfolio Joint Venture. Mortgage loans on these properties, which were due and payable in September 2012, were paid in full

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from the proceeds of the sales. Additionally, there was a note payable to a former partner in the City National Plaza partnership of $19.8 million, of which our share was $1.6 million. A subsidiary of TPG/CalSTRS made a payment of $19.3 million, of which our share was $1.5 million, in July 2012. We intend to satisfy our share of the remaining $0.5 million obligation, which has a maturity date of January 4, 2016 from our available cash.

We have $8.8 million of scheduled principal payments assuming all extension options are exercised on consolidated debt remaining in 2012. We believe that we have sufficient capital to satisfy these obligations when due.

As of June 30, 2012, we have unfunded capital commitments to TPG/CalSTRS of $13.4 million. We are obligated to fund tenant improvements and other capital improvements for properties that were acquired prior to June 1, 2007. We estimate we will fund approximately $1.8 million between 2012 and 2014 to satisfy our share of contractual obligations existing at June 30, 2012 for capital improvements, tenant improvements and leasing commissions.

Our board of directors declared quarterly cash dividends to common stockholders of $0.015 per common share, which were paid in March 2012 and June 2012. The availability of funds to pay dividends is impacted by property-level restrictions on cash flows. With respect to our joint venture properties, we do not solely 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. The payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition, and any other factors deemed relevant by our board of directors.

Development

We own interests in three development projects, Campus El Segundo, Four Points Centre and 2100 JFK Boulevard. TPG/CalSTRS owns one development site, CityWestPlace, which is comprised of 25 acres. If we decide to develop any of these land holdings, we anticipate seeking to mitigate our development risk by obtaining significant pre-leasing and guaranteed maximum cost construction contracts. The amount and timing of costs associated with our development projects is inherently uncertain due to market and economic conditions. We presently intend to fund development expenditures primarily through construction and permanent financing.

Leasing, Tenant Improvement and Capital Needs

In addition to our development projects, our One Commerce Square and Two Commerce Square properties require capital expenditures as well as leasing commissions and tenant improvement costs. The level of these expenditures varies from year to year based on several factors, including lease expirations. There are commitments to incur expenditures of approximately $6.9 million in capital improvements, tenant improvements, and leasing commissions for Commerce Square collectively, during 2012 through 2013. Additionally, we expect to expend additional amounts in connection with a value-enhancement program at Commerce Square. During November 2010, subsidiaries of TPG and Brandywine entered into two partnership arrangements with respect to our One Commerce Square and Two Commerce Square properties. Brandywine has committed to contribute $25.0 million of preferred equity by December 31, 2012 in return for a 25% limited partnership interest in each property. The preferred equity will be invested in the value-enhancement program designed to increase rental rates and occupancy at Commerce Square, and to also fund the $6.9 million of existing commitments described above. Brandywine has contributed $9.1 million though June 30, 2012.

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.

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Contractual Obligations

A summary of our contractual obligations at June 30, 2012 is as follows (in thousands):

	2012		2013			2014		2015		2016		Thereafter		Total
Regularly scheduled    principal payments	$	6,316	$	1,946		$	1,884	$	1,996	$	—	$	—	$	12,142
Balloon payments due at   maturity (1)(2)(3)(4)	38,837		115,062			—		—		121,209		—		275,108
Interest payments—fixed    rate debt (5)	7,088		10,055			7,135		7,024		591		—		31,893
Interest payments—variable    rate debt (5)	—		—			—		—		—		—		—
Capital commitments (6)	1,224		499		��	94		—		79		236		2,132
Operating lease (7)	163		335			122		—		—		—		620
Obligations associated with    uncertain tax positions (8)	—		—			—		—		—		—		—
Total	$	53,628	$	127,897		$	9,235	$	9,020	$	121,879	$	236	$	321,895

 _________________________

(1) Included within these balloon payments is $106.4 million due under the Two Commerce Square mortgage loan, which matures on May 9, 2013. We intend to extend or refinance this mortgage loan at maturity.

(2) Included within these balloon payments are amounts due under the Four Points Centre mortgage loan. We have provided a guarantee for a portion of principal and interest payable. We have also provided collateral of approximately 62.4 acres of fully entitled unimproved land, which is immediately adjacent to our Four Points Centre office buildings.The loan was scheduled to mature on July 31, 2012, with twoone-year extension options subject to certain conditions.The first option to extend is subject to a 75% loan-to-value ratio and a minimum debt yield of 8.0% among other things. If these requirements are not met, we can pay down the principal balance in an amount sufficient to satisfy these requirements. The debt yield is calculated by dividing the net operating income of the property by the outstanding principal balance of the loan. Through June 30, 2012, the property has been generating net operating losses. The loan has an unfunded balance of $6.4 million which is available to fund any remaining project costs. The balance of the loan as of June 30, 2012 was $24.3 million. We and the lender have agreed to terms to extend and modify the mortgage loan. While documentation of this extension and modification is in process, the lender has agreed to waive the maturity default associated with the loan through August 30, 2012.

(3) The Murano mortgage loan has a balance of $13.8 million as of June 30, 2012. The loan is scheduled to mature on December 15, 2013. On each June 30th and December 31st through and including June 30, 2013, the loan is required to be reduced to a stated maximum balance. On June 30, 2012, a rebalancing payment was not required. On December 31, 2012, the next amortization date, we will be required to make a rebalancing payment if the outstanding principal amount on such date exceeds $8.6 million. Additionally, payments of this loan are being made with proceeds from the sales of condominium units. TPG is subject to a limited guaranty which (i) guarantees repayment of the loan in the event of certain bankruptcy events affecting the borrower, (ii) guarantees payment of the lender's damages from customary “bad boy” actions of the borrower or TPG (such as fraud, physical waste of the property, misappropriation of funds and similar bad acts); and (iii) guarantees payment of the amount, if any, by which the loan balance exceeds 80% of the bulk sale value of the collateral upon an acceleration of the loan triggered by a borrower default.

(4) The Campus El Segundo mortgage loan has a balance of $14.5 million as of June 30, 2012. The loan is scheduled to mature on October 31, 2012 with twoone-year extension options remaining, subject to our compliance with certain covenants, with a final maturity date of October 31, 2014. A payment of up to $2.5 million is due at the time of each extension in order that the loan balance not exceed $12.0 million and $9.5 million at October 31, 2012 and October 31, 2013, respectively. We have guaranteed this loan. We have agreed to certain financial covenants on this loan as the guarantor, with which we were in compliance as of June 30, 2012.

(5) As of June 30, 2012, 81.7% of our debt was at contractually fixed rates ranging from 5.67% to 6.30%. The information in the table above reflects our projected interest obligations for the fixed-rate payments based on the contractual interest rates and scheduled maturity dates. The remaining 18.3% of our debt bears interest at variable rates based on LIBOR plus a spread that ranges from 3.50% to 3.75%. 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 LIBOR rates will be in the future. As of June 30, 2012, one-month LIBOR was 0.25%.

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(6) Capital commitments of our Company and consolidated subsidiaries include approximately $6.9 million of tenant improvements and leasing commissions for certain tenants in One Commerce Square and Two Commerce Square, of which $3.0 million is expected to be paid in 2012. The full amount will be funded by our partner, Brandywine, through preferred equity contributions and is not reflected on the Contractual Obligations table. Additionally, our Company and consolidated subsidiaries have capital commitments of approximately $0.1 million of tenant improvements and leasing commissions for certain tenants in Four Points Centre of which the entire amount is expected to be paid in 2012. We have an unfunded capital commitment of $13.4 million to our TPG/CalSTRS joint venture, of which we estimate we will fund $1.2 million in 2012 for contractual obligations existing as of June 30, 2012. We are not obligated to fund our share for the acquisition of any new project, but we are obligated to fund tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007.

(7) Represents the future minimum lease payments on our operating lease for our corporate office at City National Plaza, which expires in May 2014. The table does not reflect available extension options.

(8) The obligations associated with uncertain tax positions in the table above should represent amounts associated with uncertain tax positions related to temporary book-tax differences. However, reasonable estimates cannot be made about the amount and timing of payment, if any, for these obligations. As of June 30, 2012, $12.1 million of unrecognized tax benefits have been recorded as liabilities in accordance with FASB ASC 740, and we are uncertain as to if and when such amounts may be settled. Additionally, as of June 30, 2012, there is $0.3 million of accrued interest recorded with respect to such unrecognized tax benefits. 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 June 30, 2012, our Company had investments in entities owning unconsolidated properties with stated ownership percentages ranging from 6.25% to 50%. We account for these investments using the equity method of accounting.

The table below summarizes the outstanding debt for these properties as of June 30, 2012 (in thousands). None of these loans are recourse to us other than as noted in footnote 2 below. Some of the loans listed in the table below subject TPG/CalSTRS to customary non-recourse carve out obligations.

	Interest Rate at June 30, 2012				Principal Amount		Maturity Date	Maturity Date at End of Extension Options
City National Plaza
Mortgage loan			5.90	%	$	350,000	7/1/2020	7/1/2020
Note payable to former partner (1)			5.75	%	19,258		7/16/2012	7/16/2012
Note payable to former partner (1)			5.75	%	500		7/16/2012	1/4/2016
CityWestPlace
Mortgage loan - Buildings I & II			6.16	%	119,808		7/6/2016	7/6/2016
Mortgage loan - Buildings III & IV			5.03	%	95,000		3/5/2020	3/5/2020
San Felipe Plaza
Mortgage loan			4.78	%	110,000		12/1/2018	12/1/2018
2121 Market Street mortgage loan (2)			6.05	%	17,620		8/1/2033	8/1/2033
Reflections I mortgage loan			5.23	%	20,745		4/1/2015	4/1/2015
Reflections II mortgage loan			5.22	%	8,642		4/1/2015	4/1/2015
Fair Oaks Plaza			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 (3)
Senior mortgage loan	LIBOR	+	0.55	%	23,560		9/7/2012	9/7/2012
Mezzanine loan			11.0	%	27,940		9/7/2012	9/7/2012
Stonebridge Plaza II (3)
Senior mortgage loan	LIBOR	+	3.50	%	19,800		9/7/2012	9/7/2012
Mezzanine loan	LIBOR	+	6.00	%	17,700		9/7/2012	9/7/2012
Austin Portfolio Bank Term Loan (4)	LIBOR	+	7.75	%	125,763		6/1/2013	6/1/2013
Austin Portfolio Bank Term Loan - Protective Advance (4)			22.0	%	9,000		6/1/2013	6/1/2013
Austin Senior Priority Financing (4)	12.0%-22.0%				80,118		6/1/2012	6/1/2012
Total outstanding debt of all unconsolidated properties					$	1,715,754

The 30 day LIBOR rate for the loans above was 0.25% at June 30, 2012.

_________________________

(1) During the second quarter of 2009, TPG/CalSTRS redeemed a 15% membership interest held by a noncontrolling owner in the City National Plaza partnership. The redemption price of $19.8 million was financed with a promissory note issued by the former partner, of which  $19.3 million was repaid in July 2012. The remaining $0.5 million has been extended at the request of the former partner to a due date of January 4, 2016.

(2) The 2121 Market Street mortgage loan is prepayable without penalty after May 1, 2013, at which date the outstanding

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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.

(3) Subsequent to June 30, 2012, we and our partners in the Austin Portfolio Joint Venture sold these assets, and all loans were paid in full.

(4) The Austin Portfolio Bank Term Loan has two components, Tranche A and Tranche B. Tranche A, which is reflected on the preceding debt summary table as the Austin Senior Priority Financing, was funded by us and our partners in an aggregate amount of $60.0 million, which together with accrued interest has a balance of $80.1 million as of June 30, 2012, and is senior in priority to Tranche B. Our share of Tranche A including accrued interest is $5.0 million, and is accounted for as equity. The Austin Senior Priority Financing bears interest at 12% per annum on the first $24 million, 17% per annum on the next $12 million and 22% per annum on the last $24 million. The facility matured on June 1, 2012. The exercise of remedies, if any, due to this maturity default would require the consent of at least two of three partners/lenders. Subsequent to June 30, 2012, approximately $15.7 million of the net proceeds generated by the sales of Research Park Plaza and Stonebridge Plaza II (see note 3 above) were used to pay down the Tranche A balance. Tranche B has a balance of $134.8 million as of June 30, 2012, of which $125.8 million bears interest at LIBOR +7.75% or 8.0% and $9.0 million bears interest at 22.0%. The margin above LIBOR on Tranche B is subject to adjustment under certain circumstances. Effective January 1, 2012, the margin was increased by 2.5% due to non-compliance with financial covenants. The interest resulting from this margin adjustment is being accrued, and therefore, increases the outstanding principal amount of Tranche B. As of June 30, 2012, the adjusted interest rate was 8.0%. 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 five Austin Portfolio Joint Venture properties. These mortgage liens and equity pledges also secure the Austin Senior Priority Facility. In April 2012, the lender advanced $9.0 million under Tranche B to fund certain capital obligations of the partnership. The interest on this advance, which is 22.0%, is paid current. An affiliate of Lehman Brothers, a partner in the Austin joint venture, is the lender under Tranche B.

Cash Flows

Comparison of six months ended June 30, 2012 to six months ended June 30, 2011

Cash and cash equivalents were $129.9 million and $44.1 million as of June 30, 2012 and 2011, respectively. The comparison between the two periods is summarized below:

	Six months ended June 30,
	2012			2011			Increase (Decrease)
	(in thousands)
Net cash provided by (used in) operating activities	$	(5,387	)	$	(2	)	$	(5,385	)
Net cash provided by (used in) investing activities	4,852			2,352			2,500
Net cash provided by (used in) financing activities	51,086			(603		)	51,689
Net increase in cash and cash equivalents	50,551			1,747			48,804
Cash and cash equivalents at beginning of year	79,320			42,363			36,957
Cash and cash equivalents at end of period	$	129,871		$	44,110		$	85,761

Our cash flows from operating activities are primarily dependent upon the occupancy level of our portfolio, the rental rates achieved on our leases, the collectability of rent and recoveries from our tenants, revenues generated and collected from our investment advisory, management, leasing and development services and the level of operating expenses and other general and administrative costs. Net cash used in operating activities was $5.4 million for the six months ended June 30, 2012, which represented an increase of $5.4 million from the net cash used in operations of $0.002 million for the six months ended June 30, 2011. This increased use of cash was primarily due to distributions from operations from unconsolidated real estate entities, that were $3.8 million less during the six months ended June 30, 2012 than the corresponding prior period, and payment of leasing costs that were $1.5 million more than the corresponding prior period.

Our net cash generated by or used in investing activities is generally impacted by the sale of condominium units at Murano,

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contributions and distributions related to our investments in unconsolidated real estate entities, the funding of development and redevelopment projects and recurring and non-recurring capital expenditures. Net cash provided by investing activities increased by $2.5 million to $4.9 million for the six months ended June 30, 2012 compared to $2.4 million used in investing activities for the six months ended June 30, 2011. The increase was due to higher distributions from our unconsolidated real estate entities of $5.7 million, primarily from the sale of our Brookhollow property, and $1.1 million in proceeds from the sale of a land parcel at Four Points Centre during the the first quarter of 2012. This increase was partially offset by a $3.6 million increase in expenditures for improvements to real estate and $1.0 million lower proceeds from condominium unit sales during the six months ended June 30, 2012 compared with the six months ended June 30, 2011.

Our net cash provided by or used in financing activities is generally impacted by our borrowings, and capital activities, net of dividends and distributions paid to common stockholders and non-controlling interests. Net cash provided by financing activities increased by $51.7 million to $51.1 million for the six months ended June 30, 2012 compared to $0.6 million used in financing activities for the six months ended June 30, 2011. This increase was primarily due to net proceeds of $49.4 million generated from our private placement of common stock in the second quarter of 2012.

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 in real estate taxes and operating expenses may be partially offset by the contractual rent increases and expense reimbursements as described above. We have one multi-family residential rental property, which 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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A primary market risk faced by our Company is interest rate risk. Our strategy is to match as closely as possible the expected holding periods and income streams of our assets with the terms of our debt. In general, we use floating rate debt on assets with higher growth prospects and less stability to their income streams. Correspondingly, with respect to stabilized assets with lower growth rates, we will generally use longer-term fixed-rate debt. As of June 30, 2012, our Company had $52.7 million of consolidated floating rate debt outstanding, which is not subject to an interest rate cap.

The unconsolidated real estate entities have total debt of $1.7 billion, of which $214.8 million bears interest at floating rates. As of June 30, 2012, interest rate caps have been purchased for $61.0 million of the floating rate loans.

Our fixed and variable rate consolidated long-term debt at June 30, 2012 consisted of the following (in thousands):

Year of Maturity	Fixed Rate			Variable Rate			Total
2012	$	1,092		$	44,061		$	45,153
2013	108,392			8,616			117,008
2014	1,884			—			1,884
2015	1,996			—			1,996
2016	121,209			—			121,209
Thereafter	—			—			—
Total	$	234,573		$	52,677		$	287,250
Weighted average interest rate	5.95		%	3.88		%	5.57		%

We utilize sensitivity analyses to assess the potential effect on interest costs of our variable rate debt. At June 30, 2012, our variable rate long-term debt represents 18.3% of our total long-term debt. If interest rates were to increase by 75 basis points, or by approximately 19.3% of the weighted average variable rate at June 30, 2012, the net impact would be increased interest costs of $0.4 million per year.

As of June 30, 2012, the estimated fair value of our mortgage loans aggregates $281.8 million, compared to the aggregate carrying value of $287.3 million.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”) and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As required by Rule 13a-15(b), promulgated by the SEC under the Exchange Act, we have carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rules 13a-15(f) or 15(d)-15(f) under the Exchange Act that occurred during the quarter ended June 30, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and fraud. Any control system, no matter how well designed and operated, is based upon certain assumptions and can provide only reasonable, not absolute, assurance that its objectives will be met. Further, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.

PART II. OTHER INFORMATION

ITEM 1A. RISK FACTORS

Risks Related to Our Business and Our Properties

We generate a significant portion of our revenues from our joint venture and our separate account management agreements with CalSTRS, and if we were to lose these relationships, our financial results would be significantly negatively affected.

Our joint venture and separate account management agreement relationships with CalSTRS provide us with substantial fee revenues. For the six months ended June 30, 2012, approximately 20.7% of our revenue has been derived from fees earned from these relationships.

We cannot assure you that our joint venture and separate account management relationships with CalSTRS will continue, and, if they do not, we may not be able to replace these relationships with other strategic alliances that would provide comparable revenues. Our interest in the TPG/CalSTRS joint venture is subject to a buy-sell provision, which permits CalSTRS to purchase our interest in TPG/CalSTRS at any time. Under the buy-sell provision either our Operating Partnership or CalSTRS can initiate a buy-out of the other's interest at any time by delivering a notice to the other specifying a purchase price for all the joint venture's assets; the other venture partner then has the option to sell its joint venture interest or purchase the interest of the initiating venture partner. The purchase price is based on what each venture partner would receive on liquidation if the joint venture's assets were sold for the specified price and the joint venture's liabilities paid and the remaining assets distributed to the joint venture partners.

In addition, upon the occurrence of certain events of default by the Operating Partnership under the joint venture agreement or related management, development and leasing agreements, upon bankruptcy of our Operating Partnership, or upon the death or disability of either James A. Thomas, our Chairman, President and CEO, or John R. Sischo, our Co-Chief Operating Officer, or the failure of either of them to devote the necessary time to perform their duties (unless replaced by an individual approved by CalSTRS) (each, a “Buyout Default”), CalSTRS may elect to purchase our joint venture interest based on a three percent discount to the appraised fair market value at the time of the Buyout Default.

The joint venture agreement with CalSTRS also prohibits any transfer of securities of the Company or limited partnership

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units in our Operating Partnership that would result in Mr. Thomas, his immediate family and any entities controlled thereby beneficially owning less than 30% of our securities entitled to vote for the election of directors; provided, that in connection with the issuance of additional Company shares in one or more public offerings, Mr. Thomas, his immediate family and controlled entities may reduce their collective beneficial ownership interest to no less than 10% of the total common shares and Operating Partnership units and no less than 15.0 million shares and Operating Partnership units on a collective basis. On May 29, 2012, the Company entered into a Common Stock Purchase Agreement, a Stockholders Agreement and a Registration Rights Agreement with affiliates of Madison International Realty (“Madison Agreements”). Pursuant to the Madison Agreements, we issued 8,695,653 shares of our common stock to the Madison affiliates in a non-public transaction. Pursuant to the Madison Agreements, during a lock-up period that generally expires with respect to all of such shares in June 2015, Mr. Thomas controls the voting of the shares issued to Madison's affiliates and, therefore, presently has beneficial ownership of more than 40% of our securities entitled to vote for the election of directors. If Mr. Thomas does not acquire beneficial ownership of additional shares of our common stock prior to expiration or earlier termination of such lock-up period or the CalSTRS joint venture agreement is not otherwise amended prior thereto, the termination of the voting control by Mr. Thomas of the shares of common stock issued pursuant to the Madison Agreements may result in a Buyout Default under the CalSTRS joint venture agreement at the final expiration of such lock-up period.

Most of our fee arrangements under our separate account relationship with CalSTRS are terminable on 30 days' notice. Termination of either our joint venture or separate account relationship with CalSTRS would adversely affect our revenue and profitability and our ability to achieve our business plan by reducing our fee income and access to co-investment capital to acquire additional properties. 

Our joint venture investments may be adversely affected by our lack of control or input on decisions or shared decision-making authority or disputes with our co-venturers.

Many of our operating properties are owned through a joint venture or partnership with other parties. As a result, we do not exercise sole decision-making authority regarding such joint venture properties, including with respect to cash distributions or the sale of such properties. Furthermore, we may co-invest in the future through other partnerships, joint ventures or other entities, acquiring non-controlling interests or sharing responsibility for managing the affairs of a property, partnership or joint venture. Investments in partnerships, joint ventures, funds or other entities may, under certain circumstances, involve risks, including partners who may have economic or other business interests or goals which are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. These investments may also have the risk of impasses on significant decisions, because neither we nor our partner or co-venturer would have full control over the partnership or joint venture. Future disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their full time and effort on our business. In addition, under the principles of agency and partnership law, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers, such as if a partner or co-venturer became bankrupt and defaulted on its reimbursement and contribution obligations to us, subjecting the property owned by the partnership or joint venture to liabilities in excess of those contemplated by the partnership or joint venture agreement, or incurred debts or liabilities on behalf of the partnership or joint venture in excess of the authority granted by the partnership or joint venture agreement. In some joint ventures or other investments we make, if the entity in which we invest is a limited partnership, we have acquired and may acquire in the future all or a portion of our interest in such partnership as a general partner. In such event, we may be liable for all the liabilities of the partnership, although we attempt to limit such liability to our investment in such partnership by investing through a subsidiary.

Our joint venture partners have rights under our joint venture agreements that could adversely affect us.

As of June 30, 2012, we held interests in 16 of our properties through TPG/CalSTRS, 10 of which are held indirectly through TPG/CalSTRS' interest in the Austin Portfolio Joint Venture. TPG/CalSTRS requires a unanimous vote of the joint venture's management committee on certain major decisions, including approval of annual business plans and budgets, financings and refinancings, and additional capital calls not in compliance with an approved annual plan. The management committee currently consists of two members appointed by CalSTRS and one member appointed by the Operating Partnership. All other decisions, including sales of properties, are made based upon a majority decision of the management committee. Thus CalSTRS has the ability to control certain decisions for the joint venture that may result in an outcome contrary to our interests. The Operating Partnership has the responsibility and authority to carry out day to day management of the joint venture and to implement the annual plans approved by the management committee. In addition to CalSTRS' ability to control certain decisions relating to the joint venture, our joint venture agreement with CalSTRS includes provisions negotiated for the benefit of CalSTRS that could adversely affect us. Unless otherwise determined by the management committee of the joint venture, we are required to use diligent efforts to sell each joint venture property generally within five years of that property reaching stabilization, except that the holding period for Reflections I and Reflections II will be separately determined by the joint venture management committee. With respect to these two properties, we are required to perform a hold/sell analysis at least annually, and make a recommendation to the management committee regarding the appropriate holding period. We have a right

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of first offer to purchase a joint venture property upon a required sale at a price we propose, and if CalSTRS accepts our offer we must close within 90 days. If we do not exercise the right of first offer and we subsequently fail to effect a sale by the end of the specified holding period, CalSTRS has the right to assume control of the sale process. This may require us to sell one or more of our assets at an inopportune time, or for prices that are lower than could be achieved if we had more flexibility in the timing for effecting sales.

In June 2007, a wholly-owned subsidiary of TPG/CalSTRS entered into a partnership agreement and syndication agreement with an affiliate of Lehman Brothers Inc. (“Lehman”) in relation to the Austin Portfolio Joint Venture. As of June 30, 2012, one-third of the Lehman affiliate's original 75% equity interest in the Austin Portfolio Joint Venture had been sold to an unrelated institutional investor and the Lehman affiliate holds 50% of the equity in the Austin Portfolio Joint Venture. The Lehman affiliate has the right to reduce or eliminate certain fees and payments otherwise payable to TPG/CalSTRS under the partnership agreement. The Lehman affiliate has certain approval rights with respect to major decisions of the Austin Portfolio Joint Venture, although the TPG/CalSTRS subsidiary is in charge of operating, leasing and managing the Austin Portfolio Joint Venture assets within approved budgets and guidelines.

The major decision approval rights of the Lehman affiliate include, but are not limited to, the right to approve annual business plans and budgets, financings and refinancings, sales of properties, additional capital calls not in compliance with an approved annual plan, and agreements with affiliates. The other limited partner in the Austin Portfolio Joint Venture also has approval rights over some of these major decisions.

The Lehman affiliate can require the sale of the Austin Portfolio Joint Venture assets after June 1, 2012, subject to a right of first offer in favor of the other partners in the Austin Portfolio Joint Venture. By a notice dated June 28, 2012, Lehman's affiliate has exercised its right to cause the sale of all of the Austin Portfolio Joint Venture assets, which has triggered a 30-day right of first offer in favor of the TPG/CalSTRS subsidiary and the other limited partners, which period has lapsed. The limited partners also have the right to remove the general partner under certain circumstances. These rights could adversely affect TPG/CalSTRS and us.

In November 2010, our subsidiaries entered into amended and restated partnership agreements and contribution agreements with Brandywine, with respect to our One Commerce Square and Two Commerce Square buildings in Philadelphia, Pennsylvania. Brandywine contributed capital, and committed to additional capital contributions to the existing owners of the buildings, in return for a 25% limited partnership interest in each building. Our wholly-owned subsidiaries are the general partners of the Commerce Square partnerships, with authority to manage and carry out the day to day business of the partnerships, subject only to approval by Brandywine of certain specified major decisions, including approval of certain capital budgets, leasing budgets and leasing guidelines, financing or refinancing of each building, and certain major leases. We retained sole approval over the operating budgets and other decisions that are not major decisions. Brandywine has the right to purchase all of the Company's interest in each of the buildings subject to the retention of a nominal interest by the Company with an allocation of mortgage debt for a minimum of five years, which right is exercisable between October 31, 2016 and April 30, 2017. The exercise of such call right triggers certain rights and obligations of the Company, including the right to elect to market our interests in the buildings to third parties to achieve a price for our interests that we deem to be acceptable. If the Company deems a third party bid for our interests to be acceptable, then under certain conditions Brandywine will have a right of first refusal to purchase our interests for the same price and terms offered by the third party. If Brandywine does not exercise, or does not have, such right of first refusal, and if we elect to sell our interests in Commerce Square to a third party, Brandywine has a right to “piggyback” on such sale and sell its interests in Commerce Square to the third party on the same terms. We retain, as general partner, the right to sell the Commerce Square buildings at any time, but Brandywine has certain rights to acquire our interests in Commerce Square in lieu of such a sale of the buildings to a third party, as long as we receive the same amount we would have received on a sale to a third party. Finally, on or after the 10^th anniversary of the admission of Brandywine as a partner, either the Company or Brandywine may elect to cause the sale of the Commerce Square buildings and dissolve the partnerships, which will give the other party the right to trigger a buy-sell procedure for the purchase of the electing partner's interest in the partnerships.

We may not receive funding from our joint venture partners in connection with proposed acquisitions, which could adversely affect our growth.

We have entered into, and may enter into in the future, certain joint venture acquisition arrangements with third parties in which we identify potential acquisition properties on behalf of the joint venture, and a portion (in some cases, a substantial portion) of the capital required for each project would be funded by our joint venture partners. Although our joint venture partners have committed to fund property acquisitions, such joint venture partners may decide not to fund a particular or any potential acquisition properties for any number of reasons, including such entities may not have the capital necessary to fund projects at the time of the proposed acquisition. Accordingly, if we identify potential acquisition opportunities in the future for these programs, we may not receive approval and/or funding from joint venture partners, notwithstanding any prior commitments for funding.

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We depend on significant tenants, and their failure to pay rent could seriously harm our operating results and financial condition.

As of June 30, 2012, the 20 largest tenants for properties in which we held an ownership interest collectively leased 36.4% of the rentable square feet of space at properties in which we hold an ownership interest, representing 42.2% of the total annualized rent generated by these properties.

Any of our tenants may experience a downturn in its business, which may weaken such tenant's financial condition. As a result, tenants may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent, declare bankruptcy or default under their leases. Certain of our tenants also have termination rights under their leases with us, which they might choose to exercise if they experience a downturn in their business. In addition, current economic and market conditions increase the possibility that one or more of our tenants will become insolvent. Any tenant bankruptcy or insolvency, leasing delay, failure to make rental payments when due, or default under a lease could result in the termination of the tenant's lease and material losses to our Company.

In particular, if a significant tenant becomes insolvent, suffers a downturn in its business and decides not to renew its lease or vacates a property, it may seriously harm our business. Failure on the part of a tenant to comply with the terms of a lease may give us the right to terminate the lease, repossess the applicable property and enforce the payment obligations under the lease. In those circumstances, we would be required to find another tenant. We cannot assure you that we would be able to find another tenant without incurring substantial costs, or at all, or that if another tenant were found, we would be able to enter into a new lease on favorable terms to us or at the same rental rates.

Bankruptcy filings by or relating to one of our tenants could bar us from collecting pre-bankruptcy debts from that tenant or their property. A tenant bankruptcy would delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude full collection of these amounts. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy amounts due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold against a bankrupt entity may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. We may recover substantially less than the full value of any unsecured claim in the event of the bankruptcy of a large tenant, which could adversely impact our financial condition.

Our operating results depend upon the regional economies in which our properties are located and the demand for office and other mixed-use space, and unique or disproportionate economic downturns or adverse regulatory or taxation policies in any of these regions could harm our operating results.

Our operating and development properties are located in three geographic regions of the United States: the West Coast, Southwest and Mid-Atlantic regions. Historically, the largest part of our revenues has been derived from our ownership and management of properties consisting primarily of office buildings.

A decrease in the demand for office space in these geographic regions, and for Class A office space in particular, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. We are also susceptible to disproportionate or unique adverse developments in these regions and in the national office market generally, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, terrorist targeting of high-rise structures, infrastructure quality, increases in real estate and other taxes, costs of complying with government regulations or increased regulation, oversupply of or reduced demand for office space, and other factors. Some of the regional issues we face include the more highly regulated and taxed economy of Southern California and high local and municipal taxes for our Philadelphia properties. Any adverse economic or real estate developments in one or more of our regions, or any decrease in demand for office space resulting from the local regulatory environment, business climate or energy or fiscal problems, could adversely impact our revenue and profitability, thereby causing a significant decline in our financial condition, results of operations, cash flow, the trading price of our common stock and impairing our ability to satisfy our debt service obligations.

Our need for additional debt financing, our existing level of debt and the limitations imposed by our debt agreements could have significant adverse consequences on us.

We may seek to incur additional debt to finance future acquisition and development activities; however debt financing may not be available to us on acceptable terms under current market conditions. In addition, it is possible the required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties profitably. Our need for debt financing, our existing level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

• our cash flow may be insufficient to meet our required principal and interest payments or to pay dividends;

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• we may be unable to borrow additional funds as needed or on favorable terms;

• we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

• we may be unable to distribute funds from a property to our Operating Partnership or apply such funds to cover expenses related to another property;

• we could be required to dispose of one or more of our properties, possibly on disadvantageous terms and/or at disadvantageous times;

• we could default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;

• we could violate covenants in our loan documents or our joint venture agreements, including provisions that may limit our ability to further mortgage a property, make distributions, acquire additional properties, repay indebtedness prior to a set date without payment of a premium or other pre-payment penalties, all of which would entitle the lenders to accelerate our debt obligations;

• because we have agreed to use commercially reasonable efforts to maintain certain debt levels to provide the ability for Mr. Thomas and entities controlled by him to guarantee debt of $210 million, including $3 million of debt available for guarantee by Mr. Richard Gilchrist, an individual formerly affiliated with Maguire Thomas Partners, we may not be able to refinance our debt when it would otherwise be advantageous to do so or to reduce our indebtedness when our board of directors determines it is prudent.

If any one or more of these events were to occur, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, cash flow, and the trading price of our common stock, and could impair our ability to satisfy our debt service obligations.

We may be unable to complete acquisitions necessary to grow our business, and even if consummated, we may fail to successfully operate these acquired properties.

Our planned growth strategy includes the acquisition of additional properties as opportunities arise with a focus in the western region of the United States. We regularly evaluate approximately 10 markets in the United States for strategic opportunities to acquire office, mixed-use and other properties. Our ability to acquire properties on favorable terms and successfully operate them is subject to the following significant risks:

• we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity to consummate an acquisition or, if obtainable, such financing may not be on favorable terms;

• we may need to spend more than budgeted amounts to make necessary improvements or renovations to acquired properties;

• we may be unable to acquire a desired property because of competition from other real estate investors with more available capital, including other real estate operating companies, real estate investment trusts and investment funds;

• competition from other potential acquirers may significantly increase the purchase price, even if we are able to acquire a desired property;

• agreements for the acquisition of office properties are typically subject to customary conditions to closing, including satisfactory completion of due diligence investigations, and we may spend significant time and money on a potential acquisition we eventually decide not to pursue;

• we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations;

• market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and

• we may acquire properties subject to liabilities without any recourse, or with only limited recourse, for unknown liabilities such as clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties.

If we cannot complete property acquisitions on favorable terms or at all, or operate acquired properties to meet our expectations, our revenue and profitability could be adversely impacted.

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Any real estate acquisitions that we consummate may result in disruptions to our business as a result of the burden of integrating operations placed on our management.

Our business strategy includes acquisitions and investments in real estate on an ongoing basis as market conditions warrant. These acquisitions may cause disruptions in our operations and divert management's attention from our other day-to-day operations, which could impair our relationships with our current tenants and employees. If we acquire real estate by acquiring another entity, we may be unable to effectively integrate the operations and personnel of the acquired business. In addition, we may be unable to train, retain and motivate any key personnel from the acquired business. If our management is unable to effectively implement our acquisition strategy, we may experience disruptions to our business, which could harm our results of operations.

We may be unable to successfully complete and operate properties under development, which would impair our financial condition and operating results.

Part of our business is devoted to the development of office, mixed-use and other properties, and the redevelopment of core plus and value-add properties. Our development and redevelopment activities involve the following significant risks:

• we may be unable to obtain financing on favorable terms or at all;

• if we finance projects through construction loans, we may be unable to obtain permanent financing at all or on advantageous terms;

• we may not complete projects on schedule or within budgeted amounts;

• we may underestimate the expected costs and time necessary to achieve the desired result with a redevelopment project;

• we may discover structural, environmental or other feasibility issues with properties acquired as redevelopment projects following our acquisition, which may render the redevelopment as planned not possible;

• we may encounter delays or refusals in obtaining all necessary zoning, land use, building, occupancy, and other required governmental permits and authorizations;

• occupancy rates and rents may fluctuate depending on a number of factors, including market and economic conditions, and may result in our investment not being profitable;

• adverse weather that damages the project or causes delays;

• unanticipated changes to the plans or specifications;

• unanticipated shortages of materials and skilled labor;

• unanticipated increases in material and labor costs; and

• fire, flooding and other natural disasters.

If we are not successful in our property development and redevelopment initiatives, it could adversely impact our financial condition, results of operations, and the trading price of our common stock.

We face significant competition, which may decrease or prevent increases of the occupancy and rental rates of our properties.

We face significant competition from other managers and owners of office and mixed-use real estate, many of which own or manage properties similar to ours in the same regional markets in which our properties are located. We also compete with other diversified real estate companies and companies focused solely on offering property investment management and brokerage services. A number of our competitors are larger and better able to take advantage of efficiencies created by size, have better financial resources, or increased access to capital at lower costs, and may be better known in regional markets in which we compete. Our smaller size as compared to some of our competition may increase our susceptibility to economic downturns and pressures on rents. Our failure to compete successfully in our industry would materially affect our business prospects and operating results.

We may be unable to renew leases, lease vacant space or re-lease space as leases expire resulting in increased vacancy rates, lower revenue and an adverse effect on our operating results.

As of June 30, 2012, leases representing 3.6% and 5.7% of the rentable square feet of the office and retail space of our consolidated and unconsolidated properties will expire in 2012 and 2013, respectively. Further, an additional 15.1% of the square feet of these properties was available for lease as of June 30, 2012. Current economic conditions have resulted in depressed leasing activity recently in certain markets as a result of tenant unwillingness to make long term leasing

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commitments, and it is unclear how long this market condition may continue. If the rental rates for our properties decrease, our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, cash flow, and the trading price of our common stock and impairing our ability to satisfy our debt service obligations.

Our growth depends on external sources of capital, some of which are outside of our control. If we are unable to access capital from external sources, we may not be able to implement our business strategy.

Our business strategy requires us to rely significantly on third-party sources to fund our capital needs. We may not be able to obtain debt or equity on favorable terms or at all. Any additional debt we incur will increase our leverage and may impose operating restrictions on us. Any issuance of equity by our Company to fund our portion of equity capital requirements could be dilutive to our existing stockholders, and could have a negative impact on our stock price. Our access to third-party sources of capital depends, in part, on:

• our current debt levels, which were $287.3 million of consolidated debt and $1.7 billion of unconsolidated debt, of which our share was $190.9 million as of June 30, 2012;

• our ability to generate consistent cash flow from operating activities, which resulted in a net use of cash of $5.4 million for the six months ended June 30, 2012;

• our current and expected future earnings;

• the market's perception of our growth potential;

• the market price of our common stock;

• the perception of the value of an investment in our common stock; and

• general market conditions.

If we cannot obtain capital from third-party sources when needed, we may not be able to acquire or develop properties when strategic opportunities exist, or to repay existing debt as it matures.

As a result of the limited time which we have to perform due diligence of many of our acquired properties, we may become subject to significant unexpected liabilities and our properties may not meet projections.

When we enter into an agreement to acquire a property or portfolio of properties, we often have limited time to complete our due diligence prior to acquiring the property. To the extent we underestimate or fail to investigate or identify risks and liabilities associated with the properties we acquire, we may incur unexpected liabilities or the properties may fail to perform as we expected. If we do not accurately assess the liabilities associated with properties prior to their acquisition, we may pay a purchase price that exceeds the current fair value of the net identifiable assets of the acquired property. As a result, intangible assets would be required to be recorded, which could result in significant accounting charges in future periods. These charges, in addition to the financial impact of significant liabilities that we may assume, and any failure of properties to perform as expected, could adversely impact our revenue and profitability, causing a significant downturn in our financial condition, results of operations and the trading price of our common stock and impairing our ability to satisfy our debt service obligations.

As the current or previous owner or operator of real property, we could become subject to liability for environmental contamination, regardless of whether we caused such contamination.

Under various federal, state and local environmental laws, regulations and ordinances, a current or previous owner or operator (e.g., tenant or manager) of real property may be liable for the cost to remove or remediate contamination resulting from the presence or discharge of hazardous or toxic substances, wastes or petroleum products on, under, from or in such property. These costs could be substantial and liability under these laws may attach without regard to fault, or whether the owner or operator knew of, or was responsible for, the presence of the contamination. The liability may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs to the extent such contributions are possible to obtain. In addition, the current or previous owner or operator of property may be subject to damage awards for personal injury or property damage resulting from contamination at or migrating from its property. Previous owners used some of our properties for industrial and retail purposes, so those properties may contain some level of environmental contamination. In addition, the presence of contamination, or the failure to properly remediate contamination on a property may limit the ability of the owner or operator to sell, develop or rent that property or to borrow using the property as collateral, and may cause our investment in that property to decline in value.

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As the owner of real property, we could become subject to liability for asbestos-containing building materials in the buildings on our property.

Some of our properties may contain asbestos-containing materials. Environmental laws require that owners or operators of buildings with asbestos-containing building materials properly manage and maintain these materials, adequately inform or train those who may come into contact with asbestos and undertake special precautions, including removal or other abatement, in the event that asbestos is disturbed during building renovation or demolition. These laws may impose fines and penalties on building owners or operators for failure to comply with these requirements. In addition, these laws may also allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos-containing building materials.

Our properties may contain or develop harmful mold or suffer from other adverse conditions, which could lead to liability for adverse health effects and costs of remediation.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants and others if property damage or health concerns arise.

As the owner of real property, we could become subject to liability for failure to comply with environmental requirements regarding the handling and disposal of regulated substances and wastes or for non-compliance with health and safety requirements.

Environmental laws and regulations regarding the handling of regulated substances and wastes apply to our properties. The properties in our portfolio are also subject to various federal, state and local health and safety requirements, such as state and local fire requirements. If we or our tenants fail to comply with these various requirements, we might incur governmental fines or private damage awards. Moreover, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will materially adversely impact our financial condition, results of operations, cash flow, cash available for distribution, the per share trading price of our common stock and our ability to satisfy our debt service obligations. Environmental noncompliance liability could also affect a tenant's ability to make rental payments to us.

Tax indemnification obligations that may arise in the event we or our Operating Partnership sell an interest in either of two of our properties could limit our operating flexibility.

We and our Operating Partnership agreed at the time of our initial public offering in 2004 to indemnify Mr. Thomas against adverse direct and indirect tax consequences in the event that our Operating Partnership or the underlying property owner directly or indirectly sells, exchanges or otherwise disposes (including by way of merger, sale of assets or otherwise) of any portion of its interests, in a taxable transaction, in either One Commerce Square or Two Commerce Square. These two properties represented 15.6% of annualized rent for properties in which we held an ownership interest as of June 30, 2012. The indemnification obligation currently expires October 13, 2013, which may be further extended to October 13, 2016 provided Mr. Thomas and his controlled entities collectively retain at least 50% of the Operating Partnership units received by them in connection with our formation transactions at the time of our initial public offering.

We agreed at the time of the initial public offering to use commercially reasonable efforts to make an aggregate of approximately $210 million of debt available to be guaranteed by entities controlled by Mr. Thomas. Of this debt, $3 million is available for guarantee by Mr. Gilchrist, an individual formerly affiliated with Maguire Thomas Partners. We agreed to make this debt available for guarantee in order to assist Mr. Thomas and Mr. Gilchrist in preserving their respective tax positions after their contributions at the time of our initial public offering.

The current economic environment for real estate companies may significantly adversely impact our results of operations and business prospects.

The success of our business and profitability of our operations are dependent on continued investment in the real estate markets and access to capital and debt financing. A long term crisis of confidence in real estate investing and lack of available credit for acquisitions would be likely to constrain our business growth. As part of our business goals, we intend to grow our

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properties portfolio with strategic acquisitions of core properties at advantageous prices, and core plus and value added properties where we believe we can bring necessary expertise to bear to increase property values. In order to pursue acquisitions, we need access to equity capital and also property-level debt financing. Conditions in the financial markets may adversely impact the availability and cost of credit in the near future. Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness depends on our operating and financial performance, which in turn is subject to prevailing economic conditions.

Illiquidity of real estate investments and the susceptibility of the real estate industry to economic conditions could significantly impede our ability to respond to adverse changes in the performance of our properties.

Our ability to achieve desired and projected results for growth of our business depends on our ability to generate revenues in excess of expenses, and make scheduled principal payments on debt and fund capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may adversely impact our results of operations and the value of our properties. These events include:

• vacancies or our inability to rent space on favorable terms;

• inability to collect rent from tenants;

• difficulty in accessing credit in the present economic environment, in particular for larger mortgage loans;

• inability to finance property development and acquisitions on favorable terms;

• increased operating costs, including real estate taxes, insurance premiums and utilities;

• local oversupply, increased competition or reduction in demand for office space;

• fluctuating condominium prices and absorption rates;

• costs of complying with changes in governmental regulations;

• the relative illiquidity of real estate investments;

• changing submarket demographics; and

• the significant transaction costs related to property sales.

In addition, periods of economic slowdown or recession, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If any of these events were to happen, our revenue and profitability could be impaired, causing a significant downturn in our financial condition, results of operations, cash flow, and the trading price of our common stock, and our ability to satisfy our debt service obligations could be impaired.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make unintended expenditures that adversely impact our financial condition.

All of our commercial properties are required to comply with the Americans with Disabilities Act, or ADA. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities,” but generally requires that buildings be made accessible to people with disabilities. The obligation to make readily achievable accommodations is an ongoing one, and we assess our properties and make alterations as appropriate. Compliance with the ADA requirements could require removal of access barriers.

If one or more of our properties is not in compliance with the ADA, we would be required to incur additional costs to bring the property or properties into compliance. In addition, non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. Typically, we are responsible for changes to a building structure that are required by the ADA, which can be costly. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations. We may be required to make substantial capital expenditures to comply with these requirements thereby limiting the funds available to operate, develop and redevelop our properties and acquire additional properties. As a result, these expenditures could negatively impact our revenue and profitability.

Potential losses to our properties may not be covered by insurance and may result in our inability to repair damaged properties; as a result we could lose invested capital.

We carry comprehensive liability, fire, flood, extended coverage, wind, earthquake, terrorism, pollution legal liability, business interruption and rental loss insurance under policies covering all of the properties in which we own an interest in or manage for third parties, including our development properties (although we carry only liability insurance for the California

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Environmental Protection Agency (“CalEPA”) headquarters building because the tenant has the right to provide all other forms of coverage it deems necessary, and it has elected to do so, and we do not insure 816 Congress and Austin Centre because the third party owner has elected to insure those properties under its policy). We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage and industry practice.

We either own or manage two properties in Southern California, an area especially prone to earthquakes. We carry earthquake insurance on our properties located in seismically active areas, which includes our Southern California properties, wind insurance on our properties located in “tier 1” wind zones, which includes our Houston, Texas properties, and terrorism insurance on all of our properties. Our terrorism insurance is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants, and biological and chemical weapons as more specifically excluded under the actual terrorism policies. Some of our policies, like those covering losses due to earthquakes and terrorism, are subject to limitations involving deductibles and policy limits which may not be sufficient to cover potential losses.

Under their leases, our tenants are generally required to indemnify us against liabilities resulting from injury to persons, air, water, land or property, on or off the premises due to activities conducted by them on our properties. There is generally an exception for claims arising from the negligence or intentional misconduct by us or our agents. Additionally, tenants are generally required, with the exception of governmental entities and other entities that are self-insured, to obtain at their own expense and keep in force during the term of the lease both liability and property damage insurance policies issued by companies holding ratings at a minimum level at their own expense.

Although we have not experienced such a loss to date, if we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged property as well as the anticipated future cash flows from that property, including lost revenue from unpaid rent from tenants. In addition, if the damaged property is subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if the property was irreparably damaged. In the event of a significant loss at one or more of the properties covered by our policies, the remaining insurance under the policy, if any, could be insufficient to adequately insure our remaining properties. In this event, securing additional insurance, if possible, could be significantly more expensive than our current policy.

Risks Related to Our Organization and Structure

Our senior management has existing conflicts of interest with us and our public stockholders that could result in decisions adverse to our Company.

In addition to the common stock owned by Mr. Thomas as of June 30, 2012, he owned or controlled a significant interest in our Operating Partnership consisting of 12,313,331 units, or a 21% interest in the Operating Partnership as of such date. In addition, our senior executive officers, excluding Mr. Thomas, collectively held an interest in incentive units (vested and unvested) representing an aggregate 2.8% equity interest in the Operating Partnership.

Members of senior management could make decisions that could have different implications for our Operating Partnership and for us, our stockholders, and our senior executive officers. For example, dispositions of interests in One Commerce Square or Two Commerce Square could trigger our tax indemnification obligations with respect to Mr. Thomas.

We have a holding company structure and rely upon funds received from our Operating Partnership to pay liabilities.

We are a holding company. Our primary asset is our general partnership interest in our Operating Partnership. We have no independent means of generating revenues. To the extent we require funds to pay taxes or other liabilities incurred by us, to pay dividends or for any other purpose, we must rely on funds received from our Operating Partnership. If our Operating Partnership should become unable to distribute funds to us, we would be unable to continue operations after a short period. Most of the properties owned by our subsidiaries and joint ventures are encumbered by loans. These loans generally contain lockbox arrangements and reserve requirements that may affect the amount of cash available for distribution from the subsidiaries that own the properties to the Operating Partnership. Some of the loans include cash sweep and other restrictions and provisions that prior to an event of default may prevent the distribution of funds from the subsidiaries who own these properties to our Operating Partnership. In the event of a default under any of these loans, the defaulting subsidiary or joint venture would be prohibited from distributing cash to our Operating Partnership. As a result, our Operating Partnership may be unable to distribute funds to us and we may be unable to use funds from one property to support the operation of another property. As we acquire new properties and refinance our existing properties, we may finance these properties with new loans that contain similar provisions. Some of the loans to our subsidiaries and joint ventures may contain provisions that restrict us from loaning funds to our other subsidiaries or joint ventures. If we are permitted to loan funds to our subsidiaries or joint ventures, our loans generally will be subordinated to the existing debt on our properties.

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Mr. Thomas has a significant vote in certain matters as a result of his control of 100% of our limited voting stock.

Each entity that received Operating Partnership units in our formation transactions received shares of our limited voting stock that are paired with units in our Operating Partnership on a one-for-one basis. All of these entities are directly or indirectly controlled by Mr. Thomas, and, as a result, Mr. Thomas controls 100% of our outstanding limited voting stock, and 26.9% of our outstanding voting stock (including outstanding shares of common stock owned by Mr. Thomas and his affiliates) as of June 30, 2012. The limited voting shares are entitled to vote in the election of directors, for the approval of certain extraordinary transactions including any merger, sale or liquidation of the Company, amendments to our certificate of incorporation and any other matter required to be submitted to a separate class vote under Delaware law. Mr. Thomas may have interests that differ from that of our public stockholders, including by reason of his interests held in Operating Partnership units, and may accordingly vote as a stockholder in ways that may not be consistent with the interests of our public stockholders. This significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of our Company, or could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company. Pursuant to the Madison Agreements, subject to certain exceptions, during the period from the sixth anniversary of the issuance of shares to Madison's affiliates until the ninth anniversary of such date, Mr. Thomas has agreed to vote (and to cause his affiliated entities to vote) all of his controlled group's shares of common stock and limited voting stock in a manner that is in direct proportion to the manner in which other holders of the common stock vote on a proposed company sale transaction. This vote neutralization provision will not apply, however, if Madison's affiliates no longer beneficially own at least 10% of the our total voting securities or if the volume-weighted average price of our common stock is at least $12.50 per share during the six month period prior to the sixth anniversary of the issuance of the shares to Madison's affiliates (or at least $10.00 per share if our common stock has met certain trading volume tests).

Some provisions of our certificate of incorporation and bylaws may deter takeover attempts, which may limit the opportunity of our stockholders to sell their shares at a favorable price.

Some of the provisions of our certificate of incorporation and bylaws could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders by potentially providing them with the opportunity to sell their shares at a premium over the then market price. Our certificate of incorporation and bylaws contain provisions which may deter takeover attempts, including the following:

• vacancies on our board of directors may only be filled by the remaining directors;

• only the board of directors can change the number of directors;

• there is no provision for cumulative voting for directors;

• directors may only be removed for cause; and

• our stockholders are not permitted to act by written consent.

In addition, our certificate of incorporation authorizes the board of directors to issue up to 25,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which will be determined at the time of issuance by our board of directors without further action by our stockholders. These terms may include voting rights, including the right to vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of our common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders' control of our Company.

Finally, we are also subject to Section 203 of the Delaware General Corporation Law which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any "interested stockholder" for a period of three years following the date that such stockholder became an interested stockholder.

The provisions of our certificate of incorporation and bylaws, described above, as well as Section 203 of the Delaware General Corporation Law, could discourage potential acquisition proposals, delay or prevent a change of control and prevent changes in our management, even if these events would be in the best interests of our stockholders.

We could authorize and issue stock without stockholder approval, which could cause our stock price to decline and which could dilute the holdings of our existing stockholders.

Our certificate of incorporation authorizes our board of directors to issue authorized but unissued shares of our common stock or preferred stock to classify or reclassify any unissued shares of our preferred stock and to set the preferences, rights and other terms of the classified or unclassified shares. Our board of directors could establish a series of preferred stock that could,

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depending on the terms of the series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.

The payment of dividends on our common stock is at the discretion of our board of directors and subject to various restrictions and considerations and, consequently, may be changed or discontinued at any time.

Although we historically paid quarterly cash dividends on our common stock after our initial public offering until December 2009, and since December 2011 have resumed paying a quarterly cash dividend, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition, and any other factors deemed relevant by our board of directors. In December 2009, our board of directors suspended the quarterly dividends to common stockholders. Although the board of directors reinstated the quarterly cash dividend in the fourth quarter of 2011, there is no guarantee that dividend payments will continue. Without dividend payments, the only opportunity to achieve a positive return on an investment in our common stock is if the market price of our common stock appreciates.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits

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.

The following Thomas Properties Group, Inc. financial information for the quarter ended June 30, 2012, formatted in XBRL (eXtensible Business Reporting Language):

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

___________________

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: August 8, 2012

THOMAS PROPERTIES GROUP, INC.
By:	/s/ James A. Thomas
	James A. Thomas
	Chief Executive Officer
By:	/s/ Diana M. Laing
	Diana M. Laing
	Chief Financial Officer

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