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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 March 31, 2006.



| ̈ | 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) |  | (IRS employer identification number)
|                                                               | 
|515 South Flower Street, Sixth Floor Los Angeles, CA           |  | 90071                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrants telephone number, including area code (213) 613-1900

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 ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of
the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer  x                 Non-accelerated Filer ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes ̈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 May 10,
2006
|Common Stock, $.01 par value per share |  | 14,410,242                 



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##### Table of Contents

THOMAS PROPERTIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2006

TABLE OF CONTENTS



|                              |  |                                                                                                      |  |         
|----------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                      |  | PAGE NO.
|PART I. FINANCIAL INFORMATION |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1.                       |  | Consolidated Financial Statements of Thomas Properties Group, Inc.                                   |  |         
|                              |  |                                                                                                     
|                              |  | Consolidated Balance Sheets as of March 31, 2006 (unaudited) and December 31, 2005                   |  | 1       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Operations for the three months ended March 31, 2006 and 2005 (unaudited) |  | 2       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2006 and 2005 (unaudited) |  | 3       
|                              |  |                                                                                                     
|                              |  | Notes to Consolidated Financial Statements (unaudited)                                               |  | 4       
|                              |  |                                                                                                     
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 16      
|                              |  |                                                                                                     
|ITEM 3.                       |  | Quantitative and Qualitative Disclosure about Market Risk                                            |  | 24      
|                              |  |                                                                                                     
|ITEM 4.                       |  | Controls and Procedures                                                                              |  | 25      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1A.                      |  | Risk Factors                                                                                         |  | 26      
|                              |  |                                                                                                     
|ITEM 6.                       |  | Exhibits                                                                                             |  | 40      
|                              | 
|Signatures                    |  | 41                                                                                                  



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PART I. FINANCIAL INFORMATION



|ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS
|------- | ---------------------------------

THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)



|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | - | ----------------- | - | -------- | -
|                                                                                                                                                                             |  | March 31, 2006 |          |   | December 31, 2005 |  
|                                                                                                                                                                             |  | (unaudited)    |          |   |                   |  
|ASSETS                                                                                                                                                                       |  |                |          |   |                   |   |          |  
|Investments in real estate:                                                                                                                                                  |  |                |          |   |                   |   |          |  
|Land and improvements                                                                                                                                                        |  | $              | 35,350   |   |                   | $ | 35,350   |  
|Land and improvements  development property                                                                                                                                 |  |                | 56,991   |   |                   |   | 50,056   |  
|Buildings and improvements                                                                                                                                                   |  |                | 253,290  |   |                   |   | 253,095  |  
|Tenant improvements                                                                                                                                                          |  |                | 68,788   |   |                   |   | 66,921   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|                                                                                                                                                                             |  |                | 414,419  |   |                   |   | 405,422  |  
|Less accumulated depreciation                                                                                                                                                |  |                | (106,787 | ) |                   |   | (104,325 | )
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|                                                                                                                                                                             |  |                | 307,632  |   |                   |   | 301,097  |  
|Investment in real estate  development property held for sale                                                                                                               |  |                | 7,787    |   |                   |   | 12,064   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|                                                                                                                                                                             |  |                | 315,419  |   |                   |   | 313,161  |  
|Investments in unconsolidated real estate entities                                                                                                                           |  |                | 37,821   |   |                   |   | 41,124   |  
|Cash and cash equivalents                                                                                                                                                    |  |                | 55,222   |   |                   |   | 63,915   |  
|Restricted cash                                                                                                                                                              |  |                | 9,460    |   |                   |   | 15,511   |  
|Rents and other receivables                                                                                                                                                  |  |                | 1,981    |   |                   |   | 1,804    |  
|Receivablesunconsolidated real estate entities                                                                                                                              |  |                | 4,359    |   |                   |   | 3,335    |  
|Deferred rents                                                                                                                                                               |  |                | 21,781   |   |                   |   | 23,111   |  
|Deferred leasing and loan costs                                                                                                                                              |  |                | 15,631   |   |                   |   | 16,173   |  
|Deferred tax asset                                                                                                                                                           |  |                | 40,869   |   |                   |   | 39,440   |  
|Other assets, net                                                                                                                                                            |  |                | 8,897    |   |                   |   | 4,313    |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total assets                                                                                                                                                                 |  | $              | 511,440  |   |                   | $ | 521,887  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  |                |          |   |                   |   |          |  
|Liabilities:                                                                                                                                                                 |  |                |          |   |                   |   |          |  
|Mortgage loans                                                                                                                                                               |  | $              | 272,197  |   |                   | $ | 273,575  |  
|Other secured loans                                                                                                                                                          |  |                | 46,814   |   |                   |   | 47,704   |  
|Unsecured loan                                                                                                                                                               |  |                | 3,900    |   |                   |   | 3,900    |  
|Accounts payable and other liabilities, net                                                                                                                                  |  |                | 13,641   |   |                   |   | 13,545   |  
|Dividends and distributions payable                                                                                                                                          |  |                | 1,916    |   |                   |   | 1,905    |  
|Prepaid rent                                                                                                                                                                 |  |                | 3,639    |   |                   |   | 3,753    |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total liabilities                                                                                                                                                            |  |                | 342,107  |   |                   |   | 344,382  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Minority interests:                                                                                                                                                          |  |                |          |   |                   |   |          |  
|Unitholders in the Operating Partnership                                                                                                                                     |  |                | 68,790   |   |                   |   | 74,099   |  
|Minority interests in consolidated real estate entities                                                                                                                      |  |                |         |   |                   |   | 26       |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total minority interests                                                                                                                                                     |  |                | 68,790   |   |                   |   | 74,125   |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Commitments and contingencies                                                                                                                                                |  |                |          |   |                   |   |          |  
|Stockholders equity:                                                                                                                                                        |  |                |          |   |                   |   |          |  
|Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding as March 31, 2006 and December 31,
2005                                            |  |                |         |   |                   |   |         |  
|Common stock, $.01 par value, 75,000,000 shares authorized, 14,410,242 and 14,347,465 shares issued and outstanding as of March 31, 2006
and December 31, 2005, respectively |  |                | 143      |   |                   |   | 143      |  
|Limited voting stock, $.01 par value, 20,000,000 shares authorized, 16,666,666 shares issued and outstanding as of March 31, 2006 and
December 31, 2005                      |  |                | 167      |   |                   |   | 167      |  
|Additional paid-in capital                                                                                                                                                   |  |                | 106,683  |   |                   |   | 106,713  |  
|Retained deficit                                                                                                                                                             |  |                | (6,450   | ) |                   |   | (3,379   | )
|Unearned compensation, net                                                                                                                                                   |  |                |         |   |                   |   | (264     | )
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total stockholders equity                                                                                                                                                   |  |                | 100,543  |   |                   |   | 103,380  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $              | 511,440  |   |                   | $ | 521,887  |  
|                                                                                                                                                                             |  |                |          |   |                   |   |          |  

See accompanying notes to consolidated financial statements.



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THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                       |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------ |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                       |  | Three Months EndedMarch 31, |           
|                                                                                                       |  | 2006                        |            |   | 2005 |  
|Revenues:                                                                                              |  |                             |            |   |      |   |            |  
|Rental                                                                                                 |  | $                           | 8,295      |   |      | $ | 8,280      |  
|Tenant reimbursements                                                                                  |  |                             | 4,893      |   |      |   | 4,914      |  
|Parking and other                                                                                      |  |                             | 897        |   |      |   | 1,443      |  
|Investment advisory, management, leasing, and development services                                     |  |                             | 1,414      |   |      |   | 1,369      |  
|Investment advisory, management, leasing, and development servicesunconsolidated real estate entities |  |                             | 2,173      |   |      |   | 1,627      |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Total revenues                                                                                         |  |                             | 17,672     |   |      |   | 17,633     |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Expenses:                                                                                              |  |                             |            |   |      |   |            |  
|Rental property operating and maintenance                                                              |  |                             | 4,328      |   |      |   | 4,075      |  
|Real estate taxes                                                                                      |  |                             | 1,456      |   |      |   | 1,459      |  
|Investment advisory, management, leasing, and development services                                     |  |                             | 1,803      |   |      |   | 1,473      |  
|Rentunconsolidated real estate entities                                                               |  |                             | 58         |   |      |   | 58         |  
|Interest                                                                                               |  |                             | 5,487      |   |      |   | 6,312      |  
|Depreciation and amortization                                                                          |  |                             | 3,105      |   |      |   | 3,317      |  
|General and administrative                                                                             |  |                             | 3,274      |   |      |   | 2,840      |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Total expenses                                                                                         |  |                             | 19,511     |   |      |   | 19,534     |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Loss from early extinguishment of debt                                                                 |  |                             | (360       | ) |      |   |           |  
|Interest income                                                                                        |  |                             | 676        |   |      |   | 417        |  
|Equity in net loss of unconsolidated real estate entities                                              |  |                             | (5,790     | ) |      |   | (1,328     | )
|Minority interests  unitholders in the Operating Partnership                                          |  |                             | 4,203      |   |      |   | 1,511      |  
|Minority interests in consolidated real estate entities                                                |  |                             | (524       | ) |      |   |           |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Loss before benefit for income taxes                                                                   |  |                             | (3,634     | ) |      |   | (1,301     | )
|Benefit for income taxes                                                                               |  |                             | 1,429      |   |      |   | 525        |  
|                                                                                                       |  |                             |            |   |      |   |            |  
|Net loss                                                                                               |  | $                           | (2,205     | ) |      | $ | (776       | )
|                                                                                                       |  |                             |            |   |      |   |            |  
|Loss per share  basic and diluted                                                                     |  | $                           | (0.15      | ) |      |   | (0.05      | )
|Weighted average common shares outstanding  basic and diluted                                         |  |                             | 14,320,779 |   |      |   | 14,295,236 |  

See accompanying notes to consolidated financial statements.



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THOMAS PROPERTIES GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                                                                      |  |                             |        |   |      |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                                                                                                                      |  | Three Months EndedMarch 31, |       
|                                                                                                                                      |  | 2006                        |        |   | 2005 |  
|Cash flows from operating activities:                                                                                                 |  |                             |        |   |      |   |        |  
|Net loss                                                                                                                              |  | $                           | (2,205 | ) |      | $ | (776   | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                                           |  |                             |        |   |      |   |        |  
|Loss from early extinguishment of debt                                                                                                |  |                             | 360    |   |      |   |       |  
|Equity in net loss of unconsolidated real estate entities                                                                             |  |                             | 5,790  |   |      |   | 1,328  |  
|Deferred rents                                                                                                                        |  |                             | 1,334  |   |      |   | 1,176  |  
|Depreciation and amortization expense                                                                                                 |  |                             | 3,105  |   |      |   | 3,317  |  
|Amortization of loan costs                                                                                                            |  |                             | 172    |   |      |   | 175    |  
|Amortization of loan premium                                                                                                          |  |                             |       |   |      |   | (111   | )
|Amortization of above and below market leases, net                                                                                    |  |                             | (69    | ) |      |   | (109   | )
|Vesting of stock options and restricted stock                                                                                         |  |                             | 145    |   |      |   | 132    |  
|Minority interests                                                                                                                    |  |                             | (3,679 | ) |      |   | (1,511 | )
|Distributions from operations of unconsolidated real estate entities                                                                  |  |                             | 376    |   |      |   |       |  
|Changes in assets and liabilities:                                                                                                    |  |                             |        |   |      |   |        |  
|Rents and other receivables                                                                                                           |  |                             | (537   | ) |      |   | (18    | )
|Receivablesunconsolidated real estate entities                                                                                       |  |                             | (1,024 | ) |      |   | (2,007 | )
|Deferred leasing costs                                                                                                                |  |                             | (5     | ) |      |   | (94    | )
|Deferred tax asset                                                                                                                    |  |                             | (1,429 | ) |      |   | (525   | )
|Other assets                                                                                                                          |  |                             | (4,584 | ) |      |   | (4,315 | )
|Deferred interest payable                                                                                                             |  |                             | 44     |   |      |   | 652    |  
|Accounts payable and other liabilities                                                                                                |  |                             | (618   | ) |      |   | (111   | )
|Due to affiliate                                                                                                                      |  |                             |       |   |      |   | (1,509 | )
|Prepaid rent                                                                                                                          |  |                             | (114   | ) |      |   | 1,932  |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Net cash used in operating activities                                                                                                 |  |                             | (2,938 | ) |      |   | (2,374 | )
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Cash flows from investing activities:                                                                                                 |  |                             |        |   |      |   |        |  
|Expenditures for improvements to real estate                                                                                          |  |                             | (4,182 | ) |      |   | (1,988 | )
|Purchases of interests in unconsolidated real estate entities                                                                         |  |                             |       |   |      |   | (8,800 | )
|Return of capital from unconsolidated real estate entities                                                                            |  |                             | 1      |   |      |   | 179    |  
|Contributions to unconsolidated real estate entities                                                                                  |  |                             | (2,864 | ) |      |   | (4,330 | )
|Proceeds from maturity of short-term investments                                                                                      |  |                             |       |   |      |   | 14,000 |  
|Change in restricted cash                                                                                                             |  |                             | 6,051  |   |      |   | 3,507  |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Net cash (used in) provided by investing activities                                                                                   |  |                             | (994   | ) |      |   | 2,568  |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Cash flows from financing activities:                                                                                                 |  |                             |        |   |      |   |        |  
|Payment of dividends to common stockholders and distributions to limited partners of the operating partnership                        |  |                             | (1,905 | ) |      |   |       |  
|Principal payments of mortgage and other secured loans                                                                                |  |                             | (2,312 | ) |      |   | (2,153 | )
|Minority interest distributions                                                                                                       |  |                             | (550   | ) |      |   |       |  
|Payment of loan costs                                                                                                                 |  |                             | (28    | ) |      |   |       |  
|Proceeds from exercise of stock options                                                                                               |  |                             | 34     |   |      |   |       |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Net cash used in financing activities                                                                                                 |  |                             | (4,761 | ) |      |   | (2,153 | )
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Net decrease in cash and cash equivalents                                                                                             |  |                             | (8,693 | ) |      |   | (1,959 | )
|Cash and cash equivalents at beginning of period                                                                                      |  |                             | 63,915 |   |      |   | 56,506 |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Cash and cash equivalents at end of period                                                                                            |  | $                           | 55,222 |   |      | $ | 54,547 |  
|                                                                                                                                      |  |                             |        |   |      |   |        |  
|Supplemental disclosure of cash flow information:                                                                                     |  |                             |        |   |      |   |        |  
|Cash paid for interest, net of capitalized interest of $955 and $293 for the three months ended March 31, 2006 and 2005,
respectively |  | $                           | 5,684  |   |      | $ | 5,842  |  
|Supplemental disclosure of non-cash investing and financing activities:                                                               |  |                             |        |   |      |   |        |  
|Accrual for declaration of dividends to common shareholders and distributions to limited partners of the operating partnership        |  | $                           | 1,916  |   |      | $ | 1,904  |  
|Investments in real estate included in accounts payable and other liabilities                                                         |  |                             | 783    |   |      |   |       |  

See accompanying notes to consolidated financial statements.



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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

1. Organization and Description of Business

The terms Thomas Properties, us,
we and our as used in this report refer to Thomas Properties Group, Inc. together with our operating partnership, Thomas Properties Group, L.P., or the Operating Partnership.

We were incorporated in the State of Delaware on March 9, 2004 to succeed to certain businesses of the Thomas Properties predecessor (Thomas
Properties Group, Inc. Predecessor, or TPGI Predecessor), which was not a legal entity but rather a combination of real estate entities and operations. We own, manage, lease, acquire and develop real estate, consisting primarily of
office properties and related parking garages, located in Southern California; Sacramento, California; Philadelphia, Pennsylvania; Northern Virginia; Houston, Texas; and Austin, Texas. The ultimate owners of TPGI Predecessor were
Mr. James A. Thomas, our Chairman, Chief Executive Officer and President, and certain others who had minor ownership interests.

Our operations are carried on through our Operating Partnership. We are the sole general partner in the Operating Partnership. Pursuant to contribution agreements among the owners of TPGI Predecessor and the Operating Partnership, the
Operating Partnership received a contribution of interests in the real estate properties, as well as the investment advisory, property management, leasing and real estate development operations of TPGI Predecessor in exchange for limited partnership
units (Units) in the Operating Partnership issued to the contributors and the assumption of debt and other specified liabilities. As of March 31, 2006, we held a 46.4% interest in the Operating Partnership which we consolidated, as
we have control over the major decisions of the Operating Partnership.

As of March 31, 2006, we were invested in the following real
estate entities:



|                                                  |  |                                                                |  |                                                              
|------------------------------------------------- |  | -------------------------------------------------------------- |  | -------------------------------------------------------------
|Entity                                            |  | Type; Possible Development                                     |  | Location                                                     
|                                                  |  |                                                               
|Consolidated entities:                            |  |                                                                |  |                                                              
|One Commerce Square                               |  | High-rise office                                               |  | Philadelphia Central Business District, Pennsylvania (PCBD)
|Two Commerce Square                               |  | High-rise office                                               |  | PCBD                                                         
|2101 Market Street                                |  | Undeveloped land; Residential/Office/Retail                    |  | PCBD                                                         
|Four Points Centre                                |  | Undeveloped land; Office/Retail/Research and Development/Hotel |  | Austin, Texas                                                
|Campus El Segundo                                 |  | Undeveloped land; Office/Retail/Research and Development/Hotel |  | El Segundo, California                                       
|                                                  |  |                                                               
|Unconsolidated entities:                          |  |                                                                |  |                                                              
|2121 Market Street and Harris Building Associates |  | Residential and Retail                                         |  | PCBD                                                         
|TPG/CalSTRS, LLC:                                 |  |                                                                |  |                                                              
|City National Plaza                               |  | High-rise office                                               |  | Los Angeles Central Business District, California            
|Reflections I                                     |  | Suburban office  single tenancy                               |  | Reston, Virginia                                             
|Reflections II                                    |  | Suburban office  single tenancy                               |  | Reston, Virginia                                             
|Four Falls Corporate Center                       |  | Suburban office                                                |  | Conshohocken, Pennsylvania                                   
|Oak Hill Plaza                                    |  | Suburban office                                                |  | King of Prussia, Pennsylvania                                
|Walnut Hill Plaza                                 |  | Suburban office                                                |  | King of Prussia, Pennsylvania                                
|Valley Square Office Park (1)                     |  | Suburban office                                                |  | Blue Bell, Pennsylvania                                      
|San Felipe Plaza                                  |  | High-rise office                                               |  | Houston, Texas                                               
|2500 City West                                    |  | Suburban office and undeveloped land                           |  | Houston, Texas                                               
|Brookhollow Central I, II and III                 |  | Suburban office                                                |  | Houston, Texas                                               
|Intercontinental Center                           |  | Suburban office                                                |  | Houston, Texas                                               
|TPG/P&A 2101 Market, LLC                          |  | Undeveloped land; Residential/Office/Retail                    |  | PCBD                                                         



|(1) | This property was sold on April 27, 2006 (see note 9).
|--- | ------------------------------------------------------



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements of our company
include all the accounts of Thomas Properties Group, Inc., the Operating Partnership and the subsidiaries of the Operating Partnership. Property interests owned by Mr. Thomas and entities majority owned by him were contributed to the Operating
Partnership in exchange for Units and have been accounted for as a reorganization of entities under common control in a manner similar to a pooling of interests. Accordingly, the contributed assets and assumed liabilities were recorded at TPGI
Predecessors historical cost basis. The pooling-of-interests method of accounting also requires the reporting of results of operations, for the period in which the combination occurred, as though the entities had been combined at either the
beginning of the period or inception.

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

The interests in One Commerce Square, Two Commerce Square, and Campus El Segundo (through October 11, 2005), not owned by us are
reflected as minority interest. Mr. Thomas owns an 11% ownership interest in each of One Commerce Square and Two Commerce Square. The unrecognized minority interest in the deficit of One Commerce Square and Two Commerce Square is $574,000 and
$4,346,000 at March 31, 2006, respectively. No further losses of One Commerce Square and Two Commerce Square have been allocated to the minority partner, as no further contributions are required from the minority partner. Future income
allocable to the minority partner will be reduced by such unrecognized losses.

Loss per share

The computation of basic loss per share is based on net loss and the weighted average number of shares of our common stock outstanding during the period.
The computation of diluted loss per share includes the assumed exercise of outstanding stock options and the effect of the vesting of unvested restricted stock that have been granted, all calculated using the treasury stock method.

Stock-Based Option and Incentive Compensation Accounting

Effective January 1, 2006, we adopted Financial Accounting Standards Board (FASB) Statement No. 123(R), Share-Based Payment (SFAS 123(R)). The adoption of this statement did not have a significant impact on
our financial statements, as we previous adopted the fair value based method of accounting of SFAS 123, Accounting for Stock-Based Compensation.



5



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##### Table of Contents

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



On January 1, 2006, in connection with the adoption of SFAS 123(R) we reclassified $264,000 to
net the unearned compensation line item within equity against additional paid in capital. Under SFAS 123(R), an equity instrument is not recorded to stockholders equity until the related compensation expense is recorded over the requisite
service period of the award. Prior to the adoption of SFAS 123(R), and in accordance with the previous accounting guidance, we recorded the full fair value of all issued but nonvested equity instruments in additional paid in capital and recorded an
offsetting deferred compensation balance on a separate line item within equity for the amount of compensation costs not yet recognized for these nonvested instruments.

Reclassifications

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

Interim Financial Data

The accompanying interim financial statements are unaudited, but have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and in conjunction with the rules and
regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting solely of normal recurring
matters) necessary for a fair presentation of the financial statements for these interim periods have been included. The results of operations for the interim periods are not necessarily indicative of the results to be obtained for the full fiscal
year.

3. Unconsolidated Real Estate Entities

The unconsolidated real estate entities include the entities that own 2121 Market Street, Harris Building Associates, TPG/CalSTRS, LLC, a joint venture with the California State Teachers Retirement System (CalSTRS) and
TPG/P&A 2101 Market, LLC. TPG/CalSTRS, LLC owns the following properties:

City National Plaza (purchased January 2003)

Reflections I (purchased October 2004)

Reflections II (purchased October 2004)

Four Falls Corporate Center (purchased March 2005)

Oak Hill Plaza (purchased March 2005)

Walnut
Hill Plaza (purchased March 2005)

Valley Square Office Park (purchased March 2005, and sold in April 2006)

San Felipe Plaza (purchased August 2005)

2500 City West (purchased August 2005)

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

Intercontinental Center (purchased August 2005)

2500 City West land (purchased December 2005)

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 March 31, 2006:



|                           |  |         
|-------------------------- |  | --------
|2121 Market Street         |  | 50.0%   
|Harris Building Associates |  | 0.1%(1) 
|TPG/CalSTRS, LLC:          |  |         
|City National Plaza        |  | 21.3%(2)
|All other properties       |  | 25.0%(3)
|TPG/P&A 2101 Market, LLC   |  | 50.0%(4)



6



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



| | (1) | The partnership that owns 2121 Market Street entered into a master lease for the property with Harris Building Associates designed to allow a third party investor to take advantage
of the historic tax credits for the property. The Operating Partnership and an unrelated party each hold a 0.05% general partnership interest in Harris Building Associates. The 99.9% limited partner of Harris Building Associates contributed $3.5
million and no further contributions are required. In addition, this partner is entitled to various distributions, fees, and priority returns. During 2004, the accumulated losses and distributions for this limited partner equaled their contribution
amount and priority return. As such, net income/loss is allocated equally to the general partners, resulting in an allocation of 50% net income/loss to us.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In accordance with the limited liability agreement, the minority owner of City National Plaza and the Operating Partnership are initially allocated depreciation expense of City
National Plaza ahead of CalSTRS. This resulted in the allocation to us of 22.5% of City National Plazas depreciation expense and 21.3% of City National Plazas net income/loss (excluding depreciation expense).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | In accordance with the limited liability agreement, the Operating Partnership is initially allocated depreciation expense of the properties ahead of CalSTRS. This resulted in the
allocation to us of 100% of depreciation expense and 25% of net income (excluding depreciation expense) of the properties.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (4) | This company was formed to hold a general partnership interest in the 2101 Market Street development project.
| | --- | -------------------------------------------------------------------------------------------------------------

Investments in unconsolidated real estate entities as of March 31, 2006 and December 31, 2005 are as follows:



|                                                            |  |               |        |   |                  |   |        |  
|----------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                            |  | March 31,2006 |        |   | December 31,2005 |  
|TPG/CalSTRS, LLC:                                           |  |               |        |   |                  |   |        |  
|City National Plaza                                         |  | $             | 19,053 |   |                  | $ | 19,848 |  
|Reflections I                                               |  |               | 1,073  |   |                  |   | 1,161  |  
|Reflections II                                              |  |               | 1,432  |   |                  |   | 1,499  |  
|Four Falls Corporate Center                                 |  |               | 1,446  |   |                  |   | 2,018  |  
|Oak Hill Plaza / Walnut Hill Plaza                          |  |               | 1,211  |   |                  |   | 1,801  |  
|Valley Square Office Park                                   |  |               | 1,531  |   |                  |   | 1,320  |  
|San Felipe Plaza                                            |  |               | 6,112  |   |                  |   | 6,858  |  
|2500 City West                                              |  |               | 4,246  |   |                  |   | 4,505  |  
|Brookhollow Central I, II and III / Intercontinental Center |  |               | 1,726  |   |                  |   | 1,853  |  
|2121 Market Street and Harris Building Associates           |  |               | (1,237 | ) |                  |   | (1,020 | )
|TPG/P&A 2101 Market, LLC                                    |  |               | 1,228  |   |                  |   | 1,281  |  
|                                                            |  |               |        |   |                  |   |        |  
|                                                            |  | $             | 37,821 |   |                  | $ | 41,124 |  
|                                                            |  |               |        |   |                  |   |        |  

The following is a summary of the investments in unconsolidated real estate entities for the three
months ended March 31, 2006:



|                                                          |  |   |        |  
|--------------------------------------------------------- |  | - | ------ | -
|Investment balance, January 1, 2006                       |  | $ | 41,124 |  
|Contributions                                             |  |   | 2,864  |  
|Equity in net loss of unconsolidated real estate entities |  |   | (5,790 | )
|Distributions                                             |  |   | (377   | )
|                                                          |  |   |        |  
|Investment balance, March 31, 2006                        |  | $ | 37,821 |  
|                                                          |  |   |        |  



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



TPG/CalSTRS, LLC, 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. Under the joint venture
agreement, we have an exclusive obligation until the earlier of May 1, 2007 and the date CalSTRS has contributed its full capital commitment to the joint venture to first present all acquisition opportunities involving core plus and value-add
properties to the joint venture before we may pursue them individually or in a joint venture with other parties. We are required to use diligent efforts to sell each joint venture property within five years of that property reaching stabilization,
except that for Reflections I and II, which are 100% leased, 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.

As of March 31, 2006, the unfunded capital commitments of CalSTRS and the Company were $60,402,000 and $20,133,000, respectively.

A buy-sell provision may be exercised under the joint venture agreement 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 either elect to buy the initiating partys interest, or to sell its own interest to the initiating party. Upon the occurrence of certain events, CalSTRS also has
a buy-out option to purchase our interest in the joint venture. The buyout price is based upon a 3% discount to the appraised fair market value. In addition, the minority owners of City National Plaza have the option to require the joint venture to
purchase its interest for an amount equal to what would be payable to them upon liquidation of the assets at fair market value.

Following
is summarized financial information for the unconsolidated real estate entities as of March 31, 2006 and December 31, 2005 and the three months ended March 31, 2006 and 2005:

Summarized Balance Sheets



|                                                                                                                                         |  |               |         |                  |   |        
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                                                                                                                         |  | March 31,2006 |         | December 31,2005
|ASSETS                                                                                                                                   |  |               |         |                  |   |        
|Investments in real estate                                                                                                               |  | $             | 754,546 |                  | $ | 746,551
|Receivables including deferred rents                                                                                                     |  |               | 23,015  |                  |   | 21,246 
|Other assets                                                                                                                             |  |               | 140,050 |                  |   | 140,260
|                                                                                                                                         |  |               |         |                  |   |        
|Total assets                                                                                                                             |  | $             | 917,611 |                  | $ | 908,057
|                                                                                                                                         |  |               |         |                  |   |        
|LIABILITIES AND OWNERS EQUITY                                                                                                           |  |               |         |                  |   |        
|Mortgage and other secured loans                                                                                                         |  | $             | 704,204 |                  | $ | 678,319
|Other liabilities                                                                                                                        |  |               | 49,210  |                  |   | 60,566 
|                                                                                                                                         |  |               |         |                  |   |        
|Total liabilities                                                                                                                        |  |               | 753,414 |                  |   | 738,885
|                                                                                                                                         |  |               |         |                  |   |        
|Minority interest                                                                                                                        |  |               |        |                  |   |       
|Owners equity:                                                                                                                          |  |               |         |                  |   |        
|Thomas Properties, including $14 and $(28) of other comprehensive income (loss) as of March 31, 2006 and December 31, 2005,
respectively |  |               | 39,408  |                  |   | 42,576 
|Other owners, including $(190) and $(323) of other comprehensive loss as of March 31, 2006 and December 31, 2005,
respectively           |  |               | 124,789 |                  |   | 126,596
|                                                                                                                                         |  |               |         |                  |   |        
|Total owners equity                                                                                                                     |  |               | 164,197 |                  |   | 169,172
|                                                                                                                                         |  |               |         |                  |   |        
|Total liabilities and owners equity                                                                                                     |  | $             | 917,611 |                  | $ | 908,057
|                                                                                                                                         |  |               |         |                  |   |        



8



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



Summarized Statements of Operations



|                                           |  |                             |         |   |      |   |        |  
|------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------ | -
|                                           |  | Three months endedMarch 31, |        
|                                           |  | 2006                        |         |   | 2005 |  
|Revenues                                   |  | $                           | 27,408  |   |      | $ | 13,560 |  
|Expenses:                                  |  |                             |         |   |      |   |        |  
|Operating and other expenses               |  |                             | 17,568  |   |      |   | 9,663  |  
|Interest expense                           |  |                             | 10,866  |   |      |   | 4,413  |  
|Depreciation and amortization              |  |                             | 12,539  |   |      |   | 3,800  |  
|                                           |  |                             |         |   |      |   |        |  
|Total expenses                             |  |                             | 40,973  |   |      |   | 17,876 |  
|                                           |  |                             |         |   |      |   |        |  
|Loss from continuing operations            |  |                             | (13,565 | ) |      |   | (4,316 | )
|Minority interest                          |  |                             | 706     |   |      |   | 1,763  |  
|Income (loss) from discontinued operations |  |                             | 188     |   |      |   | (209   | )
|                                           |  |                             |         |   |      |   |        |  
|Net loss                                   |  | $                           | (12,671 | ) |      | $ | (2,762 | )
|                                           |  |                             |         |   |      |   |        |  
|Thomas Properties share of net loss        |  | $                           | (6,131  | ) |      | $ | (1,470 | )
|                                           |  |                             |         |   |      |   |        |  

Included in the preceding summarized balance sheets as of March 31, 2006 and
December 31, 2005, are the following balance sheets of TPG/CalSTRS, LLC:



|                                                                                                                                         |  |               |         |                  |   |        
|---------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---------------- | - | -------
|                                                                                                                                         |  | March 31,2006 |         | December 31,2005
|ASSETS                                                                                                                                   |  |               |         |                  |   |        
|Investments in real estate                                                                                                               |  | $             | 733,895 |                  | $ | 718,044
|Receivables including deferred rents                                                                                                     |  |               | 20,411  |                  |   | 18,697 
|Other assets                                                                                                                             |  |               | 137,393 |                  |   | 144,062
|                                                                                                                                         |  |               |         |                  |   |        
|Total assets                                                                                                                             |  | $             | 891,699 |                  | $ | 880,803
|                                                                                                                                         |  |               |         |                  |   |        
|LIABILITIES AND MEMBERS EQUITY                                                                                                          |  |               |         |                  |   |        
|Mortgage and other secured loans                                                                                                         |  | $             | 684,604 |                  | $ | 658,589
|Other liabilities                                                                                                                        |  |               | 40,567  |                  |   | 54,306 
|                                                                                                                                         |  |               |         |                  |   |        
|Total liabilities                                                                                                                        |  |               | 725,171 |                  |   | 712,895
|                                                                                                                                         |  |               |         |                  |   |        
|Minority interest                                                                                                                        |  |               |        |                  |   |       
|Members equity:                                                                                                                         |  |               |         |                  |   |        
|Thomas Properties, including $14 and $(28) of other comprehensive income (loss) as of March 31, 2006 and December 31, 2005,
respectively |  |               | 38,583  |                  |   | 41,687 
|Other owners, including $(190) and $(323) of other comprehensive loss as of March 31, 2006 and December 31, 2005,
respectively           |  |               | 127,945 |                  |   | 126,221
|                                                                                                                                         |  |               |         |                  |   |        
|Total members equity                                                                                                                    |  |               | 166,528 |                  |   | 167,908
|                                                                                                                                         |  |               |         |                  |   |        
|Total liabilities and members equity                                                                                                    |  | $             | 891,699 |                  | $ | 880,803
|                                                                                                                                         |  |               |         |                  |   |        



9



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



Following is summarized financial information by real estate entity for the unconsolidated real
estate entities for the three months ended March 31, 2006 and 2005:



|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ----------------------------------------------- | ----- | - | --------------------- | - | ---- | --------------- |  | - | ------- | - |  | - | ------- | -
|                                                          |  | Three months ended March 31, 2006               |      
|                                                          |  | 2121 Market Streetand Harris BuildingAssociates |       |   | TPG/P&A2101Market,LLC |   |      | TPG/CalSTRS,LLC |  |   | Total   |  
|Revenues                                                  |  | $                                               | 1,353 |   |                       | $ |     |                 |  | $ | 26,055  |   |  | $ | 27,408  |  
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Expenses:                                                 |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Operating and other                                       |  |                                                 | 857   |   |                       |   | 259  |                 |  |   | 16,452  |   |  |   | 17,568  |  
|Interest                                                  |  |                                                 | 297   |   |                       |   |     |                 |  |   | 10,569  |   |  |   | 10,866  |  
|Depreciation and amortization                             |  |                                                 | 285   |   |                       |   | 407  |                 |  |   | 11,847  |   |  |   | 12,539  |  
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Total expenses                                            |  |                                                 | 1,439 |   |                       |   | 666  |                 |  |   | 38,868  |   |  |   | 40,973  |  
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Loss from continuing operations                           |  |                                                 | (86   | ) |                       |   | (666 | )               |  |   | (12,813 | ) |  |   | (13,565 | )
|Minority interest                                         |  |                                                 | (26   | ) |                       |   |     |                 |  |   | 732     | ) |  |   | 706     |  
|Income from discontinued operations                       |  |                                                 |      |   |                       |   |     |                 |  |   | 188     | ) |  |   | 188     |  
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Net loss                                                  |  | $                                               | (112  | ) |                       | $ | (666 | )               |  | $ | (11,893 | ) |  | $ | (12,671 | )
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Thomas Properties share of net loss                      |  | $                                               | (56   | ) |                       | $ | (333 | )               |  | $ | (5,742  | ) |  | $ | (6,131  | )
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Intercompany eliminations                                 |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   | 341     |  
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  
|Equity in net loss of unconsolidated real estate entities |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  | $ | (5,790  | )
|                                                          |  |                                                 |       |   |                       |   |      |                 |  |   |         |   |  |   |         |  



|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|--------------------------------------------------------- |  | ----------------------------------------------- | ----- | - | --------------- | - | ------ | ----- |  | - | ------ | -
|                                                          |  | Three months ended March 31, 2005               |      
|                                                          |  | 2121 Market Streetand Harris BuildingAssociates |       |   | TPG/CalSTRS,LLC |   |        | Total | 
|Revenues                                                  |  | $                                               | 1,298 |   |                 | $ | 12,262 |       |  | $ | 13,560 |  
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Expenses:                                                 |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Operating and other                                       |  |                                                 | 931   |   |                 |   | 8,732  |       |  |   | 9,663  |  
|Interest                                                  |  |                                                 | 301   |   |                 |   | 4,112  |       |  |   | 4,413  |  
|Depreciation and amortization                             |  |                                                 | 284   |   |                 |   | 3,516  |       |  |   | 3,800  |  
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Total expenses                                            |  |                                                 | 1,516 |   |                 |   | 16,360 |       |  |   | 17,876 |  
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Loss from continuing operations                           |  |                                                 | (218  | ) |                 |   | (4,098 | )     |  |   | (4,316 | )
|Minority interest                                         |  |                                                 |      |   |                 |   | 1,763  |       |  |   | 1,763  |  
|Loss from discontinued operations                         |  |                                                 |      |   |                 |   | (209   | )     |  |   | (209   | )
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Net loss                                                  |  | $                                               | (218  | ) |                 | $ | (2,544 | )     |  | $ | (2,762 | )
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Thomas Properties share of net loss                      |  | $                                               | (58   | ) |                 | $ | (1,412 | )     |  | $ | (1,470 | )
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Intercompany eliminations                                 |  |                                                 |       |   |                 |   |        |       |  |   | 142    |  
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  
|Equity in net loss of unconsolidated real estate entities |  |                                                 |       |   |                 |   |        |       |  | $ | (1,328 | )
|                                                          |  |                                                 |       |   |                 |   |        |       |  |   |        |  



10



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



Following is a reconciliation of our share of owners equity of the unconsolidated real estate
entities as shown above to amounts recorded by us as of March 31, 2006 and December 31, 2005:



|                                                                            |  |               |        |   |                  |   |        |  
|--------------------------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                                            |  | March 31,2006 |        |   | December 31,2005 |  
|Our share of owners equity recorded by unconsolidated real estate entities |  | $             | 39,408 |   |                  | $ | 42,576 |  
|Intercompany eliminations and other adjustments                             |  |               | (1,587 | ) |                  |   | (1,452 | )
|                                                                            |  |               |        |   |                  |   |        |  
|Investments in unconsolidated real estate entities                          |  | $             | 37,821 |   |                  | $ | 41,124 |  
|                                                                            |  |               |        |   |                  |   |        |  

4. Debt

A summary of the outstanding debt as of March 31, 2006 is as follows:



|                                      |  |                           |   |  |                 |         |              |         
|------------------------------------- |  | ------------------------- | - |  | --------------- | ------- | ------------ | --------
|                                      |  | Interest rate             |   |  | Outstandingdebt |         | Maturitydate
|Secured debt                          |  |                           |   |  |                 |         |              |         
|One Commerce Square mortgage loan (1) |  | 5.7                       | % |  | $               | 130,000 |              | 1/6/16  
|Two Commerce Square:                  |  |                           |   |  |                 |         |              |         
|Mortgage loan (2)                     |  | 6.3                       |   |  |                 | 118,697 |              | 5/09/13 
|Senior mezzanine loan (3) (4)         |  | 17.3                      |   |  |                 | 42,841  |              | 1/09/10 
|Junior A mezzanine loan (3) (5)       |  | 15.0                      |   |  |                 | 3,973   |              | 1/09/10 
|Campus El Segundo mortgage loan (6)   |  | Prime Rateor LIBOR + 2.25 |   |  |                 | 19,500  |              | 10/10/07
|Four Points Centre mortgage loan (7)  |  | Prime Rate                |   |  |                 | 4,000   |              | 8/28/06 
|                                      |  |                           |   |  |                 |         |              |         
|Total debt                            |  |                           |   |  | $               | 319,011 |              |         
|                                      |  |                           |   |  |                 |         |              |         
|Unsecured debt                        |  |                           |   |  |                 |         |              |         
|Former minority partner (8)           |  | 5.0                       | % |  | $               | 3,900   |              | 10/12/09
|                                      |  |                           |   |  |                 |         |              |         



|(1) | The mortgage loan is subject to interest only payments through January 9, 2011, and thereafter, principal and interest payments are due based on a thirty-year amortization
schedule through maturity on January 6, 2016. The loan is subject to yield maintenance payments for any prepayments prior to October 2015, and beginning January 2009, may be defeased.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The mortgage loan may be defeased after October 2005, and may be prepaid after February 2013.
|--- | ---------------------------------------------------------------------------------------------



|(3) | These loans are guaranteed by Mr. Thomas up to an aggregate maximum of $7,500,000. We have agreed to indemnify Mr. Thomas in the event his guarantees are called upon.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The senior mezzanine loan bears interest at a rate such that the weighted average of the rate on this loan and the rate on the mortgage loan secured by Two Commerce Square equals
9.2% per annum. The effective interest rate on this loan as of March 31, 2006 was 17.3% per annum. The loan may not be prepaid prior to August 9, 2009, and thereafter is subject to yield maintenance payments unless the loan is
prepaid within 60 days of maturity. The loan is secured by our ownership interest in the real estate entities that own Two Commerce Square.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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##### Table of Contents

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



|(6) | At March 31, 2006, $13,000,000 and $6,500,000 of the mortgage loan bears interest at 6.57% per annum and 7.00% per annum, respectively.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



|(7) | The prime rate as of March 31, 2006 was 7.75% per annum.
|--- | --------------------------------------------------------



|(8) | The loan is due to our former minority partner in TPG-El Segundo Partners, LLC. Principal and interest are due at maturity.
|--- | ---------------------------------------------------------------------------------------------------------------------------

Included in investments in real estate is capitalized interest of $4,354,000 and $3,399,000 as of March 31, 2006 and December 31, 2005,
respectively.

5. Loss per Share

The
following is a summary of the components used in calculating basic and diluted loss per share for the three months ended March 31, 2006 and 2005 (in thousands except share and per share amounts):



|                                                              |  |                                         |            |   |                                         |   |             |  
|------------------------------------------------------------- |  | --------------------------------------- | ---------- | - | --------------------------------------- | - | ----------- | -
|                                                              |  | For the threemonths endedMarch 31, 2006 |            |   | For the threemonths endedMarch 31, 2005 |  
|Loss available to common shares                               |  | $                                       | (2,205     | ) |                                         | $ | (776        | )
|Weighted average common shares outstanding  basic            |  |                                         | 14,320,779 |   |                                         |   | 14,295,236  |  
|Potentially dilutive common shares(1):                        |  |                                         |            |   |                                         |   |             |  
|Stock options                                                 |  |                                         |           |   |                                         |   |            |  
|Unvested restricted stock                                     |  |                                         |           |   |                                         |   |            |  
|                                                              |  |                                         |            |   |                                         |   |             |  
|Adjusted weighted average common shares outstanding  diluted |  |                                         | 14,320,779 |   |                                         |   | 14, 295,236 |  
|                                                              |  |                                         |            |   |                                         |   |             |  
|Loss per share  basic                                        |  | $                                       | (0.15      | ) |                                         | $ | (0.05       | )
|                                                              |  |                                         |            |   |                                         |   |             |  
|Loss per share  diluted                                      |  | $                                       | (0.15      | ) |                                         | $ | (0.05       | )
|                                                              |  |                                         |            |   |                                         |   |             |  



|(1) | For the three months ended March 31, 2006 and 2005, the potentially dilutive shares were not included in the loss per share calculation as their effect is antidilutive.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6. Stockholders Equity

A Unit and a share of our common stock have essentially the same economic characteristics as they share equally in the total net income or loss and distributions of the Operating Partnership. A Unit may be redeemed for cash, or exchanged
for shares of common stock at our election, on a one-for-one basis. We committed to issue 730,003 incentive units to certain employees. Incentive units represent a profits interest in the Operating Partnership and generally will be treated as
regular Units in the Operating Partnership and rank pari passu with the Units as to payment of distributions, including distributions of assets upon liquidation. Incentive units are subject to vesting, forfeiture and additional restrictions on
transfer as may be determined by us as general partner of the Operating Partnership. The holder of an incentive unit has the right to convert all or a part of his vested incentive units into Units, but only to the extent of the incentive units
economic capital account balance. As general partner, we may also cause any number of vested incentive units to be converted into Units to the extent of the incentive units economic capital account balance. We had 14,410,242 shares of
common stock, and 16,666,666 Units outstanding as of March 31, 2006, and had committed to issue 730,003 of incentive units.

We
adopted the 2004 Equity Incentive Plan of Thomas Properties Group, Inc. (the Incentive Plan). The Incentive Plan provides incentives to our employees and is designed to attract, reward and retain personnel. Our Incentive Plan permits the
granting of awards in the form of options to purchase common stock, restricted shares of common stock and restricted incentive units in our Operating Partnership. We may issue up to 1,392,858 shares reserved under the Incentive Plan as either
restricted stock awards or



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



incentive unit awards and up to 619,048 shares upon the exercise of options granted pursuant to the Incentive Plan. In addition, under our Non-employee
Directors Restricted Stock Plan (the Non-employee Directors Plan) a total of 60,000 shares are available for grant.

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

Restricted Stock

Under the Incentive Plan, we issued 46,667 shares of restricted stock with an aggregate value of $560,000 upon consummation of our initial public
offering on October 13, 2004, and 60,000 shares of restricted stock with an aggregate value of $740,000 in February 2006. Vesting for the 46,667 and 60,000 shares commenced as of October 13, 2004 and February 22, 2006, respectively.
The restricted shares will vest in full on the third anniversary of the commencement date, provided that vesting could occur on the second anniversary of the commencement date if certain performance goals are met. The holder of these shares has full
voting rights and will receive any dividends paid.

Under the Non-employee Directors Plan, we issued 10,000 shares of restricted stock
with an aggregate value of $120,000 upon consummation of our initial public offering on October 13, 2004, and 4,984 shares of restricted stock with an aggregate value of $60,000 following the 2005 Annual Meeting of Stockholders. Vesting for the
10,000 and 4,984 shares commenced as of October 13, 2004 and June 15, 2005, respectively. The 10,000 and 4,984 shares granted to our non-employee directors will vest on October 13, 2006 and following the 2006 Annual Meeting of
Stockholders, respectively, subject to the continued service of the director. The holders of these shares have full voting rights and will receive any dividends paid.

As of March 31, 2006, there was $1,045,000 of total unrecognized compensation cost related to the nonvested restricted stock. The cost is expected to be recognized over a weighted average period of 2.4 years. The
total fair value of shares vested during the three months ended March 31, 2006 and 2005 was $121,000 and $69,000. The weighted-average grant date fair value of restricted stock granted during the three months ended March 31, 2006 was
$12.34.

We recorded compensation expense totaling $108,000 and $62,000 for the vesting of the restricted stock grants for the three months
ended March 31, 2006 and 2005, respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $20,000 and $11,000 for the three months ended March 31, 2006 and 2005,
respectively.

Stock options

In
addition, under our Incentive Plan, we have 346,250 stock options outstanding as of March 31, 2006. The options vest at the rate of one third per year and expire ten years after the date of commencement of vesting. The fair market value of each
option granted was estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted-average assumptions for grants in 2006 and 2005:



|                                |  |              |   |  |              |  
|------------------------------- |  | ------------ | - |  | ------------ | -
|                                |  | 2006         |   |  | 2005         |  
|Expected dividend yield         |  | 2.0          | % |  | 2.0          | %
|Expected life of option         |  | 2 to 4 years |   |  | 1 to 3 years |  
|Risk-free interest rate         |  | 4.40         | % |  | 2.88         | %
|Expected stock price volatility |  | 15           | % |  | 20           | %



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##### Table of Contents

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



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



|                                      |  |         |   |  |                              |       |                                                   |     |                         |   |    
|------------------------------------- |  | ------- | - |  | ---------------------------- | ----- | ------------------------------------------------- | --- | ----------------------- | - | ---
|                                      |  | Shares  |   |  | WeightedAverageExercisePrice |       | WeightedAverageRemainingContractualTerm (inyears) |     | AggregateIntrinsicValue
|Outstanding at January 1, 2006        |  | 334,027 |   |  | $                            | 12.26 |                                                   |     |                         |   |    
|Granted                               |  | 15,000  |   |  |                              | 12.36 |                                                   |     |                         |   |    
|Exercised                             |  | (2,777  | ) |  |                              | 12.26 |                                                   |     |                         |   |    
|                                      |  |         |   |  |                              |       |                                                   |     |                         |   |    
|Outstanding at March 31, 2006         |  | 346,250 |   |  | $                            | 12.26 |                                                   | 8.7 |                         | $ | 466
|                                      |  |         |   |  |                              |       |                                                   |     |                         |   |    
|Options exercisable at March 31, 2006 |  | 110,417 |   |  | $                            | 12.26 |                                                   | 8.5 |                         | $ | 149
|                                      |  |         |   |  |                              |       |                                                   |     |                         |   |    

As of March 31, 2006, there was $158,000 of total unrecognized compensation cost related to
the nonvested stock options. The cost is expected to be recognized over a weighted average period of 1.3 years. The total fair value of shares vested during the three months ended March 31, 2006 and 2005 was $344,000 and $679,000, respectively.
The weighted-average grant date fair value of options granted during the three months ended March 31, 2006 was $1.44. The options exercised during the three months ended March 31, 2006 had an intrinsic value of $2,000.

We recorded compensation expense totaling $37,000 and $70,000 related to the stock options for the three months ended March 31, 2006 and 2005,
respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $7,000 and $13,000 for the three months ended March 31, 2006 and 2005, respectively.

Shelf Registration

In April 2006, we filed a shelf
registration statement under which we may sell up to $150,000,000 in aggregate initial offering price of common stock, preferred stock, warrants, or debt securities in one or more issuances.

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. We are responsible for our share
of taxable income or loss of the Operating Partnership allocated to us in accordance with the Operating Partnerships Agreement of Limited Partnership. As of March 31, 2006, we held a 46.4% capital interest in the Operating Partnership.
For the three months ended March 31, 2006, we were allocated 46.4% of the losses from the Operating Partnership.

Our effective tax
rate is 39.3% for the three months ended March 31, 2006. The higher effective tax rate compared to the federal statutory rate of 35% is primarily due to state taxes, net of federal tax expense.

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



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##### Table of Contents

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2006

(Unaudited)

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



The deferred tax asset resulted primarily from the difference between the financial statement basis,
which is at carryover basis, and the tax basis, which represents the amount paid by the stockholders at fair value.

SFAS No. 109,
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. Realization of the deferred tax asset is dependent on
us generating sufficient taxable income in future years as the deferred income tax charges become currently deductible for tax reporting purposes. Although realization is not assured, management believes that it is more likely than not that the net
deferred income tax asset will be realized.

8. Fair Value of Financial Instruments

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

Our estimates of the fair value of
financial instruments at March 31, 2006 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.

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

As of March 31, 2006, the fair value of our mortgage and other secured loans and unsecured loan aggregates $315,087,000, compared to the aggregated
carrying value of $322,911,000.

9. Subsequent Event

On April 27, 2006, our joint venture with CalSTRS completed the sale of Valley Square Office Park located in suburban Philadelphia. The property was sold for $42,500,000 and a portion of the proceeds from the
sale were used to repay the $30,300,000 mortgage debt of the property. The sale resulted in a gain of approximately $7,200,000 to our joint venture with CalSTRS. The Operating Partnership realized a gain of approximately $2,800,000, including a
promoted interest of approximately $600,000.



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##### Table of Contents

|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 report 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 global 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, 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 involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Although information
is based on our current estimations, forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise. These statements are subject to certain risks and uncertainties that could cause actual results to differ
materially from those anticipated. 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 office, retail and multi-family properties on a nationwide basis. We conduct our business through our Operating Partnership, of which we own 46.4% and have control
over the major decisions of the Operating Partnership.



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##### Table of Contents

Results of Operations

The results of operations reflect the consolidation of the affiliates that own One Commerce Square, Two Commerce Square, 2101 Market Street, Four Points Centre, Campus El Segundo and our investment advisory, property
management, leasing and real estate development operations. The following properties are accounted for using the equity method of accounting:

2121 Market Street (for all periods presented)

City National Plaza (for all periods presented)

Reflections I (for all periods presented)

Reflections II (for all periods presented)

TPG/P&A 2101 Market (as of March 2005, the date of formation)

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

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

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

Valley Square Office Park (as of March 2005, the date of acquisition)

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

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

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

Intercontinental Center (as of August 2005, the date of acquisition)

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

Comparison of three months ended March 31, 2006 to three months ended March 31, 2005

Total revenues. Total revenues remained consistent for each of the three month periods ended March 31, 2006 and 2005. The significant components of revenue are discussed below.

Rental revenues. Rental revenue remained consistent at $8.3 million for each of the three month periods ended March 31, 2006 and 2005.

Tenant reimbursements.Revenues remained consistent at $4.9 million for each of the three month periods ended March 31, 2006
and 2005.

Parking and other revenues. Revenues from parking and other decreased by $546,000, or 37.8%, to $897,000 for the three
months ended March 31, 2006 compared to $1.4 million for the three months ended March 31, 2005, primarily as a result of a $434,000 lease termination fee for a tenant at One Commerce Square in 2005, and a decrease in parking revenues
related to the 2101 Market Street development property. Beginning in May 2005, upon commencement of the development of the property, the incidental parking revenues are accounted for as a reduction of capitalized project costs.

Investment advisory, management, leasing and development services revenues.This caption represents revenues earned from services provided to
unaffiliated entities in which we have no ownership interest. Revenues from these services remained consistent at $1.4 million for each of the three month periods ended March 31, 2006 and 2005. There was an increase in leasing commissions of
$133,000 related to several properties, and an increase in development fees relating to a new professional services agreement with NBC Universal, Inc. to advise on a plan for future development at its Universal City property in Los Angeles. This
agreement was entered into in March 2006. These increases were offset by acquisition fees of $199,000 in 2005 related to Valencia Town Center.

Investment advisory, management, leasing and development services revenues  unconsolidated real estate entities. This caption represents revenues earned from services provided to entities in which we use the equity method to
account for our ownership interest since we have significant influence, but not control over the entities. Revenues from these services from unconsolidated real estate entities increased by $546,000, or 33.6%, to $2.2 million for the three months
ended March 31, 2006 compared to $1.6 million for the three months ended March 31, 2005. This increase was primarily a result of fee income related to the property investments in Houston and suburban Philadelphia, which were acquired in
August and March 2005, respectively, by our joint venture with CalSTRS. Investment advisory and management fees increased $646,000 relating to all of the acquired properties. In addition, for the three months ended March 31, 2006, leasing
commissions and development fees increased $245,000 and reimbursed compensation costs increased $245,000 relating to the acquired properties. The increase was also due to the increase in leasing commission and development fees of $121,000 at City
National Plaza. These



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##### Table of Contents

increases were offset by a one-time acquisition fee of $663,000 relating to the suburban Philadelphia properties in 2005.

Total expenses. Total expenses remained consistent for each of the three month periods ended March 31, 2006 and 2005. The significant
components of expense are discussed below.

Rental property operating and maintenance expense.Rental property operating and
maintenance expense increased by $253,000, or 6.2%, to $4.3 million for the three months ended March 31, 2006 compared to $4.1 million for the three months ended March 31, 2005, primarily as a result of an increase in city of Philadelphia
business taxes, offset by several miscellaneous decreases, including a decrease in electricity expense due to lower usage in 2006, and a decrease in parking expenses for 2101 Market Street development property due to the commencement of the
development of the property beginning in May 2005.

Real estate taxes.Real estate tax expense remained consistent for each of the
three month periods ended March 31, 2006 and 2005.

Investment advisory, management, leasing and development services expenses.Expenses for these services increased by $330,000, or 22.4%, to $1.8 million for the three months ended March 31, 2006 compared to $1.5 million for the three months ended March 31, 2005, primarily as a result of an increase in salaries
and employment related costs due to an increase in the number of personnel.

Interest expense. Interest expense decreased by
$825,000 or 13.1% to $5.5 million for the three months ended March 31, 2006 compared to $6.3 million for the three months ended March 31, 2005. The decrease is primarily due to a decrease in interest expense relating to Two Commerce Square
of $697,000 for the three months ended March 31, 2006 as compared to the three months ended March 31, 2005, primarily due to the purchase of the Junior B mezzanine loan in April 2005 and the amortizing loan balances for the mortgage and
mezzanine loans. This decrease is also due to capitalized interest of $255,000 during the three months ended March 31, 2006, related to the Four Points Centre, Campus El Segundo, and 2101 Market Street development properties, which was expensed
during the three months ended March 31, 2005. We began capitalizing interest on Four Points Centre, Campus El Segundo, and 2101 Market Street in October 2004, April 2005, and July 2005, respectively.

The decrease was offset by an increase in interest expense relating to One Commerce Square of $160,000 for the three months ended March 31, 2006 as
compared to the three months ended March 31, 2005. This increase was primarily due to refinancing of the mortgage loan in December 2005, offset by the repayment of the mezzanine loan in April 2005.

Depreciation and amortization expense. Depreciation and amortization expense decreased by $212,000, or 6.4%, to $3.1 million for the three months
ended March 31, 2006 compared to $3.3 million for the three months ended March 31, 2005. The decrease is primarily due to the write-off of unamortized costs of $327,000 in 2005 for a tenant at One Commerce Square that terminated its lease
early. This decrease was offset by an increase in depreciation and amortization expense as a result of additional real estate improvements.

General and administrative. General and administrative expense increased by $434,000, or 15.3%, to $3.3 million for the three months ended March 31, 2006 compared to $2.8 million for the three months ended March 31, 2005.
The increase is primarily due to an increase in Sarbanes-Oxley related costs and salaries and employment related costs due to an increase in the number of personnel.

Loss on early extinguishment of debt. Loss on early extinguishment of debt was $360,000 for the three months ended March 31, 2006 due to the additional defeasance costs of the One Commerce Square mortgage
loan.

Interest income. Interest income increased by $259,000, or 62.1%, to $676,000 for the three months ended March 31, 2006
compared to $417,000 for the three months ended March 31, 2005, primarily due to higher interest rates.



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##### Table of Contents

Equity in net loss of unconsolidated real estate entities.Equity in net loss of unconsolidated
real estate entities increased by $4.5 million to a net loss of $5.8 million for the three months ended March 31, 2006 compared to a net loss of $1.3 million for the three months ended March 31, 2005. Set forth below is a summary of the
unconsolidated condensed financial information for the unconsolidated real estate entities and our share of net loss and equity in net loss for the three months ended March 31, 2006 and 2005 (in thousands):



|                                                          |  |      |         |   |      |   |        |  
|--------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | -
|                                                          |  | 2006 |         |   | 2005 |  
|Revenue                                                   |  | $    | 27,408  |   |      | $ | 13,560 |  
|Operating and other expenses                              |  |      | (17,568 | ) |      |   | (9,663 | )
|Interest expense                                          |  |      | (10,866 | ) |      |   | (4,413 | )
|Depreciation and amortization                             |  |      | (12,539 | ) |      |   | (3,800 | )
|Minority interest                                         |  |      | 706     |   |      |   | 1,763  |  
|Income (loss) from discontinued operations                |  |      | 188     |   |      |   | (209   | )
|                                                          |  |      |         |   |      |   |        |  
|Net loss                                                  |  | $    | (12,671 | ) |      | $ | (2,762 | )
|                                                          |  |      |         |   |      |   |        |  
|Thomas Properties share of net loss                      |  | $    | (6,131  | ) |      | $ | (1,470 | )
|Intercompany eliminations                                 |  |      | 341     |   |      |   | 142    |  
|                                                          |  |      |         |   |      |   |        |  
|Equity in net loss of unconsolidated real estate entities |  | $    | (5,790  | ) |      | $ | (1,328 | )
|                                                          |  |      |         |   |      |   |        |  

Aggregate revenue attributable to, and operating and other expenses for unconsolidated real estate
entities for the three months ended March 31, 2006 compared to the three months ended March 31, 2005 increased primarily due to the acquisition of our interests in the three properties (the fourth property is included in discontinued
operations) in suburban Philadelphia on March 2, 2005 and four properties in Houston on August 4, 2005.

Aggregate interest
expense increased by $6.5 million, or 146.2%, to $10.9 million for the three months ended March 31, 2006 compared to $4.4 million for the three months ended March 31, 2005 primarily as a result of an increase in interest expense of $4.8
million relating to the debt obligations of Reflections I and Reflections II which originated in March 2005, the three properties in suburban Philadelphia, and the four properties in Houston. The increase was also due to additional borrowings on the
City National Plaza senior mezzanine loan in 2005 and higher average interest rates on the City National Plaza loans in 2006, which resulted in an increase in interest expense of $1.7 million.

Aggregate depreciation and amortization expense increased by $8.7 million, or 230.0%, to $12.5 million for the three months ended March 31, 2006
compared to $3.8 million for the three months ended March 31, 2005 primarily as a result of additional depreciation and amortization expense of $7.5 million due to the acquisition of our interests in the three properties in suburban
Philadelphia, and the four properties in Houston. In addition, the increase is a result of additional real estate improvements at City National Plaza during 2005, which resulted in an increase of $829,000 in depreciation and amortization expense for
the three months ended March 31, 2006, as compared to three months ended March 31, 2005.

Income (loss) from discontinued
operations is the result of the classification of one of the properties in suburban Philadelphia as held for sale in November 2005. The increase in income (loss) from discontinued operations was primarily due to depreciation and amortization, which
was $0 and $290,000 for the three months ended March 31, 2006 and 2005, respectively, as a result of the held for sale classification beginning in November 2005. This property was acquired in March 2005, and the sale of the property closed on
April 27, 2006.

Liquidity and Capital Resources

Analysis of liquidity and capital resources

As of March 31, 2006, we have unrestricted cash and
cash equivalents of $55.2 million. Our management believes that our company will have sufficient capital to satisfy our liquidity needs over the next 12 months through working capital and net cash provided by operations. We expect to meet our
long-term liquidity requirements, including property and undeveloped land acquisitions and additional future development and redevelopment activity, through cash flow from operations, additional secured and unsecured long-term borrowings,
dispositions of non-strategic assets, and the potential issuance of common units of our Operating Partnership or additional debt, common or preferred equity securities, including convertible securities. We do not have any present intent to reserve



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funds to retire existing debt upon maturity. We will instead seek to refinance this debt at maturity or retire the long-term debt through the issuance of
securities, as market conditions permit.

As of March 31, 2006, we have an unfunded capital commitment to our joint venture with
CalSTRS of $20.1 million. Our requirement to fund all or a portion of this commitment is subject to our identifying properties to acquire that are mutually acceptable to us and CalSTRS.

We intend to declare and pay annual dividends on our common stock. The availability of funds to pay dividends is impacted by property-level restrictions
on cash flows. Two Commerce Square is subject to debt financing covenants containing lock-box arrangements. Funds generated by Two Commerce Square cannot be distributed to us under the terms of the lock-box arrangements established for the existing
lenders for the property. In addition, our joint venture with CalSTRS is subject to debt financing with a lockbox arrangement. With respect to our joint venture properties, we do not control decision making with respect to these properties, and may
not be able to obtain monies from these properties even if funds are available for distribution to us. In addition, future financing arrangements we may enter into may contain restrictions on our use of cash generated from our properties.

Development and Redevelopment Projects

We currently own interests in three development projects and our joint venture with CalSTRS includes redevelopment properties. We have considerable expertise in the completion of large-scale development and
redevelopment projects. We anticipate developing these three development projects as market feasibility permits. We also anticipate seeking to mitigate development risk by obtaining significant pre-leasing and guaranteed maximum cost construction
contracts. There can be no assurance we will be able to successfully implement these risk mitigation measures.

The amount and timing of
costs associated with our development and redevelopment projects is inherently uncertain due to market and economic conditions. We presently intend to fund development and redevelopment expenditures primarily through construction or refurbishment
financing. In 2004 a parent of the entity that owns City National Plaza refinanced the loan for City National Plaza, which provides proceeds to cover the estimated future redevelopment costs. Presently, we have not obtained construction financing
for the three development projects. If we finance the development projects through construction loans and are unable to obtain permanent financing on advantageous terms or at all, we would need to fund these obligations from cash flow from
operations or seek alternative capital sources. If unsuccessful, this could adversely impact our financial condition and results of operations and impair our ability to satisfy our debt service obligations. If we are successful in obtaining
construction or refurbishment financing and permanent financing, we anticipate that the corresponding interest costs would represent both a significant use of our cash flow and a material component of our results of operations.

Leasing, Tenant Improvement and Capital Needs

In addition to our development and redevelopment projects, our company also owns majority interests in One Commerce Square and Two Commerce Square. These properties are substantially leased and have significant stabilized cash flows. These
properties require routine capital maintenance in the ordinary course of business. The properties also require that we incur expenditures for leasing commissions and tenant improvement costs. The level of these expenditures varies from year to year
based on several factors, including lease expirations. Based upon historical expenditure levels, the leasing activity for the properties and the current rent roll, we anticipate incurring expenditures of approximately $5.9 million in capital
improvements, tenant improvements, and leasing costs for the One Commerce Square and Two Commerce Square properties collectively during the remainder of 2006 and 2007.

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 March 31, 2006 is as follows (in thousands):



|                                           |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|------------------------------------------ |  | ---------------------- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ------ |  | - | ------- |  | - | -------
|                                           |  | Payments Due by Period
|                                           |  | Remainderof 2006       |        | 2007 |   | 2008   |  | 2009 |        | 2010 |   | Thereafter |  | Total
|Regularly scheduled principal payments     |  | $                      | 6,000  |      | $ | 8,892  |  | $    | 3,200  |      | $ | 500        |  | $     | 492    |  | $ | 13,958  |  | $ | 33,042 
|Balloon principal payments due at maturity |  |                        | 4,000  |      |   | 19,500 |  |      |       |      |   | 3,900      |  |       | 34,842 |  |   | 227,627 |  |   | 289,869
|Interest paymentsfixed rate debt          |  |                        | 16,993 |      |   | 21,893 |  |      | 21,344 |      |   | 21,914     |  |       | 14,835 |  |   | 53,274  |  |   | 150,253
|Interest paymentsvariable rate debt (1)   |  |                        | 1,111  |      |   | 1,036  |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 2,147  
|Capital commitments (2)                    |  |                        | 20,487 |      |   | 970    |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 21,457 
|Purchase commitment (3)                    |  |                        |       |      |   | 530    |  |      |       |      |   |           |  |       |       |  |   |        |  |   | 530    
|Operating lease (4)                        |  |                        | 95     |      |   | 127    |  |      | 127    |      |   | 53         |  |       |       |  |   |        |  |   | 402    
|                                           |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        
|Total                                      |  | $                      | 48,686 |      | $ | 52,948 |  | $    | 24,671 |      | $ | 26,367     |  | $     | 50,169 |  | $ | 294,859 |  | $ | 497,700
|                                           |  |                        |        |      |   |        |  |      |        |      |   |            |  |       |        |  |   |         |  |   |        



|(1) | The interest payments on the Four Points Centre and El Segundo mortgage loans are based on the prime rate or LIBOR based rate. The interest rate for the Four Points Centre mortgage
loan was 7.75% as of March 31, 2006. For the El Segundo mortgage loan, $13.0 million and $6.5 million bear interest at 6.57% and 7.00%, respectively, as of March 31, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Capital commitments of our company, our operating partnership and other consolidated subsidiaries include approximately $1.3 million of tenant improvement allowances and leasing
commissions for certain tenants in One Commerce Square and Two Commerce Square. In addition, we have an unfunded capital commitment of $20.1 million to our joint venture with CalSTRS. This unfunded commitment is subject to the approval of both us
and CalSTRS to acquire properties not yet identified or other cash uses. As the identification, approval and successful closing of such acquisitions is uncertain, the timing and amount of capital to be contributed is not known. We estimate, however,
that we will fund the remaining capital commitment in 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Capital commitments of at least $20 million required under leases
entered into at City National Plaza by City National Bank, Jones Day, and Fulbright & Jaworski are not included in the contractual obligations table above as City National Plaza is an unconsolidated subsidiary. These capital expenditures
must be completed by December 31, 2006 under the Jones Day lease and by December 31, 2008 under the City National Bank and Fulbright & Jaworski leases. As of March 31, 2006, we have incurred substantially all of the capital
commitments.



|(3) | We have entered into an agreement to acquire a parcel of land located near our Four Points Centre development project in Austin, Texas for $530,000. We expect this acquisition to
close in the first quarter of 2007.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Represents the future minimum lease payments on our long-term operating lease for our corporate offices at City National Plaza. The table does not reflect available maturity
extension options.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

As of March 31, 2006, our company had investments in entities owning unconsolidated properties with stated ownership percentages ranging from 21.3%
to 50.0%. We do not have control of these entities, and none of the entities are considered variable interest entities. Therefore, we account for them using the equity method of accounting. The table below summarizes the outstanding debt for the
properties with outstanding debt as of March 31, 2006 (in thousands). We have not guaranteed any of the debt.



|                                                                                         |  |               |      |  |                 |         |              |         |    
|---------------------------------------------------------------------------------------- |  | ------------- | ---- |  | --------------- | ------- | ------------ | ------- | ---
|                                                                                         |  | Interest Rate |      |  | PrincipalAmount |         | MaturityDate |        
|City National Plaza (1)                                                                  |  |               |      |  |                 |         |              |         |    
|Senior mortgage loan (2)                                                                 |  | LIBOR + 1.75  | %    |  | $               | 200,000 |              | 7/11/06 |    
|Senior mezzanine loan (2)                                                                |  | LIBOR + 4.50  |      |  |                 | 81,297  |              | 7/11/06 |    
|Junior mezzanine loan                                                                    |  | LIBOR + 6.15  |      |  |                 | 25,000  |              | 7/11/06 |    
|San Felipe Plaza senior mortgage loan (3)                                                |  | 5.28          |      |  |                 | 101,500 |              | 8/11/10 |    
|2500 City West senior mortgage loan (4)                                                  |  | 5.28          |      |  |                 | 70,000  |              | 8/11/10 |    
|Brookhollow Central I, II and III / Intercontinental Center senior mortgage loan (5) (6) |  | LIBOR + 2.25  |      |  |                 | 53,000  |              | 8/9/07  |    
|2121 Market Street mortgage loan                                                         |  | 6.1           |      |  |                 | 19,600  |              | 8/1/33  | (7)
|Four Falls Corporate Center                                                              |  |               |      |  |                 |         |              |         |    
|Note A                                                                                   |  | 5.31          |      |  |                 | 42,200  |              | 3/6/10  |    
|Note B (6) (8) (9)                                                                       |  | LIBOR + 3.25  | (12) |  |                 | 7,867   |              | 3/6/10  |    
|Oak Hill Plaza/Walnut Hill Plaza                                                         |  |               |      |  |                 |         |              |         |    
|Note A                                                                                   |  | 5.31          |      |  |                 | 35,300  |              | 3/6/10  |    
|Note B (6) (9) (10)                                                                      |  | LIBOR + 3.25  | (12) |  |                 | 5,400   |              | 3/6/10  |    
|Valley Square Office Park (11)                                                           |  |               |      |  |                 |         |              |         |    
|Note A (6) (9)                                                                           |  | LIBOR + 1.75  | (12) |  |                 | 27,500  |              | 3/1/07  |    
|Note B (6) (9)                                                                           |  | LIBOR + 3.25  | (12) |  |                 | 2,800   |              | 3/1/07  |    
|Reflections I mortgage loan                                                              |  | 5.23          |      |  |                 | 23,111  |              | 4/1/15  |    
|Reflections II mortgage loan                                                             |  | 5.22          |      |  |                 | 9,629   |              | 4/1/15  |    
|                                                                                         |  |               |      |  |                 |         |              |         |    
|                                                                                         |  |               |      |  | $               | 704,204 |              |         |    
|                                                                                         |  |               |      |  |                 |         |              |         |    



|(1) | Our joint venture with CalSTRS has purchased interest rate cap agreements for the outstanding City National Plaza loans, and is also required to purchase interest rate cap
agreements for each future advance under the $125.0 million senior mezzanine loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The mortgage and senior mezzanine loans are subject to exit fees equal to .25% and .5%, respectively, of the loan amounts, however, under certain circumstances the exit fees will be
waived.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Our joint venture with CalSTRS may borrow up to $16.2 million under a floating rate loan bearing interest at LIBOR plus 3.0%. No advances have been made as of March 31, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Our joint venture with CalSTRS may borrow up to $15.5 million under a floating rate loan bearing interest at LIBOR plus 3.0%. No advances have been made as of March 31, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Our joint venture with CalSTRS may borrow up to $32.8 million under a floating rate loan bearing interest at LIBOR plus 3.3%. No advances have been made as of March 31, 2006.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Our joint venture with CalSTRS has purchased interest rate cap agreements for these loans.
|--- | ------------------------------------------------------------------------------------------



|(7) | The 2121 Market Street mortgage loan is prepayable without penalty after May 1, 2013, at which date the outstanding principal amount of this debt 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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Our joint venture with CalSTRS may borrow up to $12.9 million under this loan.
|--- | ------------------------------------------------------------------------------



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|(9) | These loans are subject to exit fees equal to 1% of the loan amounts, however, under certain circumstances the exit fees will be waived.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------



|(10) | Our joint venture with CalSTRS may borrow up to $13.4 million under this loan.
|---- | ------------------------------------------------------------------------------



|(11) | This property was sold on April 27, 2006, and the loans were repaid.
|---- | --------------------------------------------------------------------



|(12) | These loans bear interest at the greater of the one month LIBOR or 2.25% per annum, plus the applicable margin. As of March 31, 2006, one month LIBOR exceeds
2.25%, per annum.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Flows

Comparison of three months ended March 31, 2006 to three months ended March 31, 2005

Cash
and cash equivalents were $55.2 million as of March 31, 2006 and $54.5 million as of March 31, 2005.

Operating
ActivitiesNet cash used in operating activities increased by $564,000 to $2.9 million for the three months ended March 31, 2006 compared to $2.4 million for the three months ended March 31, 2005. The increase was primarily the result
of an increase in net loss of $1.4 million, from $776,000 for the three months ended March 31, 2005 to $2.2 million for the three months ended March 31, 2006, and increase in net change in assets and liabilities of $2.3 million, offset by
the increase in non-cash expenses. The increase in net change in assets and liabilities was primarily the result of a $519,000 change in rents and other receivables, $904,000 change in deferred tax asset, $608,000 change in deferred interest
payable, $507,000 change in accounts payable and other liabilities, and a $2.0 million change in prepaid rent at Two Commerce Square, offset by a $983,000 change in receivables-unconsolidated real estate entities, and a $1.5 million change in due to
affiliate. The increase in non-cash expenses was primarily a result of an increase of $4.5 million in equity in net loss of unconsolidated real estate entities, and an increase in distributions from operations of unconsolidated real estate entities
of $376,000, offset by an increase in minority interest of $2.2 million.

Investing ActivitiesNet cash provided by (used in)
investing activities decreased by $3.6 million to $(994,000) for the three months ended March 31, 2006 compared to $2.6 million for the three months ended March 31, 2005. The decrease was primarily the result of a $14.0 million change in
short-term investments in 2005 and an increase in real estate improvements of $2.2 million. The decrease was offset by the acquisition of the properties in suburban Philadelphia in 2005 for $8.8 million by our joint venture with CalSTRS, a change in
restricted cash of $2.5 million, and a decrease in net contributions to unconsolidated real estate entities of 1.5 million.

Financing
ActivitiesNet cash used in financing activities increased by $2.6 million to $4.8 million for the three months ended March 31, 2006 compared to $2.2 million for the three months ended March 31, 2005. The increase was primarily a
result of the payment of dividends to common stockholders and distributions to limited partners in the operating partnership of $1.9 million in 2006, distributions of $550,000 to the minority interest holder in One Commerce Square resulting from the
proceeds of the One Commerce Square mortgage loan refinance in December 2005, and an increase in principal payments of mortgage and other secured loans of $159,000.

Inflation

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



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##### Table of Contents

|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

A primary market risk faced by our company is interest rate risk. We intend to mitigate this risk by seeking to maintain a target debt-to-gross assets ratio of approximately 60%, while continuously evaluating all available debt and equity
resources and following established risk management policies and procedures. 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 March 31, 2006, our
company had $23.5 million of outstanding consolidated floating rate debt.

The unconsolidated real estate entities have total debt of
$704.2 million, of which $402.9 million bears interest floating rates. As of March 31, 2006, interest rate caps have been purchased for each of these floating rate loans.

Our fixed and variable rate long-term debt at March 31, 2006 consisted of the following (in thousands):



|                               |  |            |         |   |               |   |        |       |  |   |         |  
|------------------------------ |  | ---------- | ------- | - | ------------- | - | ------ | ----- |  | - | ------- | -
|Year of Maturity               |  | Fixed Rate |         |   | Variable Rate |   |        | Total | 
|2006                           |  | $          | 6,000   |   |               | $ | 4,000  |       |  | $ | 10,000  |  
|2007                           |  |            | 8,892   |   |               |   | 19,500 |       |  |   | 28,392  |  
|2008                           |  |            | 3,200   |   |               |   |       |       |  |   | 3,200   |  
|2009                           |  |            | 4,400   |   |               |   |       |       |  |   | 4,400   |  
|2010                           |  |            | 35,334  |   |               |   |       |       |  |   | 35,334  |  
|Thereafter                     |  |            | 241,585 |   |               |   |       |       |  |   | 241,585 |  
|                               |  |            |         |   |               |   |        |       |  |   |         |  
|Total                          |  | $          | 299,411 |   |               | $ | 23,500 |       |  | $ | 322,911 |  
|                               |  |            |         |   |               |   |        |       |  |   |         |  
|Weighted average interest rate |  |            | 7.7     | % |               |   | 6.7    | %     |  |   | 7.6     | %

We utilize sensitivity analyses to assess the potential effect of our variable rate debt. At
March 31, 2006, our variable rate long-term debt represents 7.3% of our total long-term debt. If interest rates were to increase by 70 basis points, or by approximately 10% of the weighted average variable rate at March 31, 2006, the net
impact would be increased costs of $165,000 per year.

As of March 31, 2006, the fair value of our mortgage and other secured loans
and unsecured loan aggregates $315.1 million, compared to the aggregated carrying value of $322.9 million.



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##### Table of Contents

|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, 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.

There was no change in our internal control over
financial reporting that occurred during the three months ended March 31, 2006 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting. From time to time, we may make changes in our
companys internal control processes in the future.



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##### Table of Contents

PART II. OTHER INFORMATION



|ITEM 1A. | RISK FACTORS
|-------- | ------------

Risks Related to Our Properties and Our Business

We generate a significant portion of our revenues as a result of our relationships with CalSTRS. If we were to lose these relationships, our
financial results and growth prospects would be significantly negatively affected.

Our relationships with CalSTRS are a significant
factor in our ability to achieve our intended business growth. Our separate account and joint venture relationships with CalSTRS provide us with substantial fee revenues. For the three months ended March 31, 2006 and 2005, approximately 17.7%
and 14.8%, respectively, of our revenues has been derived from fees earned from these relationships. In addition, we recognized equity in net loss of unconsolidated/uncombined real estate entities of $5.4 million and $1.3 million related to these
relationships for the three months ended March 31, 2006 and 2005, respectively.

We cannot assure you that our relationships with
CalSTRS will continue and we may not be able to replace these relationships with another strategic alliance that would provide comparable revenues. Our interest in our CalSTRS joint venture is subject to a buy-sell provision, and is subject to
purchase by CalSTRS upon the occurrence of certain events. Under the buy-sell provision, either our Operating Partnership or CalSTRS can initiate a buy-out 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. CalSTRS had the ability to initiate this provision upon an event
of default by us under the joint venture agreement or related management and development agreements or upon bankruptcy of our Operating Partnership, or upon the death or disability of either Mr. Thomas or John R. Sischo, one of our Executive
Vice Presidents, or the failure of either of them to devote the necessary time to perform their duties (unless replaced by an individual approved by CalSTRS) (a Buyout Default), or upon any transfer of stock of our company or limited
partnership units in our Operating Partnership resulting in Mr. Thomas, his immediate family and controlled entities owning less than 30% of our securities entitled to vote for the election of directors. Upon the occurrence of a Buyout Default,
CalSTRS may elect to purchase our Operating Partnerships joint venture interest based on a three percent discount to the appraised fair market value. 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 could 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.

We hold interests in each of our operating
properties in a joint venture or partnership. As a result, we do not exercise sole decision-making authority regarding the property, joint venture or other entity, including with respect to cash distributions or the sale of the property.

Investments in partnerships, joint ventures, or other entities may, under certain circumstances, involve risks including third parties 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. 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 were to become bankrupt and default on its reimbursement and contribution obligations to us, were to subject property owned by the partnership or joint venture to liabilities
in excess of those contemplated by the partnership or joint venture agreement, or were to incur debts or liabilities on behalf of the partnership or joint venture in excess of the authority otherwise granted by the partnership or joint venture
agreement. In some joint ventures or other investments we may make, if the entity in which we invest is a limited partnership, we may acquire all or a portion of our interest in such partnership as a general partner. In such event, we



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could be liable for all the liabilities of the partnership, although we would attempt to limit such liability to our investment in the partnership by
investing through a subsidiary.

CalSTRS has rights under our joint venture agreement that could adversely affect us.

As of March 31, 2006, we hold interests in 11 of our properties through our joint venture with CalSTRS. Our joint venture with 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 the approved annual
plan. All other decisions, including sales of properties, are made based upon a majority decision of the management committee, which currently consists of two members appointed by CalSTRS and one member appointed by us. Thus CalSTRS has the ability
to control certain decisions for the joint venture that may result in an outcome contrary to our interests. 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 (two out of the three members of which are appointed by CalSTRS), we are required
to use diligent efforts to sell each joint venture property within five years of that property reaching stabilization (defined as completion of the project and 85% of the net rentable area leased), except that the holding period for Reflections I
and Reflections II, both of which are 100% leased, 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, which could be less than five years. We have a right 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 a substantial portion 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.

We are required to present certain investment opportunities to CalSTRS which may limit our opportunities to make investments for our own account or with other third
parties.

Under our joint venture agreement with CalSTRS, until the earlier of May 1, 2007 or the date CalSTRS has contributed an
aggregate of $250 million to the joint venture, we are required to first present to CalSTRS for potential investment by the joint venture all core plus and value-add office property investment opportunities involving a total capital investment of
$10 million or more that are defined within CalSTRS guidelines as moderate or high risk projects. If CalSTRS fails to approve the investment within five business days of receipt of all required information, then we may pursue the opportunity
for our own account or in joint venture with another third party investor. This obligation may limit our ability to obtain additional separate account relationships for non-core office properties, as investment opportunities for this type of
property must be first presented by us to CalSTRS.



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We must expand our business to establish additional strategic alliances to decrease our dependence on our relationship
with CalSTRS or our prospects for growth may be limited.

We intend to establish and extend our business to encompass strategic
relationships beyond our joint venture with CalSTRS. Our business strategy includes co-investing with third parties and earning revenues from fee services and property management. Currently, our only relationship where we serve as an investment
advisor and portfolio manager is with CalSTRS. In order to achieve our objectives of acting as an investment advisor and portfolio manager for others and decrease our dependence on our relationship with CalSTRS, we intend to establish new
relationships and extend existing relationships and alliances with institutional and other investors. Without adequate strategic partnerships and alliances in place, we may have to invest more equity than we desire in property acquisitions and incur
greater risk than we prefer on projects. In addition, our efforts with respect to projects may not be as effective as they would have been with the greater access to capital afforded by these strategic relationships. In many cases, the institutional
investors with which we intend to form alliances already have extensive relationships with other property developers, managers and investment advisors. If we fail to establish, successfully manage or maintain these alliances, our ability to achieve
business growth and revenue diversification could suffer and our business and operating results could be harmed.

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

As of March 31, 2006, the 20
largest tenants for properties in which we hold an ownership interest collectively leased 38.2% of the rentable square feet of space, representing 63.2% of the total annualized rent generated by these properties. Consolidated Rail Corporation,
together with its wholly-owned subsidiary New York Central Lines, LLC (Conrail), leases the substantial majority of space at Two Commerce Square and accounted for approximately 26.6% of the total annualized rent generated by these
properties as of March 31, 2006. In addition, Conrails rental revenues and tenant reimbursements accounted for approximately 35.6% of total consolidated revenue for the year ended December 31, 2005. Our existing lease with Conrail
expires in two stages in 2008 and 2009. Conrail has subleased substantially all of its space under lease, and we have entered into direct lease agreements with many of these sublease tenants. However, these new leases are at lower rental rates, and
we expect to experience a substantial decline in rental revenues from Two Commerce Square when the existing lease with Conrail expires.

We
rely on rent payments from our tenants as a source of cash to finance our business. Any of our tenants may experience a downturn in its business that may weaken its financial condition. As a result, a tenant may delay lease commencement, fail to
make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. Any tenant bankruptcy or insolvency, leasing delay or failure to make rental payments when due could result in the termination of
the tenants lease and material losses to our company.

In particular, if any of our significant tenants becomes insolvent, suffers a
downturn in its business and decides not to renew its lease or vacates a property and prevents us from leasing that 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.

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 claims in the event of the bankruptcy of a large tenant, which would harm our financial condition.



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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 an economic downturn in 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 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 susceptible to adverse developments in these regions, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist
targeting of high-rise structures, infrastructure quality, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors, and the national and regional office space market such as
oversupply of or reduced demand for office space. 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 a local region, 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 downturn 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 debt level reduces cash available to fund business growth and may expose us to the risk of default under our debt obligations.

As of March 31, 2006, our total consolidated indebtedness is approximately $322.9 million. In addition, we own interests in unconsolidated entities
subject to total indebtedness in the amount of $704.2 million as of March 31, 2006. Mortgage loans, which comprise a portion of both the consolidated and unconsolidated indebtedness, are secured by first deeds of trust in the related real
property. Mezzanine loans and other secured loans are secured by our direct or indirect ownership interest in the entity that owns the related real property. Additionally, the Operating Partnership has guaranteed the loan on our Four Points Centre
property up to a maximum amount of $5.5 million. Mr. Thomas guarantees approximately $7.5 million of the mezzanine loans for Two Commerce Square, and we have accordingly agreed to indemnify Mr. Thomas in the event his guarantees are called
upon. We may incur significant additional debt to finance future acquisition and development activities. It is possible the required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties
profitably. Our 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;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | 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 anticipate that a significant portion of our debt will bear interest at variable rates, and increases in interest rates could materially increase our interest expense;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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, including provisions that may limit our ability to further mortgage a property, make distributions, acquire
additional properties, repay indebtedness prior to
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| | 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;
| | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a default under any one of our mortgage loans with cross default provisions could result in a default on other indebtedness; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | 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, and have agreed to make an additional $11 million of debt available for guarantee by Mr. Edward Fox, one of our non-employee directors, and 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 thinks it is prudent.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If any one 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 impairing our ability to satisfy our debt service obligations. In addition, foreclosures could also result in our being liable under the terms of our
indemnification agreement with Mr. Thomas if we were required to sell all or a portion of our interests in One Commerce Square or Two Commerce Square.

We have a substantial amount of debt which bears interest at variable rates. Our failure to hedge effectively against interest rate changes may adversely affect our results of operations.

As of March 31, 2006, $23.5 million of our consolidated debt and $402.9 million of our unconsolidated debt was at variable interest rates. As of
March 31, 2006, interest rate caps have been purchased for each of the floating rate loans for our unconsolidated debt.

We intend to
generally limit our exposure to interest rate volatility by using interest rate hedging arrangements and swap agreements. These arrangements involve risks, including that our hedging or swap transactions might not achieve the desired effect in
eliminating the impact of interest rate fluctuations, or that counterparties may fail to honor their obligations under these arrangements. As a result, these arrangements may not be effective in reducing our exposure to interest rate fluctuations
and this could reduce our revenue, require us to modify our leverage strategy, and adversely affect our expected investment returns.

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. We regularly evaluate the top 20 markets in the United States for office, mixed-use and other properties for
strategic opportunities. Our ability to acquire properties on favorable terms and successfully operate them is subject to the following significant risks:



| |  |  | the potential inability 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | we may be unable to generate sufficient cash from operations, or obtain the necessary debt or equity to consummate an acquisition or, if obtainable, it may not be on favorable
terms;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | competition from other potential acquirors 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;
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| |  |  | 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 operate acquired properties to meet our expectations, our
revenue and profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, trading price of our common stock, and impairing our ability to satisfy our debt service obligations.

Our real estate acquisitions may result in disruptions to our business as a result of the burden in negotiating these acquisitions and in integrating
operations placed on our management.

Our business strategy includes acquisitions and investments in real estate on an ongoing basis.
These acquisitions may cause disruptions in our operations and divert managements attention from day-to-day operations, which could impair our relationships with our current tenants and employees. In addition, 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.

As a result of the limited time during 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 property 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, could adversely impact our revenue and
profitability, causing a significant downturn in our financial condition, results of operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations.

We have a near-term expectation of significant growth, and we may not be able to adapt our management and operational systems to respond to this growth, including the
acquisition and integration of additional properties without unanticipated disruption or expense.

In order to achieve desired and
planned business growth, we intend to continue to significantly expand our asset and property management activities, and acquire a significant number of properties during 2006 and 2007. With the expected growth of our portfolio, we cannot assure you
that we will be able to adapt our management, administrative, accounting and operational systems, or hire and retain sufficient operational staff to integrate these properties into our portfolio and manage these additional properties without
operating disruptions or unanticipated costs. The acquisition of additional properties would generate additional operating expenses. As we acquire additional properties, we will be subject to risks associated with managing new properties, including
tenant retention and mortgage default. Our failure to successfully integrate any future acquisitions into our portfolio could adversely impact our revenue and profitability, causing a significant downturn in our financial condition, results of
operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations.



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

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



| |  |  | we may be unable to obtain construction or redevelopment financing on favorable terms or at all;
| | - |  | ------------------------------------------------------------------------------------------------



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



| |  |  | we may not complete development 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; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | occupancy rates and rents at newly developed or renovated properties may fluctuate depending on a number of factors, including market and economic conditions, and may result in our
investment not being profitable.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If we are not successful in our property development initiatives, this could adversely
impact our revenue and profitability, causing a significant downturn in our business, including our financial condition, results of operations, trading price of our common stock and impairing our ability to satisfy our debt service obligations.

Our efforts to expand our geographic presence and diversify into other regional real estate markets may not be successful, thereby constraining our
growth to markets in which we currently operate.

We intend to expand our business to new geographic regions where we expect the
development, ownership and management of property to result in favorable risk-adjusted investment returns. In order for us to achieve economies of scale, we generally target ownership of 500,000 or more rentable square feet in a market. It may be
difficult for us to achieve this level of ownership and our initial entry into a particular market may result in higher administrative expenses for us initially. Presently, we do not possess the same level of familiarity with the development,
ownership and management of properties in locations other than the West Coast, Southwest and Mid-Atlantic regions in the United States, which could adversely affect our ability to develop properties outside these regions successfully or at all or to
achieve expected performance.

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 developers, managers and owners of office and mixed-use real estate, many of
which own 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, and 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.



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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 March 31, 2006, leases representing 5.9% and 8.3% of
the rentable square feet of the office and mixed-use properties in which we hold an ownership interest will expire in the remainder of 2006 and during 2007, respectively. Further, an additional 20.4% of the square feet of these properties was
available for lease on that date. Rental rates above the current market rate at some of the properties in our office and mixed-use portfolio may require us to renew or re-lease some expiring leases at lower rates. 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. In particular, a significant amount of space at our Two
Commerce Square property has historically been leased to Conrail. This lease expires in two stages in 2008 and 2009. Conrail currently subleases substantially all of its space to a number of subtenants. While we have entered into agreements with
many of the subtenants for direct leases once their sublease term expires, the rental rates are lower than paid by the current tenant. As a result, we currently expect our aggregate revenues from this property will be lower following the expiration
of the Conrail lease in 2008 and 2009. If we are unable to lease the remaining portion of the space currently leased by Conrail in Two Commerce Square prior to the expiration of the lease and assuming all subtenants to the Conrail lease exercise no
renewal options and exercise all early termination options, our rental revenue (excluding tenant reimbursements revenue) computed in accordance with accounting principles generally accepted in the United States of America (GAAP) would
decrease by $2.8 million in 2008 as compared to 2007, $2.5 million in 2009 as compared to 2008, and $1.7 million in 2010 as compared to 2009.

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. Our access to third-party sources of capital depends, in part, on:



| |  |  | our current debt levels, which were $322.9 million of consolidated debt and $704.2 million of unconsolidated debt as of March 31, 2006;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current cash flow from operating activities, which was $20.8 million for the year ended December 31, 2005 and $(2.9) million for the three months ended March 31, 2006;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current and expected future earnings;
| | - |  | -----------------------------------------



| |  |  | the markets perception of our growth potential;
| | - |  | ------------------------------------------------



| |  |  | the market price per share of our common stock; and
| | - |  | ---------------------------------------------------



| |  |  | general market conditions.
| | - |  | --------------------------

If we cannot obtain capital
from third-party sources, we may not be able to acquire or develop properties when strategic opportunities exist, satisfy our debt service obligations or continue to fund operations.

We could incur significant costs related to government regulation and private litigation over environmental matters, including with respect to clean-up of contaminated properties and litigation from any harm caused
by environmental hazards on our properties.

Under various federal, state and local environmental laws and regulations, a current or
previous owner, manager or tenant of real estate may be required to investigate and clean up hazardous or toxic substances at the property, and may be held liable to a government entity or to third parties for property damage and for investigation,
clean-up and monitoring costs incurred by the parties in connection with the actual or threatened contamination. With respect to properties in which we will hold an ownership interest, we have not obtained any recent environmental reports regarding
conditions at the properties, nor do we intend to. These laws typically impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of



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or caused the presence of the contamination. The liability under the laws 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. These costs may be substantial, and may exceed the value of the property. The presence of contamination, or the failure to properly remediate contamination on a property may limit the ability of the
owner, operator or tenant to sell or rent that property or to borrow using the property as collateral, and may cause our investment in that property to decline in value.

Federal regulations require building owners and those exercising control over a buildings management to identify and warn, by signs and labels, of potential hazards posed by workplace exposure to installed
asbestos-containing materials and potentially asbestos-containing materials in their building. The regulations also set forth employee training, record keeping and due diligence requirements pertaining to asbestos-containing materials and
potentially asbestos-containing materials. Significant fines can be assessed for violation of these regulations. Building owners and those exercising control over a buildings management may be subject to an increased risk of personal injury
lawsuits by workers and others exposed to asbestos-containing materials and potentially asbestos-containing materials as a result of these regulations. The regulations may affect the value of a building incorporating asbestos-containing materials or
potentially asbestos-containing materials that we own or manage.

We are aware of potentially environmentally hazardous or toxic materials
at two of our properties in which we hold an ownership interest. At our 2101 Market Street property, we have begun remediation efforts as a result of a gasoline spill that occurred on the premises in April 2002, due to an accident caused by the
tenants agent. We undertook remedial procedures for the gasoline spill and other contaminants, including removing contaminated soil. Our lease requires the tenant (or its successor in interest) to indemnify us against all costs and expenses of
every kind relating directly or indirectly to the tenants use and occupancy of the premises. With respect to asbestos materials present at our City National Plaza property, these materials have been removed or abated from certain tenant and
common areas of the building structure. We continue to remediate asbestos materials from various areas of the building structure and as of March 31, 2006, have accrued for $2.5 million for such estimated future costs.

Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of asbestos-containing
materials and potentially asbestos-containing materials. These laws may impose liability for improper handling or a release to the environment of asbestos-containing materials and potentially asbestos-containing materials. In addition, fines may be
imposed on owners or managers of real properties for personal injury or improper work exposure associated with asbestos-containing materials and potentially asbestos-containing materials.

We are subject to high taxes relating to our California and Philadelphia properties that could negatively affect our operating results and may also be adversely
affected by new legislation.

Owners of California real estate are subject to high taxes. The California legislature is currently
considering legislation that, if enacted, could have a material affect on our operating results. This proposed legislation would result in a significant increase in real estate taxes imposed on our properties located in California.

Voters in the State of California previously passed Proposition 13, which generally limits annual real estate tax increases to 2% of assessed value per
annum. From time to time, various groups have proposed repealing Proposition 13, or providing for modifications such as a split roll tax, whereby commercial property, for example, would be taxed at a higher rate than residential
property. Given the uncertainty, it is not possible to quantify the risk to us of a tax increase or the resulting financial impact of any increase. The majority of our California property leases provide for the pass-through of real estate taxes to
tenants.

In Philadelphia, one downtown development site has been designated as a Keystone Opportunity Improvement Zone site by the state
of Pennsylvania. This designation confers upon occupants a 15-year abatement of all state and local taxes except the city wage tax. The development of this office tower could, depending on overall supply-demand fundamentals, have a negative impact
on central business district Philadelphia rental rates and building values. Further, the transfer tax rate in the City of Philadelphia, which we could incur upon a sale of one of our properties, is one of the highest in the United States and could
be a very significant cost in the event of the sale of one of our Philadelphia properties. In Philadelphia, transfers of fee title or partnership interests representing 90% or more of property ownership are subject to a tax of 4% of the transaction
price. The 4% amount is comprised of a 3% levy by the City of Philadelphia and a 1% charge by the Commonwealth of Pennsylvania. The



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transaction price, if not specifically disclosed to the taxing authorities, must be deemed reasonable, and is therefore typically the assessed value of the
property for real estate tax purposes.

The risk of future terrorist attacks in the United States could harm the demand for and the value of our
properties which are located in major metropolitan areas.

The risk of future terrorist attacks in the U.S. or war could harm the
demand for and the value of our properties. We manage properties that are well-known landmarks in high visibility metropolitan areas that may be perceived as more likely terrorist targets than lower profile properties in less commercial areas, which
could potentially reduce the demand for and value of these properties. A decrease in demand could make it difficult for us to renew or re-lease our properties at rates equal to or above historical lease rates.

Terrorist attacks also could directly impact the value of our properties through damage, destruction, loss or increased security costs. Further, the
availability of insurance for acts of terrorism may be limited or may cost more. The three operating properties in which we own interests located in Philadelphia, PennsylvaniaOne Commerce Square, Two Commerce Square and 2121 Market
Streetare located within a three city block area. Together, these three properties represented approximately 45.5% of the annualized rent for properties in which we hold an ownership interest as of March 31, 2006. Because these properties
are located closely together, a catastrophic event in this area could materially damage, destroy or impair the use by tenants of all of these properties. To the extent that our tenants are impacted by future attacks, their ability to continue to
honor obligations under their existing leases with us could be adversely affected, including being unable to make timely rental payments and defaulting under existing leases. Additionally, some tenants have termination rights in respect of certain
casualties. Under the terms of our financing documents, we may be required to apply casualty proceeds to repay loans and may not be able to rebuild or restore the property unless we are able to obtain alternate financing. If we are entitled to
receive casualty proceeds, we may not be able to rebuild or restore the property, and we may be forced to recognize taxable gain on the affected property. Failure to reinvest casualty proceeds in the affected property or properties could also result
in obligations under our tax indemnification agreement with Mr. Thomas.

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 to indemnify Mr. Thomas against adverse tax consequences in the event that our Operating Partnership or the underlying property joint venture 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 45.1% of annualized rent for properties in which we hold an
ownership interest as of March 31, 2006. This indemnification period will be until October 13, 2008, unless Mr. Thomas and related entities contribute the remaining 11% minority interest in each of One Commerce Square and Two Commerce
Square to us prior to such date for not more than $4 million in the aggregate, in which event the indemnification period will expire on October 13, 2013, which may be extended to October 13, 2016 provided Mr. Thomas and his controlled
entities collectively retain at least 50% of the units received by them in the Formation Transactions. Our indemnification obligation is for all direct and indirect adverse tax consequences. Our agreement to indemnify Mr. Thomas was not the
result of arms-length negotiations and there is no assurance that our agreement is comparable to what may have resulted were the negotiations between unaffiliated third parties. We have also agreed to use commercially reasonable efforts to
make approximately $221 million of debt available to be guaranteed by entities controlled by Mr. Thomas, by Mr. Fox, a non-employee member of our board of directors, and 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 these other persons in preserving their tax position after their contributions. In addition, our tax indemnification obligation could occur
involuntarily in the event of a condemnation of or foreclosure on one of these properties. We do not presently intend to sell any of our interest in these properties in transactions that would give rise to our tax indemnification obligation. A
calculation of these damages under our tax indemnification agreement will not be based on the time value of money or the time remaining in the indemnification period.



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Risks Related to the Real Estate Industry

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, scheduled principal payments on debt and capital expenditure requirements. Events and conditions generally applicable to owners and operators of real property that are beyond our control may adversely impact 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;
| | - |  | ---------------------------------------



| |  |  | 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;
| | - |  | --------------------------------------------------------------------------------



| |  |  | costs of complying with changes in governmental regulations;
| | - |  | ------------------------------------------------------------



| |  |  | the relative illiquidity of real estate investments; and
| | - |  | --------------------------------------------------------



| |  |  | changing submarket demographics.
| | - |  | --------------------------------

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 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 the 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. Although we believe that the properties in which we hold an ownership interest substantially comply with the requirements of the ADA, we have not conducted a portfolio-wide investigation to determine our
compliance. Compliance with the ADA requirements could require removal of access barriers. 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 may not be covered by insurance and may result in our inability to repair damaged
properties and we could lose invested capital.

We carry comprehensive liability, fire, flood, extended coverage, wind, earthquake,
terrorism, business interruption and rental loss insurance under our blanket policy covering all of the properties which we own an interest in or manage for third parties, including our development properties (although we carry only liability
insurance for the CalEPA headquarters building under our blanket policy because the sole tenant has the right to provide all other forms of coverage it deems necessary, and it has elected to do so). 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. Our terrorism insurance is subject to exclusions for loss or damage caused by nuclear substances, pollutants, contaminants, and
biological and chemical weapons. Some of our policies, like those



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covering losses due to earthquakes and terrorism, are subject to limitations involving deductibles and policy limits which may not be sufficient to cover
losses. We either own or have interests in a number of properties in Southern California, an area especially prone to earthquakes.

Under
their leases, tenants are generally required to indemnify us from 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 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 and keep in force during
the term of the lease 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 this property was irreparably damaged. In the
event of a significant loss at one or more of the properties covered by the blanket policy, the remaining insurance under our 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.

Mr. Thomas owns 10,700 shares of common stock and 106,667 shares of restricted common stock, and entities affiliated with Mr. Thomas own or
control 6,400 shares of common stock, 16,666,666 shares of limited voting stock and hold 16,666,666 operating partnership units (including operating partnership units held for the benefit of Thomas S. Ricci, Randall L. Scott, and Mr. Sischo).
Each of Messrs. Ricci, Scott and Sischo received an indirect interest in operating partnership units, and, together with Diana M. Laing, our Chief Financial Officer, each executive officer received a direct grant of restricted incentive units.
Mr. Ricci received an interest in 183,334 operating partnership units and 230,001 incentive units; Mr. Scott received an interest in 233,334 operating partnership units and 280,001 incentive units; Mr. Sischo received an interest in
266,667 operating partnership units and 246,667 incentive units; and Ms. Laing received 93,334 incentive units. The various terms of these equity and incentive interests could create conflicts of interest with our public stockholders. Members
of executive management could be required to make decisions that could have different implications for our Operating Partnership and for us, including:



| |  |  | potential acquisitions or sales of properties;
| | - |  | ----------------------------------------------



| |  |  | the issuance or disposition of shares of our common stock or units in our Operating Partnership; and
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the payment of dividends by us and other matters.
| | - |  | -------------------------------------------------

For
example, an acquisition in exchange for the issuance by our Operating Partnership of additional operating partnership units would dilute the interests of members of our management team as limited partners in our Operating Partnership. Dispositions
could trigger our tax indemnification obligations with respect to Mr. Thomas. Dividends paid by us to our public stockholders would decrease our funds available to reinvest in our business.

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 that restrict the distribution of funds to our Operating Partnership.
The loans generally contain lockbox arrangements, reserve requirements, financial covenants and other restrictions and



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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 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 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.

Mr. Thomas has a significant vote in certain matters as a result of his ownership 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, or 53.6% of our outstanding voting stock. Although not entitled to dividends or other distributions, these limited voting shares are entitled to one vote per share in the election of directors, the approval of
certain extraordinary transactions including any merger or sale 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.

Our success depends on key personnel, the loss of whom could impair our ability to operate our business
successfully.

We depend on the efforts of key personnel, particularly Mr. Thomas, our Chairman, Chief Executive Officer, and
President. Among the reasons that Mr. Thomas is important to our success is that he has an industry reputation developed over more than 25 years in the real estate industry that attracts business and investment opportunities and assists us in
negotiations with lenders, existing and potential tenants and industry personnel. If we lost his services, our relationships with these parties could diminish. In addition, Mr. Thomas is 69 and, although he has informed us that he does not
currently plan to retire, we cannot be certain how long he will continue working on a full-time basis.

Many of our other senior executives
also have significant real estate industry experience. Mr. Scott has extensive development and management experience on several large-scale projects, including the development, construction and management of One Commerce Square and Two Commerce
Square. Mr. Sischo and Mr. Scott are jointly responsible for oversight of our relationship with CalSTRS. Mr. Sischo is responsible for our acquisition efforts. Mr. Ricci has been extensively involved in the development of large,
mixed-use and commercial projects. Ms. Laing has served as chief financial officer of two publicly-traded real estate investment trusts. While we believe that we could find acceptable replacements for these executives, the loss of their
services could materially and adversely affect our operations because of diminished relationships with lenders, existing and prospective tenants and industry personnel. A departure of either Mr. Thomas or Mr. Sischo could also have adverse
effects on our joint venture relationship with CalSTRS, including the possible sale of our joint venture interest to CalSTRS at 97% of fair value.

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 providing them with the opportunity to possibly sell their shares at a premium over the then market price. Our certificate of incorporation and bylaws contain provisions 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;
| | - |  | ---------------------------------------------------------------



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| |  |  | 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 the 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. No shares of preferred stock are outstanding and we have no present plans to issue any preferred stock. The issuance of any preferred stock, however, 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 the 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 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 and to classify or reclassify any unissued shares of our common stock or preferred stock and to set the preferences, rights and other terms of the classified or unclassified shares. Although our board of directors has no intention at
the present time, it could establish a series of preferred stock that could, 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 interest of our stockholders.

In April 2006, we filed a shelf registration statement under which we may sell up to
$150,000,000 in aggregate price of common stock, preferred stock, warrants, or debt securities in one or more issuances. Any such sale of securities by us may depress our stock price. Further, any sale of equity securities will dilute our existing
stockholders, and a sale of debt securities will increase our leverage and debt service requirements.



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|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.



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SIGNATURES

Pursuant to the requirements 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: May 10, 2006



THOMAS PROPERTIES GROUP, INC.By:

/s/ James A. ThomasJames A. ThomasChief Executive OfficerBy:

/s/ Diana M. LaingDiana M. LaingChief Financial Officer




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