##### Table of Contents





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, 2010.



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

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



|                           |  |                      |  |                          |  |                             
|-------------------------- |  | -------------------- |  | ------------------------ |  | ----------------------------
|Large Accelerated Filer   ̈ |  | Accelerated Filer   ̈ |  | Non-accelerated Filer  x |  | Smaller reporting company   ̈

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 13,
2010
|Common Stock, $.01 par value per share |  |  |  | 35,214,896                 









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##### Table of Contents

THOMAS PROPERTIES GROUP, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2010

TABLE OF CONTENTS



|                              |  |                                                                                                      |  |         
|----------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------
|                              |  |                                                                                                      |  | PAGE NO.
|PART I. FINANCIAL INFORMATION |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1.                       |  | Consolidated Financial Statements of Thomas Properties Group, Inc. and Subsidiaries                  |  |         
|                              |  | Consolidated Balance Sheets as of March 31, 2010 (unaudited) and December 31, 2009                   |  | 1       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 (unaudited) |  | 2       
|                              |  |                                                                                                     
|                              |  | Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 (unaudited) |  | 3       
|                              |  |                                                                                                     
|                              |  | Notes to Consolidated Financial Statements (unaudited)                                               |  | 4       
|                              |  |                                                                                                     
|ITEM 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 21      
|                              |  |                                                                                                     
|ITEM 3.                       |  | Quantitative and Qualitative Disclosure about Market Risk                                            |  | 32      
|                              |  |                                                                                                     
|ITEM 4.                       |  | Controls and Procedures                                                                              |  | 32      
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                     
|                              |  |                                                                                                     
|ITEM 1A.                      |  | Risk Factors                                                                                         |  | 33      
|                              |  |                                                                                                     
|ITEM 6.                       |  | Exhibits                                                                                             |  | 45      
|                              | 
|Signatures                    |  | 46                                                                                                  



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##### Table of Contents

PART I. FINANCIAL INFORMATION



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

THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)





|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                                                                              |  | March 31,2010 |         |   | December 31,2009 |  
|                                                                                                                                                                              |  | (unaudited)   |         |   | (audited)        |  
|ASSETS                                                                                                                                                                        |  |               |         |   |                  |   |         |  
|Investments in real estate:                                                                                                                                                   |  |               |         |   |                  |   |         |  
|Operating properties, net of accumulated depreciation of $98,172 and $95,561 as of March 31, 2010 and December 31,
2009, respectively                                         |  | $             | 274,401 |   |                  | $ | 276,603 |  
|Land improvements  development properties                                                                                                                                    |  |               | 93,195  |   |                  |   | 97,750  |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|                                                                                                                                                                              |  |               | 367,596 |   |                  |   | 374,353 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Condominium units held for sale                                                                                                                                               |  |               | 61,522  |   |                  |   | 64,101  |  
|Improved land held for sale                                                                                                                                                   |  |               | 4,539   |   |                  |   |        |  
|Investments in unconsolidated real estate entities                                                                                                                            |  |               | 12,835  |   |                  |   | 14,458  |  
|Cash and cash equivalents, unrestricted                                                                                                                                       |  |               | 32,217  |   |                  |   | 35,935  |  
|Restricted cash                                                                                                                                                               |  |               | 7,622   |   |                  |   | 12,071  |  
|Rents and other receivables, net                                                                                                                                              |  |               | 4,407   |   |                  |   | 4,389   |  
|Receivables from unconsolidated real estate entities                                                                                                                          |  |               | 2,259   |   |                  |   | 2,010   |  
|Deferred rents                                                                                                                                                                |  |               | 13,561  |   |                  |   | 12,954  |  
|Deferred leasing and loan costs, net                                                                                                                                          |  |               | 14,703  |   |                  |   | 15,375  |  
|Other assets, net                                                                                                                                                             |  |               | 24,661  |   |                  |   | 23,757  |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total assets                                                                                                                                                                  |  | $             | 545,922 |   |                  | $ | 559,403 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|LIABILITIES AND EQUITY                                                                                                                                                        |  |               |         |   |                  |   |         |  
|Liabilities:                                                                                                                                                                  |  |               |         |   |                  |   |         |  
|Mortgage loans                                                                                                                                                                |  | $             | 254,985 |   |                  | $ | 255,104 |  
|Other secured loans                                                                                                                                                           |  |               | 57,530  |   |                  |   | 63,132  |  
|Accounts payable and other liabilities, net                                                                                                                                   |  |               | 30,712  |   |                  |   | 35,573  |  
|Prepaid rent and deferred revenue                                                                                                                                             |  |               | 3,330   |   |                  |   | 3,249   |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total liabilities                                                                                                                                                             |  |               | 346,557 |   |                  |   | 357,058 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|                                                                                                                                                                              |  |              
|Commitments and Contingencies                                                                                                                                                 |  |               |         |   |                  |   |         |  
|                                                                                                                                                                              |  |              
|Equity:                                                                                                                                                                       |  |               |         |   |                  |   |         |  
|Stockholders equity:                                                                                                                                                         |  |               |         |   |                  |   |         |  
|Preferred stock, $.01 par value, 25,000,000 shares authorized, none issued or outstanding as of March 31, 2010 and
December 31, 2009                                          |  |               |        |   |                  |   |        |  
|Common stock, $.01 par value, 225,000,000 shares authorized, 30,978,621 and 30,878,621 shares issued and outstanding as of
March 31, 2010 and December 31, 2009, respectively |  |               | 309     |   |                  |   | 308     |  
|Limited voting stock, $.01 par value, 20,000,000 shares authorized, 13,813,331 shares issued and outstanding as of March 31,
2010 and December 31, 2009                       |  |               | 138     |   |                  |   | 138     |  
|Additional paid-in capital                                                                                                                                                    |  |               | 185,423 |   |                  |   | 185,344 |  
|Retained deficit and dividends including $81 and $74 of other comprehensive loss as of March 31, 2010 and December 31,
2009, respectively                                     |  |               | (51,821 | ) |                  |   | (49,394 | )
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total stockholders equity                                                                                                                                                    |  |               | 134,049 |   |                  |   | 136,396 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Noncontrolling interests:                                                                                                                                                     |  |               |         |   |                  |   |         |  
|Unitholders in the Operating Partnership                                                                                                                                      |  |               | 62,365  |   |                  |   | 63,042  |  
|Partners in consolidated real estate entities                                                                                                                                 |  |               | 2,951   |   |                  |   | 2,907   |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total noncontrolling interests                                                                                                                                                |  |               | 65,316  |   |                  |   | 65,949  |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total equity                                                                                                                                                                  |  |               | 199,365 |   |                  |   | 202,345 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  
|Total liabilities and equity                                                                                                                                                  |  | $             | 545,922 |   |                  | $ | 559,403 |  
|                                                                                                                                                                              |  |               |         |   |                  |   |         |  

See accompanying notes to consolidated financial statements.



1



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

(Unaudited)



|                                                                                                        |  |                             |            |   |      |   |            |  
|------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                                        |  | Three months endedMarch 31, |           
|                                                                                                        |  | 2010                        |            |   | 2009 |  
|Revenues:                                                                                               |  |                             |            |   |      |   |            |  
|Rental                                                                                                  |  | $                           | 7,248      |   |      | $ | 7,407      |  
|Tenant reimbursements                                                                                   |  |                             | 5,039      |   |      |   | 5,951      |  
|Parking and other                                                                                       |  |                             | 1,004      |   |      |   | 775        |  
|Investment advisory, management, leasing and development services                                       |  |                             | 1,983      |   |      |   | 1,624      |  
|Investment advisory, management, leasing and development services  unconsolidated real estate entities |  |                             | 3,504      |   |      |   | 3,901      |  
|Reimbursement of property personnel costs                                                               |  |                             | 1,412      |   |      |   | 1,613      |  
|Condominium sales                                                                                       |  |                             | 4,153      |   |      |   |           |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Total revenues                                                                                          |  |                             | 24,343     |   |      |   | 21,271     |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Expenses:                                                                                               |  |                             |            |   |      |   |            |  
|Property operating and maintenance                                                                      |  |                             | 6,252      |   |      |   | 6,132      |  
|Real estate taxes                                                                                       |  |                             | 1,761      |   |      |   | 1,774      |  
|Investment advisory, management, leasing and development services                                       |  |                             | 2,359      |   |      |   | 2,909      |  
|Reimbursable property personnel costs                                                                   |  |                             | 1,412      |   |      |   | 1,613      |  
|Cost of condominium sales                                                                               |  |                             | 3,018      |   |      |   | 26         |  
|Rent  unconsolidated real estate entities                                                              |  |                             | 117        |   |      |   | 73         |  
|Interest                                                                                                |  |                             | 4,809      |   |      |   | 6,801      |  
|Depreciation and amortization                                                                           |  |                             | 3,470      |   |      |   | 3,193      |  
|General and administrative                                                                              |  |                             | 3,558      |   |      |   | 4,363      |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Total expenses                                                                                          |  |                             | 26,756     |   |      |   | 26,884     |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Gain from early extinguishment of debt                                                                  |  |                             |           |   |      |   | 509        |  
|Interest income                                                                                         |  |                             | 9          |   |      |   | 140        |  
|Equity in net (loss) income of unconsolidated real estate entities                                      |  |                             | (840       | ) |      |   | 3,088      |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Loss before income taxes and noncontrolling interests                                                   |  |                             | (3,244     | ) |      |   | (1,876     | )
|(Provision) benefit for income taxes                                                                    |  |                             | (159       | ) |      |   | 215        |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|Net loss                                                                                                |  |                             | (3,403     | ) |      |   | (1,661     | )
|Noncontrolling interests share of net loss:                                                            |  |                             |            |   |      |   |            |  
|Unitholders in the Operating Partnership                                                                |  |                             | 1,026      |   |      |   | 218        |  
|Partners in consolidated real estate entities                                                           |  |                             | (44        | ) |      |   | 1,269      |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|                                                                                                        |  |                             | 982        |   |      |   | 1,487      |  
|                                                                                                        |  |                             |            |   |      |   |            |  
|TPGI share of net loss                                                                                  |  | $                           | (2,421     | ) |      | $ | (174       | )
|                                                                                                        |  |                             |            |   |      |   |            |  
|Loss per share-basic and diluted                                                                        |  | $                           | (0.08      | ) |      | $ | (0.01      | )
|Weighted average common shares-basic and diluted                                                        |  |                             | 30,436,364 |   |      |   | 24,542,990 |  

See accompanying notes
to consolidated financial statements.



2



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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



|                                                                                                                                        |  |                             |        |   |      |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                                                                        |  | Three months endedMarch 31, |       
|                                                                                                                                        |  | 2010                        |        |   | 2009 |  
|Cash flows from operating activities:                                                                                                   |  |                             |        |   |      |   |         |  
|Net loss                                                                                                                                |  | $                           | (3,403 | ) |      | $ | (1,661  | )
|Adjustments to reconcile net loss to net cash used in operating activities:                                                             |  |                             |        |   |      |   |         |  
|Gain on early extinguishment of debt                                                                                                    |  |                             |       |   |      |   | (509    | )
|Gain on sale of condominiums                                                                                                            |  |                             | (1,135 | ) |      |   |        |  
|Equity in net loss (income) of unconsolidated real estate entities                                                                      |  |                             | 840    |   |      |   | (3,088  | )
|Deferred rents                                                                                                                          |  |                             | (540   | ) |      |   | 254     |  
|Deferred taxes and interest on unrecognized tax benefits                                                                                |  |                             | 109    |   |      |   | (232    | )
|Depreciation and amortization expense                                                                                                   |  |                             | 3,470  |   |      |   | 3,193   |  
|Allowance for doubtful accounts                                                                                                         |  |                             | 64     |   |      |   | 4       |  
|Amortization of loan costs                                                                                                              |  |                             | 255    |   |      |   | 85      |  
|Amortization of above and below market leases, net                                                                                      |  |                             | 1      |   |      |   | 8       |  
|Amortization of share-based compensation                                                                                                |  |                             | 508    |   |      |   | 938     |  
|Distributions from operations of unconsolidated real estate entities                                                                    |  |                             | 800    |   |      |   | 174     |  
|Deferred interest payable                                                                                                               |  |                             | 245    |   |      |   | 1,433   |  
|Changes in operating assets and liabilities:                                                                                            |  |                             |        |   |      |   |         |  
|Rents and other receivables                                                                                                             |  |                             | (86    | ) |      |   | 370     |  
|Receivables  unconsolidated real estate entities                                                                                       |  |                             | (249   | ) |      |   | 2,091   |  
|Deferred leasing and loan costs                                                                                                         |  |                             | (721   | ) |      |   | (113    | )
|Other assets                                                                                                                            |  |                             | (3,341 | ) |      |   | (4,316  | )
|Accounts payable and other liabilities                                                                                                  |  |                             | (1,081 | ) |      |   | (10,235 | )
|Prepaid rent                                                                                                                            |  |                             | 93     |   |      |   | (365    | )
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Net cash used in operating activities                                                                                                   |  |                             | (4,171 | ) |      |   | (11,969 | )
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Cash flows from investing activities:                                                                                                   |  |                             |        |   |      |   |         |  
|Expenditures for improvements to real estate                                                                                            |  |                             | (2,259 | ) |      |   | (3,063  | )
|Proceeds from sale of condominiums                                                                                                      |  |                             | 3,917  |   |      |   | 940     |  
|Return of capital from unconsolidated real estate entities                                                                              |  |                             | 782    |   |      |   | 1,447   |  
|Contributions to unconsolidated real estate entities                                                                                    |  |                             | (813   | ) |      |   | (1,250  | )
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Net cash provided by (used in) investing activities                                                                                     |  |                             | 1,627  |   |      |   | (1,926  | )
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Cash flows from financing activities:                                                                                                   |  |                             |        |   |      |   |         |  
|Costs for prior period equity offering                                                                                                  |  |                             | (23    | ) |      |   |        |  
|Payment of dividends to common stockholders and distributions to limited partners of the Operating Partnership                          |  |                             |       |   |      |   | (2,376  | )
|Proceeds from mortgage and other secured loans                                                                                          |  |                             | 242    |   |      |   | 6,086   |  
|Principal payments of mortgage and other secured loans                                                                                  |  |                             | (6,210 | ) |      |   | (2,980  | )
|Change in restricted cash                                                                                                               |  |                             | 4,817  |   |      |   | 5,162   |  
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Net cash (used in) provided by financing activities                                                                                     |  |                             | (1,174 | ) |      |   | 5,892   |  
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Net decrease in cash and cash equivalents                                                                                               |  |                             | (3,718 | ) |      |   | (8,003  | )
|Cash and cash equivalents at beginning of period                                                                                        |  |                             | 35,935 |   |      |   | 69,023  |  
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Cash and cash equivalents at end of period                                                                                              |  | $                           | 32,217 |   |      | $ | 61,020  |  
|                                                                                                                                        |  |                             |        |   |      |   |         |  
|Supplemental disclosure of cash flow information:                                                                                       |  |                             |        |   |      |   |         |  
|Cash paid for interest, net of amounts capitalized                                                                                      |  | $                           | 4,284  |   |      | $ | 3,985   |  
|Other comprehensive loss                                                                                                                |  | $                           | 11     |   |      | $ | (17     | )
|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          |  | $                           |       |   |      | $ | (1,877  | )
|Investments in real estate included in accounts payable and other liabilities                                                           |  | $                           | (878   | ) |      | $ | (1,899  | )
|Decrease in investments in real estate and accumulated depreciation for write-off of fully depreciated
improvements.                    |  | $                           | 315    |   |      | $ | 359     |  
|Reclassification of noncontrolling interests for limited partnership units in the Operating Partnership from additional paid in
capital |  | $                           | (288   | ) |      | $ | 8,576   |  

See accompanying notes
to consolidated financial statements.



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##### Table of Contents

Notes to Consolidated Financial Statements (unaudited)

1. Organization and Description of Business

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

We 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.

On December 23, 2009, the Company completed the sale of 5.1 million shares through a registered direct offering of common stock
at $2.55 per share. The net proceeds after deducting offering expenses were $13.1 million. We used the net proceeds to fund a portion of the discounted payoff of $25.2 million for $36.6 million in nonrecourse senior and junior mezzanine loans on Two
Commerce Square which were scheduled to mature in January 2010. Refer to Note 9Subsequent Events for discussion of common stock sold subsequent to March 31, 2010.

Our operations are carried on through our Operating Partnership. We are the sole general partner in the Operating Partnership.
Mr. James A. Thomas, our Chairman, Chief Executive Officer and President, affiliates of Mr. Thomas and certain executives hold limited partnership units (Units) in the Operating Partnership. As of March 31, 2010, we
held a 68.7% interest in the Operating Partnership which we consolidate, as we have control over the major decisions of the Operating Partnership.

As of March 31, 2010, we were invested in the following real estate properties:



|                                  |  |                                                                                                                                    |  |                                                              
|--------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------
|Property                          |  | Type                                                                                                                               |  | Location                                                     
|Consolidated properties:          |  |                                                                                                                                    |  |                                                              
|One Commerce Square               |  | High-rise office                                                                                                                   |  | Philadelphia Central Business District,
Pennsylvania (PCBD)
|Two Commerce Square               |  | High-rise office                                                                                                                   |  | PCBD                                                         
|Murano                            |  | Residential condominiums held for sale                                                                                             |  | PCBD                                                         
|2100 JFK Boulevard                |  | Undeveloped land;
Residential/Office/Retail                                                                                        |  | PCBD                                                         
|Four Points Centre                |  | Suburban office; Undeveloped land; Office/Retail/Research and Development/Hotel                                                    |  | Austin, Texas                                                
|Campus El Segundo                 |  | Developable land and land held for sale; Site infrastructure substantially complete; Office/Retail/ Research and Development/Hotel |  | El Segundo, California                                       
|Metro Studio@Lankershim           |  | Entitlements and pre-development in progress; Office/Studio/Production/Retail                                                      |  | Los Angeles, California                                      
|Unconsolidated properties:        |  |                                                                                                                                    |  |                                                              
|2121 Market Street                |  | Residential and Retail                                                                                                             |  | PCBD                                                         
|TPG/CalSTRS, LLC (TPG/CalSTRS):
|City National Plaza               |  | High-rise office                                                                                                                   |  | Los Angeles Central Business District, California            
|Reflections I                     |  | Suburban officesingle tenancy                                                                                                     |  | Reston, Virginia                                             
|Reflections II                    |  | Suburban officesingle tenancy                                                                                                     |  | Reston, Virginia                                             
|Four Falls Corporate Center       |  | Suburban office                                                                                                                    |  | Conshohocken, Pennsylvania                                   
|Oak Hill Plaza                    |  | Suburban office                                                                                                                    |  | King of Prussia, Pennsylvania                                
|Walnut Hill Plaza                 |  | Suburban office                                                                                                                    |  | King of Prussia, Pennsylvania                                
|San Felipe Plaza                  |  | High-rise office                                                                                                                   |  | Houston, Texas                                               
|2500 City West                    |  | Suburban office                                                                                                                    |  | Houston, Texas                                               
|Brookhollow Central I - III       |  | Suburban office                                                                                                                    |  | Houston, Texas                                               
|CityWestPlace                     |  | Suburban office and undeveloped land                                                                                               |  | Houston, Texas                                               
|Centerpointe I & II               |  | Suburban office                                                                                                                    |  | Fairfax, Virginia                                            
|Fair Oaks Plaza                   |  | Suburban office                                                                                                                    |  | Fairfax, Virginia                                            



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##### Table of Contents

|                                                                                                |  |                  |  |                                                  
|----------------------------------------------------------------------------------------------- |  | ---------------- |  | -------------------------------------------------
|Property                                                                                        |  | Type             |  | Location                                         
|TPG-Austin Portfolio Syndication Partners JV, LP (Austin Portfolio Joint Venture Properties):
|San Jacinto Center                                                                              |  | High-rise office |  | Austin Central Business District, Texas, (ACBD)
|Frost Bank Tower                                                                                |  | High-rise office |  | ACBD                                             
|One Congress Plaza                                                                              |  | High-rise office |  | ACBD                                             
|One American Center                                                                             |  | High-rise office |  | ACBD                                             
|300 West
6thStreet                                                                              |  | High-rise office |  | ACBD                                             
|Research Park Plaza I & II                                                                      |  | Suburban Office  |  | Austin, Texas                                    
|Park Centre                                                                                     |  | Suburban Office  |  | Austin, Texas                                    
|Great Hills Plaza                                                                               |  | Suburban Office  |  | Austin, Texas                                    
|Stonebridge Plaza II                                                                            |  | Suburban Office  |  | Austin, Texas                                    
|Westech 360 I-IV                                                                                |  | Suburban Office  |  | Austin, Texas                                    

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.

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 in which we were considered to be the primary beneficiary of an entity that we determined to be a variable interest entity. FASB
Accounting Standards Codification (ASC) 810, Consolidation, provides guidance on the identification of entities for which control is achieved through means other than voting rights (variable interest entities or
VIEs) and the determination of which business enterprise, if any, should consolidate the VIE (the primary beneficiary). Generally, the consideration of whether an entity is a VIE applies when either (1) the equity
investors (if any) lack certain essential characteristics of a controlling financial interest, (2) the equity investment at risk is insufficient to finance that entitys activities without additional subordinated financial support or
(3) the equity investors have voting rights that are not proportionate to their economic interests and the activities of the entity involve or are conducted on behalf of an investor with a disproportionately small voting interest. The primary
beneficiary is generally considered to be the entity that has (1) the power to direct the activities of a VIE that most significantly impact the VIEs economic performance, and (2) the obligation to absorb losses, or the right to
receive benefits from the VIE, that could potentially be significant to the VIE. 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.

We have a $27.0 million preferred equity interest and consolidate the Murano. Excluding the preferred equity interest, a third party has
a 27.0% ownership interest in Murano which is recorded in Partners in noncontrolling interests.

Income (Loss) Per Share

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

Development Activities

Project costs associated with the development and construction of a real estate project are capitalized as construction in progress. In
addition, interest, loan fees, real estate taxes, and general and administrative expenses that are directly associated with and incremental to our development activities and other costs are capitalized during the period in which activities necessary
to get the property ready for its intended use are in progress, including the pre-development and lease-up phases. Once the development and construction of the building shell of a real estate project is completed, the costs capitalized to
construction in progress are transferred to land and improvements and buildings and improvements. Capitalized interest as of both March 31, 2010 and December 31, 2009, is $19.6 million.



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##### Table of Contents

Revenue Recognition - Condominium Sales

We have one high-rise condominium project for which we used the percentage of completion accounting method to recognize costs and sales
during the construction period, up through and including June 30, 2009. Commencing with the third quarter of 2009, we have applied the deposit method of accounting to recognize costs and sales. Under the provisions of FASB ASC 360-20,
Property, Plant and Equipment subsection Real Estate and Sales, revenue and costs for projects are recognized when all parties are bound by the terms of the contract, all consideration has been exchanged, any permanent
financing for which the seller is responsible has been arranged and all conditions precedent to closing have been performed. This results in profit from the sale of condominium units recognized at the point of settlement as compared to the point of
sale. Revenue is recognized on the contract price of individual units. Total estimated costs, net of impairment charges, are allocated to individual units which have closed on a relative value basis. Total estimated revenue and construction costs
are reviewed periodically, and any change is applied to current and future periods.

Forfeited customer deposits are
recognized as revenue in the period in which we determine that the customer will not complete the purchase of the condominium unit and when we determine we have the right to keep the deposit. No forfeitures were recognized in the quarters ended
March 31, 2010 and 2009.

Gain on Sale of Real Estate

We recognize gains on sales of real estate when the recognition criteria in FASB ASC 360-20-40, Property, Plant and Equipment,
subsection Real Estate Sales have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold. If the criteria for profit recognition under the
full-accrual method are not met, we defer gain recognition and account for the continued operations of the property by applying the deposit or percentage of completion method, as appropriate, until the appropriate criteria are met. No gains on sale
of real estate were recognized in the quarters ended March 31, 2010 and 2009. As of March 31, 2010, a 2.2 acre improved land parcel at Campus El Segundo is classified as held for sale.

Impairment of Long-Lived Assets

We assess whether there has been impairment in the value of our long-lived assets whenever events or changes in circumstances indicate the
carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount to the future net cash flows, undiscounted and without interest, expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value, less costs to sell. We are required to record the condominium units at their estimated fair value as the condominium units meet the held for sale criteria of FASB ASC 360, Property, Plant, and Equipment. We
did not recognize any impairment charges for the periods ended March 31, 2010 and 2009.

Recent Accounting Pronouncements

In January 2010, the Company adopted FASB Accounting Standards Update (ASU) 2010-01, which provided updated guidance for
the purposes of applying Topics 505 and 260 (Equity and Earnings Per Share) on accounting for distributions to stockholders with components of stock and cash. The guidance clarifies that in calculating earnings per share, an entity should account
for the stock portion of the distribution as a stock issuance and not as a stock dividend. The amendments in this update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective
basis. The adoption of this accounting update did not have an impact on the Companys consolidated financial statements as the Company has not made any distributions of stock.

In January 2010, the Company adopted FASB ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements. ASU 2010-06 amends ASC 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements. This ASU became effective for us on January 1, 2010.
The adoption of this accounting update did not have a material impact on the Companys consolidated financial statements.

In January 2010, the Company adopted FASB ASU 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial
Assets. ASU 2009-16 is a revision to ASC 860, Transfers and Servicing, and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks
related to transferred financial assets. ASU 2009-16 also expands the disclosure requirements for such transactions. This ASU became effective for us on January 1, 2010. The adoption of this accounting update did not have an impact on the
Companys consolidated financial statements.



6



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##### Table of Contents

In January 2010, the Company adopted FASB ASC 810, Consolidation. FASB ASC 810
revises the approach to determining the primary beneficiary of a variable interest entity to be more qualitative in nature and requires companies to more frequently reassess whether they must consolidate a VIE. The amended VIE provisions of FASB ASC
810 are effective for interim and annual reporting periods beginning after November 15, 2009. The adoption of this accounting standard did not have a material impact on the Companys consolidated financial statements.

Interim Financial Data

The accompanying interim financial statements are unaudited, but have been prepared in accordance with GAAP for interim financial
information and in conjunction with the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the disclosures required by GAAP for complete financial statements. In the opinion of
management, the interim financials have been prepared on the same basis as the audited financial statements, and include all adjustments (consisting solely of normal recurring matters) necessary for a fair presentation of the financial statements
for these interim periods. The results of operations for the interim periods are not necessarily indicative of the results expected for the full fiscal year or any future period.

These interim financial statements should be read in conjunction with the consolidated financial statements and related notes included in
the Companys Annual Report on Form 10-K for the year ended December 31, 2009, which was filed with the SEC on March 19, 2010.

Subsequent Events

We
have evaluated subsequent events through the date of this report, which is concurrent with the date we filed this report with the SEC. See Note 9 for details of subsequent events.

3. Unconsolidated Real Estate Entities

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

San Felipe Plaza (purchased August 2005)

2500 City West (purchased August 2005)

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

CityWestPlace land (purchased December 2005)

CityWestPlace (purchased June 2006)

Centerpointe I and II (purchased January 2007)

Fair Oaks Plaza (purchased January 2007)

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

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

TPG/CalSTRS also owns a 25% interest in the Austin Portfolio Joint Venture Properties which owns the following properties:

San Jacinto Center (purchased June 2007)

Frost Bank Tower (purchased June 2007)



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##### Table of Contents

One Congress Plaza (purchased June 2007)

One American Center (purchased June 2007)

300 West 6th Street (purchased June 2007)

Research Park Plaza I & II (purchased June 2007)

Park Centre (purchased June 2007)

Great Hills Plaza (purchased June 2007)

Stonebridge Plaza II (purchased June 2007)

Westech 360 I-IV (purchased June 2007)

Capital contributions, distributions, and profits and losses of the real estate entities are allocated in accordance with the terms of
the applicable partnership and limited liability company agreements. Such allocations may differ from the stated ownership percentage interests in such entities as a result of preferred returns and allocation formulas as described in the partnership
and limited liability company agreements. Following are the stated ownership percentages, prior to any preferred or special allocations, as of March 31, 2010.



|                                                                    |  |      |  
|------------------------------------------------------------------- |  | ---- | -
|2121 Market Street                                                  |  | 50.0 | %
|TPG/CalSTRS:                                                        |  |      |  
|All properties, excluding Austin Portfolio Joint Venture Properties |  | 25.0 | %
|Austin Portfolio Joint Venture Properties                           |  | 6.25 | %

Investments in
unconsolidated real estate entities as of March 31, 2010 and December 31, 2009 are as follows:



|                                           |  |               |         |   |                  |   |         |  
|------------------------------------------ |  | ------------- | ------- | - | ---------------- | - | ------- | -
|                                           |  | March 31,2010 |         |   | December 31,2009 |  
|TPG/CalSTRS:                               |  |               |         |   |                  |   |         |  
|BH Note B Lender, LLC                      |  | $             | 815     |   |                  | $ | 802     |  
|City National Plaza                        |  |               | (16,188 | ) |                  |   | (16,101 | )
|Reflections I                              |  |               | 1,633   |   |                  |   | 1,602   |  
|Reflections II                             |  |               | 1,727   |   |                  |   | 1,721   |  
|Four Falls Corporate Center                |  |               | (3,502  | ) |                  |   | (3,292  | )
|Oak Hill Plaza/Walnut Hill Plaza           |  |               | (1,779  | ) |                  |   | (1,622  | )
|San Felipe Plaza                           |  |               | 2,387   |   |                  |   | 2,519   |  
|2500 City West                             |  |               | 317     |   |                  |   | 424     |  
|Brookhollow Central I, II and III          |  |               | (97     | ) |                  |   | 108     |  
|CityWestPlace and CityWestPlace Land       |  |               | 21,604  |   |                  |   | 21,422  |  
|Fair Oaks Plaza                            |  |               | 2,022   |   |                  |   | 2,106   |  
|Centerpointe I & II                        |  |               | (6,708  | ) |                  |   | (6,403  | )
|TPG/CalSTRS                                |  |               | 929     |   |                  |   | 992     |  
|                                           |  |               |         |   |                  |   |         |  
|                                           |  |               | 3,160   |   |                  |   | 4,278   |  
|                                           |  |               |         |   |                  |   |         |  
|Austin Portfolio Joint Venture Properties: |  |               |         |   |                  |   |         |  
|Austin Portfolio Investor                  |  |               | (1,770  | ) |                  |   | (1,650  | )
|Frost Bank Tower                           |  |               | 2,256   |   |                  |   | 2,351   |  
|300 West
6thStreet                         |  |               | 1,811   |   |                  |   | 1,892   |  
|San Jacinto Center                         |  |               | 1,499   |   |                  |   | 1,574   |  
|One Congress Plaza                         |  |               | 1,823   |   |                  |   | 1,922   |  
|One American Center                        |  |               | 1,556   |   |                  |   | 1,662   |  
|Stonebridge Plaza II                       |  |               | 698     |   |                  |   | 694     |  
|Park Centre                                |  |               | 668     |   |                  |   | 666     |  
|Research Park Plaza I & II                 |  |               | 866     |   |                  |   | 872     |  
|Westech 360 I-IV                           |  |               | 398     |   |                  |   | 408     |  
|Great Hills Plaza                          |  |               | 328     |   |                  |   | 330     |  
|Austin Portfolio Lender                    |  |               | 2,222   |   |                  |   | 1,351   |  
|                                           |  |               |         |   |                  |   |         |  
|                                           |  |               | 12,355  |   |                  |   | 12,072  |  
|                                           |  |               |         |   |                  |   |         |  
|2121 Market Street                         |  |               | (2,680  | ) |                  |   | (1,892  | )
|                                           |  |               |         |   |                  |   |         |  
|                                           |  | $             | 12,835  |   |                  | $ | 14,458  |  
|                                           |  |               |         |   |                  |   |         |  



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##### Table of Contents

The following is a summary of the investments in unconsolidated real estate entities for the
three months ended March 31, 2010:



|                                      |  |   |        |  
|------------------------------------- |  | - | ------ | -
|Investment balance, December 31, 2009 |  | $ | 14,458 |  
|Contributions                         |  |   | 813    |  
|Other comprehensive income (loss)     |  |   | (11    | )
|Equity in net income (loss)           |  |   | (840   | )
|Distributions                         |  |   | (1,582 | )
|Other                                 |  |   | (3     | )
|                                      |  |   |        |  
|Investment balance, March 31, 2010    |  | $ | 12,835 |  
|                                      |  |   |        |  

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

The total capital commitment to the joint
venture was $378.3 million as of March 31, 2010, of which approximately $1.1 million and $0.4 million was unfunded by CalSTRS and us, respectively.

A buy-sell provision may be exercised by either CalSTRS or us. Under this provision, the initiating party sets a price for its interest
in the joint venture, and the other party has a specified time to elect to either buy the initiating partys interest or to sell its own interest to the initiating party. Upon the occurrence of certain events, CalSTRS also has a buy-out option
to purchase our interest in the joint venture. The buyout price is based upon a 3% discount to the appraised fair market value.

During the second quarter of 2009, TPG/CalSTRS redeemed the approximately 15% membership interest held by the noncontrolling owner in the
City National Plaza (CNP) partnership. The redemption price of $19.8 million was based on a $725 million value for CNP and was financed with a promissory note due in 2012. Our share of the redemption price is $4.95 million
based on our 25% share of the CNP partnership. Effective with this redemption, TPG/CalSTRS owns 100% of CNP and our interest in CNP increased to 25%, subject to the potential impact of the pending conversion of the mezzanine debt on CNP into equity
by an affiliate of CalSTRS on or before the maturity of the senior mortgage loan.

As of January 1, 2010, in connection
with the adoption of the updated provisions of ASC 810, pursuant to FASB No. 167, which amends FIN 46(R), TPG/CalSTRS and the Austin Portfolio Joint Venture were deemed to be variable interest entities for which we were not considered to be the
primary beneficiary. In connection with the TPG/CalSTRS joint venture, CalSTRS and TPG acting together are considered to have the power to direct the activities of the joint venture that most significantly impact the joint venture economic
performance and therefore neither TPG nor CalSTRS is considered to be the primary beneficiary. We determined the key activities that drive the economic performance of the joint venture to be (1) the acquisition and development of real estate
(including capital improvements), (2) financing, and (3) leasing. In connection with these key activities, the TPG/CalSTRS venture agreement requires unanimous approval by the two members.

In connection with the Austin Portfolio Joint Venture, we were not considered to be the primary beneficiary due to the fact that the
power to direct the activities of the joint venture is shared among multiple unrelated parties such that no one party has the power to direct the activities of the joint venture that most significantly impact the joint ventures economic
performance. In connection with the Austin Portfolio Joint Venture, we determined the key activities that drive the economic performance of the joint venture to be (1) the acquisition and development of real estate (including capital
improvements), (2) financing, and (3) leasing. In connection with these key activities, the Austin Portfolio Joint Venture partnership agreement requires either unanimous or majority approval of decisions by the respective partners. We
therefore determined the power to direct the activities to be shared amongst the Partners so that no one Partner has the power to direct the activities that most significantly impact the partnerships economic performance. As of March 31,
2010, our total maximum exposure to loss to TPG/CalSTRS and the Austin Portfolio Joint Venture is:



|    |  |                                                                                                                                                     
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Our equity investment in the various properties controlled by the respective joint ventures as of March 31, 2010, as presented earlier in this
note.



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##### Table of Contents

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 
|(2) |  | The potential loss of future fee revenues which we earn in connection with the management and leasing agreements with the various properties controlled by the respective joint
ventures. We earn fee revenues in connection with those management and leasing agreements for services such as property management, leasing, asset management and property development. The management and leasing agreements with the various properties
generally expire on an annual basis and are automatically renewed for successive periods of one year each, unless we elect not to renew the agreements. As of March 31, 2010, we had total receivables of $1.8 million and $0.8 million related to
TPG/CalSTRS and the Austin Portfolio Joint Venture, respectively.

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | 
|(3) |  | Unfunded capital commitments to the TPG/CalSTRS joint venture of $ 0.4 million as of March 31, 2010. There were no unfunded capital commitments to the Austin Portfolio
Joint Venture as of March 31, 2010, however, TPG has committed to advance funds to the Austin Portfolio Joint Venture under a senior secured priority facility established and funded on a pro rata basis by all of the Austin Portfolio Joint
Venture partners, of which our unfunded share is $1.7 million.

In the first quarter of 2010, we advised CalSTRS,
our partner in CNP, and facilitated the acquisition by an affiliate of CalSTRS, of all of the propertys mezzanine debt, which has a principal balance of approximately $219.1 million, and is scheduled to mature on July 9, 2010. CalSTRS
will contribute this debt to equity in CNP, reducing the leverage on the property by the full amount of the mezzanine loans. We are in discussions with CalSTRS to obtain an option to participate in the equity created by the conversion of the
mezzanine debt, exercisable before or after the maturity of the senior mortgage loan, up to our current 25% share of the existing CNP equity. Based on the existing agreement which we are currently in discussions with CalSTRS for potential revision,
if we do not participate in the new equity, our share of the CNP equity will be reduced from 25% to approximately 8% when the mezzanine loans are converted into equity.

Lehman Brothers Holdings, Inc. filed for bankruptcy protection in September 2008. The Lehman affiliate that owns the equity interest in
the Austin Portfolio Joint Venture is 100% indirectly owned by Lehman Brothers Holdings, Inc. In addition, two Lehman Brothers Holdings, Inc. affiliates consisting of Lehman Commercial Paper Inc. and Lehman Brothers Inc., are administrative agent
and lead arranger, respectively, under the Austin Portfolio Joint Ventures $292.5 million credit agreement, which included a $100 million revolving credit facility and a $192.5 million term loan. The $192.5 million term loan was fully funded
by Lehman Commercial Paper Inc. and is secured by certain properties held in the joint venture and secondary liens on other joint venture properties.

On March 25, 2009, the Lehman Brothers Bankruptcy Court judge approved a plan to restructure the $292.5 million credit facility by
replacing the unfunded $100 million commitment with $60 million of new senior secured priority financing contributed by the partners in proportion to their percentage interest in the partnership. Proceeds from this new financing were used to
deleverage the portfolio by acquiring at a discount and immediately retiring third-party term loan debt with an $80 million face value for $14 million, thereby reducing that loan from $192.5 million to $112.5 million, and to provide an ongoing
source of capital for leasing and capital improvements. To date, approximately $33.0 million of the senior secured facility has been advanced by the partners, of which the Company has advanced $2.1 million. After the restructuring, the
partners ownership interests remained the same and the funds advanced under the senior secured facility are a first priority mortgage lien on three of the Austin buildings and a first priority right to payment on a pledge of the equity
interests in the other seven Austin buildings owned by the Austin Partnership.

On December 18, 2009, we also entered
into a settlement agreement with Lehman Brothers Holdings Inc. to terminate the interest rate collar agreement for the Austin Portfolio Joint Venture resulting in settlement of this obligation with the Lehman affiliate on January 25, 2010.

On March 6, 2010, an aggregate of $96.5 million in mortgage loans owed by subsidiaries of TPG/CalSTRS on unconsolidated
properties at Four Falls Corporate Center and Oak Hill Plaza/Walnut Hill Plaza matured and became due in full. The borrowers under these loans have not, as of May 12, 2010, made payment on these loans and they are currently in default. These loans
are non-recourse to the Company, and we do not anticipate making any payments or equity contributions to support the repayment or refinancing of these loans. The borrowers are currently in discussions with the lenders to restructure the debt or
facilitate a sale or other liquidation of these properties. We do not believe that the loss of our equity interests in these properties will have a material effect on our business or results of operations.



10



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##### Table of Contents

Following is summarized financial information for the unconsolidated real estate entities as
of March 31, 2010 and December 31, 2009:

Summarized Balance Sheets



|                                                                                                                                |  |               |           |                  |   |          
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                                                                                                |  | March 31,2010 |           | December 31,2009
|                                                                                                                                |  | (unaudited)   |           |                 
|ASSETS                                                                                                                          |  |               |           |                  |   |          
|Investments in real estate, net                                                                                                 |  | $             | 2,205,264 |                  | $ | 2,224,709
|Land held for sale                                                                                                              |  |               | 3,888     |                  |   | 3,853    
|Receivables including deferred rents, net                                                                                       |  |               | 85,387    |                  |   | 83,506   
|Deferred leasing and loan costs, net                                                                                            |  |               | 137,419   |                  |   | 144,287  
|Other assets                                                                                                                    |  |               | 127,942   |                  |   | 127,727  
|                                                                                                                                |  |               |           |                  |   |          
|Total assets                                                                                                                    |  | $             | 2,559,900 |                  | $ | 2,584,082
|                                                                                                                                |  |               |           |                  |   |          
|LIABILITIES AND EQUITY                                                                                                          |  |               |           |                  |   |          
|Mortgage and other secured loans                                                                                                |  | $             | 2,230,685 |                  | $ | 2,217,118
|Other liabilities                                                                                                               |  |               | 80,239    |                  |   | 98,401   
|Below market rents, net                                                                                                         |  |               | 58,738    |                  |   | 62,527   
|                                                                                                                                |  |               |           |                  |   |          
|Total liabilities                                                                                                               |  |               | 2,369,662 |                  |   | 2,378,046
|                                                                                                                                |  |               |           |                  |   |          
|Owners equity:                                                                                                                 |  |               |           |                  |   |          
|Thomas Properties, including $144 and $133 of other comprehensive loss as of March 31, 2010 and December 31, 2009,
respectively |  |               | 19,786    |                  |   | 21,242   
|Other owners, including $744 and $1,171 of other comprehensive loss as of March 31, 2010 and December 31, 2009,
respectively    |  |               | 170,452   |                  |   | 184,794  
|                                                                                                                                |  |               |           |                  |   |          
|Total owners equity                                                                                                            |  |               | 190,238   |                  |   | 206,036  
|                                                                                                                                |  |               |           |                  |   |          
|Total liabilities and owners equity                                                                                            |  | $             | 2,559,900 |                  | $ | 2,584,082
|                                                                                                                                |  |               |           |                  |   |          

Summarized Statements of Operations

(unaudited)



|                                                                   |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                   |  | Three months endedMarch 31, |        
|                                                                   |  | 2010                        |         |   | 2009 |  
|Revenues                                                           |  | $                           | 79,177  |   |      | $ | 81,561  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Expenses:                                                          |  |                             |         |   |      |   |         |  
|Operating and other                                                |  |                             | 40,294  |   |      |   | 40,269  |  
|Interest                                                           |  |                             | 25,293  |   |      |   | 27,526  |  
|Depreciation and amortization                                      |  |                             | 29,096  |   |      |   | 31,030  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Total expenses                                                     |  |                             | 94,683  |   |      |   | 98,825  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Loss from continuing operations                                    |  |                             | (15,506 | ) |      |   | (17,264 | )
|Gain on early extinguishment of debt                               |  |                             |        |   |      |   | 67,017  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Net (loss) income                                                  |  | $                           | (15,506 | ) |      | $ | 49,753  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Thomas Properties share of net (loss) income                      |  |                             | (1,696  | ) |      |   | 2,295   |  
|Intercompany eliminations                                          |  |                             | 856     |   |      |   | 793     |  
|                                                                   |  |                             |         |   |      |   |         |  
|Equity in net (loss) income of unconsolidated real estate entities |  | $                           | (840    | ) |      | $ | 3,088   |  
|                                                                   |  |                             |         |   |      |   |         |  



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Included in the preceding summarized balance sheets as of March 31, 2010 and December 31, 2009,
are the following balance sheets of TPG/CalSTRS, LLC:



|                                                                                                                                |  |               |           |                  |   |          
|------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ---------------- | - | ---------
|                                                                                                                                |  | March 31,2010 |           | December 31,2009
|                                                                                                                                |  | (unaudited)   |           |                 
|ASSETS                                                                                                                          |  |               |           |                  |   |          
|Investments in real estate, net                                                                                                 |  | $             | 1,133,810 |                  | $ | 1,145,163
|Land held for sale                                                                                                              |  |               | 3,888     |                  |   | 3,853    
|Receivables including deferred rents, net                                                                                       |  |               | 71,450    |                  |   | 70,237   
|Investments in unconsolidated real estate entities                                                                              |  |               | 51,464    |                  |   | 50,844   
|Deferred leasing and loan costs, net                                                                                            |  |               | 76,323    |                  |   | 79,640   
|Other assets                                                                                                                    |  |               | 105,101   |                  |   | 98,293   
|                                                                                                                                |  |               |           |                  |   |          
|Total assets                                                                                                                    |  | $             | 1,442,036 |                  | $ | 1,448,030
|                                                                                                                                |  |               |           |                  |   |          
|LIABILITIES AND EQUITY                                                                                                          |  |               |           |                  |   |          
|Mortgage and other secured loans                                                                                                |  | $             | 1,345,030 |                  | $ | 1,346,319
|Other liabilities                                                                                                               |  |               | 58,843    |                  |   | 59,843   
|                                                                                                                                |  |               |           |                  |   |          
|Total liabilities                                                                                                               |  |               | 1,403,873 |                  |   | 1,406,162
|                                                                                                                                |  |               |           |                  |   |          
|Members equity:                                                                                                                |  |               |           |                  |   |          
|Thomas Properties, including $144 and $133 of other comprehensive loss as of March 31, 2010 and December 31, 2009,
respectively |  |               | 8,102     |                  |   | 22,193   
|CalSTRS, including $430 and $397 of other comprehensive loss as of March 31, 2010 and December 31, 2009, respectively           |  |               | 30,061    |                  |   | 19,675   
|                                                                                                                                |  |               |           |                  |   |          
|Total members equity                                                                                                           |  |               | 38,163    |                  |   | 41,868   
|                                                                                                                                |  |               |           |                  |   |          
|Total liabilities and members equity                                                                                           |  | $             | 1,442,036 |                  | $ | 1,448,030
|                                                                                                                                |  |               |           |                  |   |          

Following is summarized financial information by real
estate entity for the unconsolidated real estate entities for the three months ended March 31, 2010 and 2009:





|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|------------------------------------------------------------------ |  | --------------------------------- | --- | --------------- | - | ------ | ------------------------------------- |  | - | ------------ | - | ----- | - | ----- |  | - | ------- | -
|                                                                   |  | Three months ended March 31, 2010 |    
|                                                                   |  | 2121MarketStreet                  |     | TPG/CalSTRS,LLC |   |        | AustinPortfolioJointVentureProperties |  |   | Eliminations |   | Total |  
|Revenues                                                           |  | $                                 | 907 |                 | $ | 50,753 |                                       |  | $ | 27,517       |   |       | $ |      |  | $ | 79,177  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Expenses:                                                          |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Operating and other                                                |  |                                   | 355 |                 |   | 26,859 |                                       |  |   | 13,080       |   |       |   |      |  |   | 40,294  |  
|Interest                                                           |  |                                   | 288 |                 |   | 12,399 |                                       |  |   | 12,606       |   |       |   |      |  |   | 25,293  |  
|Depreciation and amortization                                      |  |                                   | 234 |                 |   | 16,017 |                                       |  |   | 12,845       |   |       |   |      |  |   | 29,096  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Total expenses                                                     |  |                                   | 877 |                 |   | 55,275 |                                       |  |   | 38,531       |   |       |   |      |  |   | 94,683  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Income (loss) from continuing operations                           |  |                                   | 30  |                 |   | (4,522 | )                                     |  |   | (11,014      | ) |       |   |      |  |   | (15,506 | )
|Equity in net income (loss) of unconsolidated real estate entities |  |                                   |    |                 |   | (2,389 | )                                     |  |   |             |   |       |   | 2,389 |  |   |        |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Net income (loss)                                                  |  | $                                 | 30  |                 | $ | (6,911 | )                                     |  | $ | (11,014      | ) |       | $ | 2,389 |  | $ | (15,506 | )
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Thomas Properties share of net income (loss)                      |  | $                                 | 15  |                 | $ | (1,023 | )                                     |  | $ | (688         | ) |       | $ |      |  | $ | (1,696  | )
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Intercompany eliminations                                          |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   | 856     |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  
|Equity in net loss of unconsolidated real estate entities          |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  | $ | (840    | )
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |       |   |       |  |   |         |  



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|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|------------------------------------------------------------------ |  | --------------------------------- | --- | --------------- | - | ------ | ------------------------------------- |  | - | ------------ | - |  | ----- | ------- | - |  | - | ------- | -
|                                                                   |  | Three months ended March 31, 2009 |    
|                                                                   |  | 2121MarketStreet                  |     | TPG/CalSTRS,LLC |   |        | AustinPortfolioJointVentureProperties |  |   | Eliminations |   |  | Total |        
|Revenues                                                           |  | $                                 | 942 |                 | $ | 50,875 |                                       |  | $ | 29,744       |   |  | $     |        |   |  | $ | 81,561  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Expenses:                                                          |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Operating and other                                                |  |                                   | 401 |                 |   | 26,834 |                                       |  |   | 13,034       |   |  |       |        |   |  |   | 40,269  |  
|Interest                                                           |  |                                   | 292 |                 |   | 12,164 |                                       |  |   | 15,070       |   |  |       |        |   |  |   | 27,526  |  
|Depreciation and amortization                                      |  |                                   | 237 |                 |   | 16,420 |                                       |  |   | 14,373       |   |  |       |        |   |  |   | 31,030  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Total expenses                                                     |  |                                   | 930 |                 |   | 55,418 |                                       |  |   | 42,477       |   |  |       |        |   |  |   | 98,825  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Income (loss) from continuing operations                           |  |                                   | 12  |                 |   | (4,543 | )                                     |  |   | (12,733      | ) |  |       |        |   |  |   | (17,264 | )
|Gain on early extinguishment of debt                               |  |                                   |    |                 |   |       |                                       |  |   | 67,017       |   |  |       |        |   |  |   | 67,017  |  
|Equity in net income (loss) of unconsolidated real estate entities |  |                                   |    |                 |   | 13,600 |                                       |  |   |             |   |  |       | (13,600 | ) |  |   |        |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Net income (loss)                                                  |  | $                                 | 12  |                 | $ | 9,057  |                                       |  | $ | 54,284       |   |  | $     | (13,600 | ) |  |   | 49,753  |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Thomas Properties share of net income (loss)                      |  | $                                 | 6   |                 | $ | (1,105 | )                                     |  | $ | 3,394        |   |  | $     |        |   |  | $ | 2,295   |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Intercompany eliminations                                          |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   | 793     |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  
|Equity in net income of unconsolidated real estate entities        |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  | $ | 3,088   |  
|                                                                   |  |                                   |     |                 |   |        |                                       |  |   |              |   |  |       |         |   |  |   |         |  

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, 2010 and December 31, 2009:



|                                                                            |  |               |        |   |                  |   |        |  
|--------------------------------------------------------------------------- |  | ------------- | ------ | - | ---------------- | - | ------ | -
|                                                                            |  | March 31,2010 |        |   | December 31,2009 |  
|Our share of owners equity recorded by unconsolidated real estate entities |  | $             | 19,786 |   |                  | $ | 21,242 |  
|Intercompany eliminations and other adjustments                             |  |               | (6,951 | ) |                  |   | (6,784 | )
|                                                                            |  |               |        |   |                  |   |        |  
|Investments in unconsolidated real estate entities                          |  | $             | 12,835 |   |                  | $ | 14,458 |  
|                                                                            |  |               |        |   |                  |   |        |  

4. Mortgage and Other Secured Loans

A summary of the consolidated properties outstanding mortgage and other secured loans as of March 31, 2010 and
December 31, 2009 is as follows:



|                                         |  |                                |                     |                  |                        |               |   |                                        |  |           |  |          
|---------------------------------------- |  | ------------------------------ | ------------------- | ---------------- | ---------------------- | ------------- | - | -------------------------------------- |  | --------- |  | ---------
|                                         |  | Interest Rate atMarch 31, 2010 |                     | Outstanding Debt |                        | Maturity Date |   | Maturity Dateat End ofExtensionOptions
|                                         |  |                                |                     |                 
|Secured
debt                             |  |                                | As ofMarch 31, 2010 |                  | As ofDecember 31, 2009 |               |  
|One Commerce Square mortgage loan (1)    |  | 5.67%                          |                     | $                | 130,000                |               | $ | 130,000                                |  | 1/6/2016  |  | 1/6/2016 
|Two Commerce Square mortgage loan (2)    |  | 6.30%                          |                     |                  | 107,985                |               |   | 108,104                                |  | 5/9/2013  |  | 5/9/2013 
|Campus El Segundo mortgage loan (3)      |  | Libor + 3.75%                  |                     |                  | 17,000                 |               |   | 17,000                                 |  | 7/31/2011 |  | 7/31/2014
|Four Points Centre construction loan (4) |  | Libor + 3.50%                  |                     |                  | 25,372                 |               |   | 26,177                                 |  | 7/31/2012 |  | 7/31/2014
|Murano construction loan (5)             |  | 7% or 3 month Libor + 3.25%    |                     |                  | 32,158                 |               |   | 36,955                                 |  | 7/31/2010 |  | 7/31/2010
|                                         |  |                                |                     |                  |                        |               |   |                                        |  |           |  |          
|Total secured debt                       |  |                                |                     | $                | 312,515                |               | $ | 318,236                                |  |           |  |          
|                                         |  |                                |                     |                  |                        |               |   |                                        |  |           |  |          



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



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



|(3) | The interest rate as of March 31, 2010 was 4.0% per annum. On October 10, 2009, the loan agreement was modified and the loan maturity
was extended to July 31, 2011 with three one-year extension options, at our election, subject to us complying with certain covenants, with a final maturity date of July 31, 2014 if all extension options are exercised. The lender has the
option to
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | require a principal payment of $2.5 million at the time of each extension. The interest rate on the loan has been increased to LIBOR plus 3.75% per annum. We have guaranteed 100% of the
principal, interest and any other sum payable under this loan. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of March 31, 2010.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The weighted average interest rate as of March 31, 2010 was 3.8% per annum. On October 13, 2009, we entered into an agreement with the lender to modify
and extend this loan to July 31, 2012 with two one-year extension options at our election subject to certain conditions. We have provided a repayment and completion guaranty. We have also agreed to provide additional collateral of approximately
62.4 acres of fully entitled unimproved land, which is immediately adjacent to our Four Points Centre office buildings located in Austin, Texas. We have also committed to pay down the principal amount of the loan in the total amount of $7.8 million
of which we paid $3.9 million in October, 2009, $1.3 million in January, 2010 and the balance will be paid in two equal installments, in June and December, 2010. The loan has an unfunded balance of the commitment of $9.9 million which is available
to fund any remaining project costs. The interest rate on the loan has been increased to LIBOR plus 3.50% per annum. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of
March 31, 2010.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | In January 2010, we exercised the final six-month extension option, which extended the maturity date to July 31, 2010. The interest rate for this loan as of
March 31, 2010 was 7.0%. Subsequent to March 31, 2010, we closed on the sale of eight units and we have two units under contract and expected to close, which will cumulatively reduce the principal balance by approximately $4.8 million. We
are in discussions with the lender to extend the loan maturity to 2011, which based on the principal amortization feature of the loan, we believe is achievable. This loan is nonrecourse to the Company, but the Company guarantees the payment of
interest on the loan during the term of the loan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain of our loan agreements require us to maintain monies
in reserve accounts to fund various expenditures such as capital improvements, taxes, insurance, leasing commissions and debt service. Included in restricted cash on our consolidated balance sheet at March 31, 2010, are reserve funds totaling
$3.9 million for One Commerce Square and $2.6 million for Two Commerce Square in addition to $1.2 million of Murano security deposits.

As of March 31, 2010, subject to certain extension options exercisable by the Company, principal payments due for the secured and
unsecured outstanding debt are as follows (in thousands):



|           |  |                                    |         |                                                             |   |        
|---------- |  | ---------------------------------- | ------- | ----------------------------------------------------------- | - | -------
|           |  | Amount Due atOriginal MaturityDate |         | Amount Due atMaturity
DateAfter Exercise ofExtensionOptions
|2010       |  | $                                  | 35,131  |                                                             | $ | 35,131 
|2011       |  |                                    | 18,971  |                                                             |   | 1,971  
|2012       |  |                                    | 24,932  |                                                             |   | 2,160  
|2013       |  |                                    | 108,392 |                                                             |   | 108,392
|2014       |  |                                    | 1,884   |                                                             |   | 41,656 
|Thereafter |  |                                    | 123,205 |                                                             |   | 123,205
|           |  |                                    |         |                                                             |   |        
|           |  | $                                  | 312,515 |                                                             | $ | 312,515
|           |  |                                    |         |                                                             |   |        

5. Income (Loss) Per Share and Dividends Declared

Effective January 1, 2009, the Company calculated basic and diluted earnings per share in accordance with FASB ASC 260-10-45,
Earnings Per Share,which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing basic
earnings per share under the two-class method. The Company has granted restricted stock and incentive partnership units to employees in connection with stock based compensation. The restricted stock and incentive partnership units are considered to
be participating securities because they have non forfeitable rights to dividends.

The two-class method is an earnings
allocation method for calculating earnings per share when a companys capital structure includes either two or more classes of common stock or common stock and participating securities. Basic earnings per share under the two-class method is
calculated based on dividends declared on common shares and other participating securities (distributed earnings) and the rights of common shares and participating securities in any undistributed earnings, which represents net income



14



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##### Table of Contents

remaining after deduction of dividends accruing during the respective period. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the
relative percentage of each security to the total number of outstanding securities. Basic earnings per common share and participating security represent the summation of the distributed and undistributed earnings per common share and participating
security divided by the total weighted average number of common shares outstanding and the total weighted average number of participating securities outstanding during the respective years. We only present the earnings per share attributable to the
common shareholders.

For the three months ended March 31, 2009, the Company incurred losses and paid dividends. The net
losses, after deducting the dividends to participating securities, are allocated in full to the common shares since the participating security holders do not have an obligation to share in the losses, based on the contractual rights and obligations
of the participating securities. In December 2009, our board of directors suspended its quarterly dividends to common stockholders. Because we incurred losses for the three months ended March 31, 2010 and 2009, all potentially dilutive
instruments are anti-dilutive and have been excluded from our computation of weighted average dilutive shares outstanding.

The following is a summary of the components used in calculating basic and diluted earnings per share for the three months ended
March 31, 2010 and 2009 (in thousands, except share data):



|                                                                                     |  |                              |            |      |   |           
|------------------------------------------------------------------------------------ |  | ---------------------------- | ---------- | ---- | - | ----------
|                                                                                     |  | Three months ended March 31,
|                                                                                     |  | 2010                         |            | 2009
|Net loss attributable to common shares                                               |  | $                            | (2,421)    |      | $ | (174)     
|Less Dividends to participating securities                                           |  |                              |           |      |   | 11        
|                                                                                     |  |                              |            |      |   |           
|Net loss attributable to common shares, net of dividends to participating securities |  | $                            | (2,421)    |      | $ | (185)     
|                                                                                     |  |                              |            |      |   |           
|Weighted average common shares outstandingbasic and diluted                         |  |                              | 30,436,364 |      |   | 24,542,990
|                                                                                     |  |                              |            |      |   |           
|Loss per sharebasic and diluted                                                     |  | $                            | (0.08)     |      | $ | (0.01)    
|                                                                                     |  |                              |            |      |   |           
|Dividends declared per share                                                         |  | $                            |           |      | $ | 0.0125    
|                                                                                     |  |                              |            |      |   |           

As of March 31, 2010, approximately 569,000
nonvested restricted stock units, 321,000 incentive units and 145,000 nonvested incentive units were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to our net loss position. As of March 31, 2009,
616,000 nonvested restricted stock units, 927,000 incentive units and 331,000 nonvested incentive units were excluded from the calculation of diluted earnings per share because they were anti-dilutive due to our net loss position.

6. Equity

Common Stock and Operating
Partnership Units

The holders of common stock are entitled to one vote per share on all matters to be voted upon by the
stockholders. Holders of our common stock vote together as a single class with holders of our limited voting stock on those matters upon which the holders of limited voting stock are entitled to vote. Subject to preferences that may be applicable to
any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably any dividends when, if, and as may be declared by the board of directors out of funds legally available for dividend payments. In the event of our
liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There are no redemption or sinking fund provisions applicable to the common stock. A Unit and a share of our common stock have essentially the same economic characteristics
as they share equally in the total net income or loss and distributions of the Operating Partnership. A Unit may be redeemed by the holder in exchange for cash or shares of common stock at our election, on a one-for-one basis. As of March 31,
2010 and December 31, 2009, we held a 68.7% and 68.8% interest in the Operating Partnership, respectively.



15



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##### Table of Contents

Issuances of Common Stock

On December 23, 2009, the Company completed the sale of 5.1 million shares through a registered direct offering of common stock
at $2.55 per share. The net proceeds after deducting offering expenses were $13.1 million. We used the net proceeds to fund a portion of the discounted payoff of $25.2 million for $36.6 million in nonrecourse senior and junior mezzanine loans on Two
Commerce Square which were scheduled to mature in January 2010. Following the closing of the offering, we held a 68.8% interest in our Operating Partnership at December 23, 2009. See Note 9  Subsequent Events  for information on
sales of common stock subsequent to March 31, 2010 in our at-the-market equity offering program.

Limited Voting Stock

Each operating partnership unit issued in connection with the formation of our operating partnership at the time of our
initial public offering in 2004 was paired with one share of limited voting stock. Operating partnership units issued under other circumstances, including upon the conversion of incentive units granted under the Incentive Plan, are not paired with
shares of limited voting stock. These shares of limited voting stock are not transferable separate from the limited partnership units they are paired with, and each operating partnership unit is redeemable together with one share of limited voting
stock by its holder for cash, or, at our election, one share of our common stock. Each share of limited voting stock entitles its holder to one vote on the election of directors, certain extraordinary transactions, including a merger or sale of our
company, and amendments to our certificate of incorporation. Shares of limited voting stock are not entitled to any regular or special dividend payments or other distributions, including any dividends or other distributions declared or paid with
respect to shares of our common stock or any other class or series of our stock, and are not entitled to receive any distributions in the event of liquidation or dissolution of our company. Shares of limited voting stock have no class voting rights,
except to the extent required by Delaware law. Any redemption of a unit in our operating partnership will be redeemed together with a share of limited voting stock in accordance with the redemption provisions of the operating partnership agreement,
and the share of limited voting stock will be cancelled and not subject to reissuance.

Incentive Partnership Units

We have issued a total of 1,303,336 incentive units as of March 31, 2010 to certain employees. Incentive units represent a profit
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 distribution 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 30,978,621 shares of common stock and 13,813,331 units outstanding as of March 31, 2010, and 465,554 incentive units outstanding which were issued under our Incentive Plan, defined below. The share of
the Company owned by the Operating Partnership unit holders is reflected as a separate component called noncontrolling interests in the equity section of our consolidated balance sheets.

Stock Compensation

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

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



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Restricted Stock

Under the Incentive Plan, we have issued the following restricted shares to executives of the Company:



|                                        |  |         |  |                              |       |                |                            
|--------------------------------------- |  | ------- |  | ---------------------------- | ----- | -------------- | ---------------------------
|Grant Date                              |  | Shares  |  | AggregateValue(in thousands) |       | Vesting Status
|October 2004                            |  | 46,667  |  | $                            | 560   |                | Fully vested               
|February 2006                           |  | 60,000  |  |                              | 740   |                | Fully vested               
|March 2007                              |  | 100,000 |  |                              | 1,580 |                | Fully vested               
|March 2008                              |  | 100,000 |  |                              | 855   |                | See below                  
|January 2009                            |  | 410,000 |  |                              | 1,019 |                | Partially vested, see below
|January 2010                            |  | 100,000 |  |                              | 263   |                | See below                  
|                                        |  |         |  |                              |       |                |                            
|Issued from Inception to March 31, 2010 |  | 816,667 |  | $                            | 5,017 |                |                            
|                                        |  |         |  |                              |       |                |                            

Vesting for the 100,000 shares granted on March 19, 2008 commenced on that date. These
restricted shares will vest in full on the third anniversary of the vesting commencement date. In January 2009, we issued an additional 410,000 restricted shares to executives of which 41,000 shares vested in January 2010. The remaining 369,000
restricted shares may vest over the next four years, of which 205,000 of the restricted shares may vest based on stock performance, and the remaining 164,000 shares may vest based on the discretion of the compensation committee of our board of
directors and on the date they make such decision. The fair value of the restricted stock grants is determined based on the Companys common stock price. The fair value of restricted stock grants with market conditions (e.g. stock based
performance grants) is adjusted accordingly for the effect on fair value of those market conditions. The fair value of restricted stock grants with discretionary vesting is based on the Companys common stock price at the date of vesting.

Holders of restricted stock have full voting rights and receive any dividends paid.

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



|                                        |  |        |  |                              |     |                |             
|--------------------------------------- |  | ------ |  | ---------------------------- | --- | -------------- | ------------
|                                        |  | Shares |  | AggregateValue(in thousands) |     | Vesting Status
|Issued in October 2004                  |  | 10,000 |  | $                            | 120 |                | Fully vested
|Issued in 2005                          |  | 4,984  |  |                              | 60  |                | Fully vested
|Issued in 2006                          |  | 6,419  |  |                              | 82  |                | Fully vested
|Issued in 2007                          |  | 3,564  |  |                              | 60  |                | Fully vested
|Issued in 2008                          |  | 5,968  |  |                              | 60  |                | Fully vested
|                                        |  |        |  |                              |     |                |             
|Issued from Inception to March 31, 2010 |  | 30,935 |  | $                            | 382 |                |             
|                                        |  |        |  |                              |     |                |             

We recorded compensation expense totaling $287,000 and $354,000 for the vesting of the restricted
stock grants for the three months ended March 31, 2010 and 2009, respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $122,000 and $150,000 for the three months ended
March 31, 2010 and 2009, respectively. The weighted-average grant date fair value of restricted stock granted to executives for the three months ended March 31, 2010 was $2.63 per share. No grants of restricted stock were made to
non-employee directors during the three months ended March 31, 2010. As of March 31, 2010, there was $1,000,000 of total unrecognized compensation cost related to the unvested restricted stock under the Incentive Plan. The unrecognized
compensation expense is expected to be recognized over a weighted average period of 1.8 years.



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##### Table of Contents

Incentive Units

Under our Incentive Plan, we issued to certain executives 730,003 incentive units upon consummation of our initial public offering in
October 2004, which fully vested on October 13, 2007. In February 2006 and March 2007, we issued 120,000 and 183,333 incentive units, respectively, to certain executives, which vested on the third anniversary of the grant date. In March 2008,
we issued an additional 160,000 incentive units to certain executives, which units vest over a three year period, with one third vesting each on the first, second, and third anniversary dates of the grant. In September 2008, we issued an additional
110,000 incentive units to a new executive, of which 18,333 units have vested. The remaining 91,667 units may vest over a three to five year period, of which 55,000 units may vest based on stock performance and 36,667 units may vest based on the
discretion of our compensation committee. No incentive units were granted for the three months ended March 31, 2010. The fair value of the incentive unit grants with market conditions is determined based on the Companys common stock price
at the date of grant. The fair value of incentive unit grants with discretionary vesting is based on the Companys common stock price at the date of vesting.

We have issued the following incentive units to our executives:



|                                        |  |           |  |                              |        |                |                 
|--------------------------------------- |  | --------- |  | ---------------------------- | ------ | -------------- | ----------------
|                                        |  | Units     |  | AggregateValue(in thousands) |        | Vesting Status
|Issued in October 2004                  |  | 730,003   |  | $                            | 8,443  |                | Fully vested    
|Issued in 2006                          |  | 120,000   |  |                              | 1,463  |                | Fully vested    
|Issued in 2007                          |  | 183,333   |  |                              | 2,728  |                | Fully vested    
|Issued in 2008                          |  | 270,000   |  |                              | 2,312  |                | Partially vested
|                                        |  |           |  |                              |        |                |                 
|Issued from Inception to March 31, 2010 |  | 1,303,336 |  | $                            | 14,946 |                |                 
|                                        |  |           |  |                              |        |                |                 

For the three months ended March 31, 2010 and 2009, we recorded compensation expense for the
vesting of the incentive unit grants totaling $211,000 and $554,000, respectively. As of March 31, 2010, there was $374,000 of unrecognized compensation expense related to incentive units. The unrecognized compensation expense is expected to be
recognized over a weighted average period of 1.1 years.

Stock options

Under our Incentive Plan, we have 630,701 stock options outstanding as of March 31, 2010. There were no stock option grants for the
three months ended March 31, 2010. The options vest at the rate of one third per year over three years and expire ten years after the date of commencement of vesting. The fair market value of each option granted was estimated on the date of the
grant using the Black-Scholes option pricing model. Below is a summary of the methodologies the Company utilized to estimate the assumptions used in the Black-Scholes option pricing model:

Expected TermThe expected term of the Companys stock-based awards represents the period that the Companys stock-based
awards are expected to be outstanding.

Expected Stock Price VolatilityThe Company estimates its volatility factor by
using the historical average volatility of its common stock price over a period equal to the expected term.

Expected Dividend
YieldThe dividend yield is based on the Companys expected future dividend payments.

Risk-Free Interest
RateThe Company bases the risk-free interest rate used on the implied yield currently available on the U.S. Treasury zero-coupon issues with an equivalent remaining term.

Estimated ForfeituresWhen estimating forfeitures, the Company considers voluntary termination behavior as well as an analysis of
actual option forfeitures. As stock-based compensation expense recognized in the Statement of Operations for the three months ended March 31, 2010 and 2009 is based on awards ultimately expected to vest, it should be reduced for estimated
forfeitures. FASB ASC 718 CompensationStock Compensation requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting
forfeitures were estimated based on historical experience.



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##### Table of Contents

There were no stock option grants made during the year ended December 31, 2009 and the
three months ended March 31, 2010. The following are the weighted-average assumptions used in the Black-Scholes option pricing model for stock option grants made by the Company in 2008 and 2007:



|                                |  |              |   |  |              |  
|------------------------------- |  | ------------ | - |  | ------------ | -
|                                |  | 2008         |   |  | 2007         |  
|Expected dividend yield         |  | 2.90         | % |  | 1.55         | %
|Expected term                   |  | 5 to 8 years |   |  | 2 to 4 years |  
|Risk-free interest rate         |  | 3.20         | % |  | 4.62         | %
|Expected stock price volatility |  | 11.00        | % |  | 13.00        | %

The following
is a summary of stock option activity under our Incentive Plan as of and for the three months ended March 31, 2010:



|                                      |  |         |   |  |                               |       |                                                     |     |                                        |  
|------------------------------------- |  | ------- | - |  | ----------------------------- | ----- | --------------------------------------------------- | --- | -------------------------------------- | -
|                                      |  | Shares  |   |  | WeightedAverageExercise Price |       | Weighted AverageRemainingContractual Term(in years) |     | AggregateIntrinsic Value(in thousands)
|Outstanding at January 1, 2010        |  | 667,694 |   |  | $                             | 12.75 |                                                     |     |                                        |  
|Granted                               |  |        |   |  |                               |      |                                                     |     |                                        |  
|Forfeitures                           |  | (36,993 | ) |  |                               | 11.52 |                                                     |     |                                        |  
|Exercised                             |  |        |   |  |                               |      |                                                     |     |                                        |  
|                                      |  |         |   |  |                               |       |                                                     |     |                                        |  
|Outstanding at March 31, 2010         |  | 630,701 |   |  | $                             | 12.82 |                                                     | 6.1 |                                        | 
|                                      |  |         |   |  |                               |       |                                                     |     |                                        |  
|Options exercisable at March 31, 2010 |  | 586,611 |   |  | $                             | 13.00 |                                                     | 6.0 |                                        | 
|                                      |  |         |   |  |                               |       |                                                     |     |                                        |  

As of March 31, 2010, there was $17,000 of total
unrecognized compensation expense related to the unvested stock options. The total unrecognized compensation expense is expected to be recognized over a weighted average period of 0.9 years. There were no stock options granted or exercised during
three months ended March 31, 2010.

We recorded compensation expense totaling $10,000 and $30,000 related to the stock
options for the three months ended March 31, 2010 and 2009, respectively. The total income tax benefit recognized in the statement of operations related to this compensation expense was $4,000 and $13,000 for the three months ended
March 31, 2010 and 2009, respectively.

Noncontrolling Interests

On January 1, 2009, the Company adopted FASB ASC 810-10 Consolidation, which clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. FASB ASC 810-10 also requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest and requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the noncontrolling
interest. In addition, FASB ASC 810-10 establishes a single method of accounting for changes in a parents ownership interest in a subsidiary that does not result in deconsolidation and requires that a parent recognize a gain or loss in net
income when a subsidiary is deconsolidated. As a result of the issuance of FASB ASC 810-10, the guidance in FASB ASC 480-10, Classification and Measurement of Redeemable Securities, was amended to include redeemable noncontrolling
interests within its scope. If noncontrolling interests are determined to be redeemable, they are to be carried at their redemption value as of the balance sheet date and reported as temporary equity.

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



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FASB ASC 810-10 was required to be applied prospectively after adoption, with the exception
of the presentation and disclosure requirements, which were applied retrospectively for all periods presented. The Company evaluated the terms of the Units and, as a result of the adoption of FASB ASC 810-10, the Company reclassified noncontrolling
interests to permanent equity in the accompanying consolidated balance sheets and recorded a decrease to the carrying value of noncontrolling interests of approximately $7.8 million (a corresponding increase was recorded to additional paid-in
capital) to reflect the noncontrolling interests proportionate share of equity at December 31, 2009. In periods subsequent to the adoption of FASB ASC 810-10, the Company will periodically evaluate individual noncontrolling interests for
the ability to continue to recognize the noncontrolling interest as permanent equity in the consolidated balance sheets. Any noncontrolling interest that fails to qualify as permanent equity will be reclassified as temporary equity and adjusted to
the greater of (a) the carrying amount, or (b) its redemption value as of the end of the period in which the determination is made.

The redemption value of the 465,554 outstanding incentive units not owned by the Company at March 31, 2010 was approximately
$1,536,000 based on the closing price of the Companys common stock of $3.30 per share as of March 31, 2010.

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

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





|                                                           |  |                     |         |   |                         |   |        |             |  |   |         |  
|---------------------------------------------------------- |  | ------------------- | ------- | - | ----------------------- | - | ------ | ----------- |  | - | ------- | -
|                                                           |  | StockholdersEquity |         |   | NoncontrollingInterests |   |        | TotalEquity | 
|Balance at December 31, 2009                               |  | $                   | 136,396 |   |                         | $ | 65,949 |             |  | $ | 202,345 |  
|Net loss                                                   |  |                     | (2,421  | ) |                         |   | (982   | )           |  |   | (3,403  | )
|Vesting of stock compensation                              |  |                     | 442     |   |                         |   | 66     |             |  |   | 508     |  
|Reclassification adjustment                                |  |                     | (287    | ) |                         |   | 287    |             |  |   |        |  
|Other comprehensive loss                                   |  |                     | (7      | ) |                         |   | (4     | )           |  |   | (11     | )
|Book-tax difference related to vesting of restricted stock |  |                     | (51     | ) |                         |   |       |             |  |   | (51     | )
|Costs for prior period equity offering                     |  |                     | (23     | ) |                         |   |       |             |  |   | (23     | )
|                                                           |  |                     |         |   |                         |   |        |             |  |   |         |  
|Balance at March 31, 2010                                  |  | $                   | 134,049 |   |                         | $ | 65,316 |             |  | $ | 199,365 |  
|                                                           |  |                     |         |   |                         |   |        |             |  |   |         |  

7. Income Taxes

All operations are carried on through the Operating Partnership and its subsidiaries. The Operating Partnership is not subject to income
tax, and all of the taxable income, gains, losses, deductions and credits are passed through to its partners. However, the Operating Partnership and some of its subsidiaries are subject to income taxes in Texas. 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, 2010, we held a 68.7% capital interest in the Operating Partnership. For
the three months ended March 31, 2010, we were allocated of 68.7% of the income and losses from the Operating Partnership.

The difference resulting from the effective tax rate of (4.9)% for three months ended March 31, 2010, compared to the federal
statutory rate of 35% is primarily due the noncontrolling interests attributable income under FASB ASC 810, and the valuation allowance recorded during the quarter related to the Companys deferred tax assets for which no benefit could be
provided due to the realization not reaching the more likely than not threshold.

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.

A net deferred tax asset is included with other assets on
the Companys balance sheet. The Companys existing federal and state net operating loss carryforwards, which existed as of a deemed ownership change in 2007 is subject to the gross annual limitation under Internal Revenue Code
Section 382 (Section 382), which is $9.9 million per year. The net operating loss carryforwards generated subsequent to the 2007 ownership change are not subject to the Section 382 limitation. The Companys net operating
loss carryforwards are subject to varying expirations from 2015 through 2029. See Note 9  Subsequent Events regarding further potential change in ownership transactions.



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FASB ASC 740-10-30-17 Accounting for Income Taxes, requires that deferred tax
assets be reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax asset will not be realized. Future realization of the deferred tax asset is dependent on the reversal of existing taxable temporary
differences, carryback potential, tax-planning strategies and on us generating sufficient taxable income in future years as the deferred income tax charges become currently deductible for tax reporting purposes. For the three months ended
March 31, 2010, the Company has recorded a full valuation allowance of $9.6 million on a portion of their net deferred tax assets, the Companys deferred tax assets in excess of their liability for unrecognized tax benefits discussed
below, due to uncertainty of future realization.

FASB ASC 740-10-15, clarifies the accounting for uncertainty in income taxes
recognized in a companys financial statements. The interpretation prescribes a recognition threshold and measurement attribute criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in
a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Companys policy is to recognize interest and penalties related to unrecognized tax benefits as a component of income tax
expense. For the three months ended March 31, 2010, we recorded $161,000 of interest related to unrecognized tax benefits as a component of income tax expense. We have not recorded any penalties with respect to unrecognized tax benefits.

For the three months ended March 31, 2010, the Company has recorded a decrease of $2.4 million to our unrecognized tax
benefits. We do not anticipate any significant increases or decreases to the remaining amounts of unrecognized tax benefits within the next twelve months.

8. Fair Value of Financial Instruments

FASB ASC 825-10-50-8, 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 as of March 31, 2010 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, rent and other receivables, accounts payable and other liabilities approximate fair value due to the short-term nature of these instruments.

As of March 31, 2010, the fair value of our consolidated mortgage and other secured loans aggregates $281.8 million, compared to the
aggregate carrying value of $312.5 million on our consolidated balance sheet.

9. Subsequent Events

Subsequent to March 31, 2010, we sold 4,236,275 shares of common stock as of May 12, 2010 at prices ranging from $3.67 to $5.03
per share in our at- the-market equity offering program. These sales resulted in net proceeds to the Company of $15.3 million, to be used for general corporate purposes. The Company is currently evaluating the sales made through the
equity offering and the related tax consequences, including any potential limitations on the Companys ability to utilize its existing deferred tax assets due to a change in ownership as defined under Internal Revenue Code Section 382 (see
Note 7  Income Taxes for discussion of potential Section 382 limitations.)



|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.
This report includes statements 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 risks 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 risks, see the section in this report entitled
Risk Factors.

When you read the financial statements and the information included in this report, you should be
aware that our operations are significantly affected by both macro and micro economic forces. Our operations are directly affected by actual and perceived trends in various national and regional economic conditions that affect national and regional
markets for commercial real estate services, including interest rates, the availability of credit to finance commercial real estate transactions, and the impact of tax laws affecting



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real estate. Periods of economic slowdown or recession, rising interest rates, tightening of the credit markets, declining demand for or increased supply of real estate, or the public perception
that any of these events may occur can adversely affect our business. These conditions could result in a general decline in rents, which in turn would reduce revenue from property management fees and brokerage commissions derived from leases. In
addition, these conditions could lead to a decline in property values as well as a decline in funds invested in commercial real estate and related assets, which in turn may reduce revenues from investment advisory, property management, leasing and
development fees.

Forward-Looking Statements

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

Overview and Background

We are a full-service real estate operating company that owns, acquires, develops and manages primarily office, as well as mixed-use and
residential properties on a nationwide basis. We conduct our business through our Operating Partnership, of which we own 68.7% as of March 31, 2010 and have control over the major decisions of the Operating Partnership.

Results of Operations

The results of operations reflect the consolidation of the affiliates that own One Commerce Square, Two Commerce Square, Murano, 2100 JFK
Boulevard, Four Points Centre, Campus El Segundo and our investment advisory, property management, leasing and real estate development operations. Included in our investment advisory, property management, leasing and development services operations
are development fees we earn from unaffiliated third parties related to two separate entitlement projects  Universal Village and Wilshire Grand. The following properties are accounted for using the equity method of accounting:

2121 Market Street

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

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

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

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)

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)

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

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

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

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

Comparison of three months ended March 31, 2010 to three months ended March 31, 2009

Total revenues. Total revenues increased by $3.0 million, or 14.1%, to $24.3 million for the three months ended March 31, 2010
compared to $21.3 million for the three months ended March 31, 2009. The significant components of revenue are discussed below.

Rental revenues.Rental revenue was consistent for each of the three month periods ended March 31, 2010 and 2009.

Tenant reimbursements.Tenant reimbursements decreased by $1.0 million, or 16.7%, to $5.0 million for the three months ended
March 31, 2010 compared to $6.0 million for the three months ended March 31, 2009. The decrease was primarily related to a scheduled lease expiration in June 2009 of a significant tenant at Two Commerce Square representing approximately
375,000 rentable square feet, offset by revenues from former subtenants or new tenants that are now direct tenants.

Parking and other revenues.Parking and other revenues increased by $0.2 million, or 25%, to $1.0 million for the three months
ended March 31, 2010 from $0.8 million for the three months ended March 31, 2009. The increase was primarily related to lease termination fees recognized at One Commerce Square.

Investment advisory, management, leasing and development services revenues.This caption represents revenues earned from services
provided to unaffiliated entities in which we have no ownership interest. Revenues from these services increased by $0.4 million, or 25%, from $1.6 million for the three months ended March 31, 2009, to $2.0 million for the three months ended
March 31, 2010 primarily due to an increase in development fees related to our Wilshire Grand project with Korean Airlines. We began earning fees on our Wilshire Grand project in April of 2009.

Investment advisory, management, leasing and development services revenues  unconsolidated real estate entities.This
caption represents revenues earned from services provided to entities for 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 decreased by $0.4 million, or 10.3%, from $3.9 million for the three months ended March 31, 2009 to $3.5 million for the three months ended March 31, 2010 primarily due to an overall decrease in leasing
and construction management activity of $0.6 million partially offset by fees of $0.2 million for providing management services related to obtaining LEED (Leadership in Energy and Environmental Design) certification for certain properties.

Reimbursement of property personnel costs. This caption represents the reimbursement for property personnel salary,
payroll taxes and benefits. The decrease of $0.2 million or 12.5% to $1.4 million for the three months ended March 31, 2010 compared to $1.6 million for the three months ended March 31, 2009 was primarily due to a reduction in
compensation.

Condominium sales.This caption represents revenue recognized for the Murano condominium units and
parking spaces which closed during the three months ended March 31, 2010. The increase of $4.2 million for the three months ended March 31, 2010 is due to increased sales activity. For the three months ended March 31, 2010, we
recognized revenue associated with nine units as compared to no units for the corresponding three-month period ended March 31, 2009.

Total expenses.Total expenses decreased by $0.1 million, or 0.4%, to $26.8 million for the three months ended March 31, 2010
compared to $26.9 million for the three months ended March 31, 2009. The significant components of expense are discussed below.



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Property operating and maintenance expense.Property operating and maintenance
expenses increased by $0.2 million, or 3.3% to $6.3 million compared to $6.1 million for three months ended March 31, 2009. The increase was primarily attributable to an increase in contract cleaning expenses.

Investment advisory, management, leasing and development services expenses.Expenses for these services decreased by $0.5 million,
or 17.2%, to $2.4 million for the three months ended March 31, 2010, compared to $2.9 million for the three months ended March 31, 2009, primarily due to employee compensation and professional fee reductions related to cost saving
measures.

Reimbursable property personnel costs.This caption represents the reimbursement of property personnel
salary, payroll taxes and benefits. The decrease of $0.2 million or 12.5% to $1.4 million for the three months ended March 31, 2010 compared to $1.6 million for the three months ended March 31, 2009 was primarily due to a reduction in
compensation.

Cost of condominium sales.This caption represents costs recognized for the Murano condominium units and
parking spaces which closed during the three months ended March 31, 2010. The increase of $3.0 million for the three months ended March 31, 2010 compared to the three months ended March 31, 2009 is due to increased sales activity. For
the three months ended March 31, 2010, we recognized costs associated with nine units as compared to no units for the corresponding period ended March 31, 2009.

Interest expense.Interest expense decreased by $2.0 million, or 29.4%, to $4.8 million for the three month period ended
March 31, 2010 from $6.8 million for the three month period ended March 31, 2009. The decrease in interest expense is primarily attributable to the payoff of mezzanine debt at Two Commerce Square which resulted in a decrease of $2.2
million compared to the prior period. This was partially offset by increased financing costs on our Murano and Four Points loans resulting from amortization of loan extension fees.

Depreciation and amortization expense.Depreciation and amortization increased $0.3 million to $3.5 million for the three months
ended March 31, 2010 compared to $3.2 million for the three months ended March 31, 2009. This increase was primarily attributable to accelerated recovery associated with an early lease termination at One Commerce Square.

General and administrative.General and administrative expense decreased by $0.8 million, or 18.2%, to $3.6 million for the three
months ended March 31, 2010 compared to $4.4 million for the three months ended March 31, 2009. This was primarily due to a reduction in compensation expense and professional fees, as a result of cost saving measures.

Gain from early extinguishment of debt. In October 2005, we purchased the entire interest of our unaffiliated partner in TPG-El
Segundo Partners, LLC (the venture which owns our Campus El Segundo development project), of which $3.9 million was financed with an unsecured loan from the former noncontrolling partner. Principal and accrued interest on this loan had a scheduled
maturity of October 12, 2009. The final installment of principal and interest was paid early on April 3, 2009, and therefore, we recognized a gain on early extinguishment of debt of $0.5 million related to this loan in the three months
ended March 31, 2009. There was no corresponding gain recognized in the three months ended March 31, 2010.

Equity in net (loss) income of unconsolidated real estate entities.Set forth below is a summary of the unconsolidated condensed
financial information for the unconsolidated real estate entities and our share of net (loss) income and equity in net (loss) income for the three months ended March 31, 2010 and 2009 (in thousands):



|                                                                   |  |                             |         |   |      |   |         |  
|------------------------------------------------------------------ |  | --------------------------- | ------- | - | ---- | - | ------- | -
|                                                                   |  | Three months endedMarch 31, |        
|                                                                   |  | 2010                        |         |   | 2009 |  
|Revenues                                                           |  | $                           | 79,177  |   |      | $ | 81,561  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Expenses:                                                          |  |                             |         |   |      |   |         |  
|Operating and other                                                |  |                             | 40,294  |   |      |   | 40,269  |  
|Interest                                                           |  |                             | 25,293  |   |      |   | 27,526  |  
|Depreciation and amortization                                      |  |                             | 29,096  |   |      |   | 31,030  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Total expenses                                                     |  |                             | 94,683  |   |      |   | 98,825  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Loss from continuing operations                                    |  |                             | (15,506 | ) |      |   | (17,264 | )
|Gain on early extinguishment of debt                               |  |                             |        |   |      |   | 67,017  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Net (loss) income                                                  |  | $                           | (15,506 | ) |      | $ | 49,753  |  
|                                                                   |  |                             |         |   |      |   |         |  
|Thomas Properties share of net (loss) income                      |  |                             | (1,696  | ) |      |   | 2,295   |  
|Intercompany eliminations                                          |  |                             | 856     |   |      |   | 793     |  
|                                                                   |  |                             |         |   |      |   |         |  
|Equity in net (loss) income of unconsolidated real estate entities |  | $                           | (840    | ) |      | $ | 3,088   |  
|                                                                   |  |                             |         |   |      |   |         |  



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Aggregate revenues for the three months ended March 31, 2010 decreased approximately
$2.4 million or 2.9% to $79.2 million compared to $81.6 million for the three months ended March 31, 2009. The decrease is primarily due to lower occupancy at our Austin Portfolio Joint Venture downtown properties. Aggregate operating and other
expenses for unconsolidated real estate entities for the three months ended March 31, 2010 compared to the three months end March 31, 2009 remained consistent. Interest expense decreased approximately $2.2 million or 8.1% to $25.3 million
for the three months ended March 31, 2010 compared to $27.5 million for the three months ended March 31, 2009. The decrease was primarily due to the write-off of deferred financing costs associated with the Austin Portfolio Joint Venture
debt restructure in March 2009. Depreciation and amortization expense decreased approximately $1.9 million or 6.2% to $29.1 million for the three months ended March 31, 2010 compared to $31.0 million for the three months ended March 31,
2009. The decrease was primarily due to the early write-offs of lease-related assets in 2009 due to tenant defaults coupled with reduced capital spending in 2010. A gain on early extinguishment of debt recorded for the three months ended
March 31, 2009 was related to our Austin Portfolio Joint Venture debt restructure and recapitalization. There was no corresponding gain for the three months ended March 31, 2010.

Benefit/provision for income taxes. Provision for income taxes increased by $0.4 million to a provision of $0.2 million for the
three months ended March 31, 2010 compared to a benefit of $0.2 million for the three months ended March 31, 2009. The increase was primarily due to the Companys recording of a full valuation allowance of $9.6 million on a portion of
its net deferred tax assets as of March 31, 2010. No valuation allowance was recorded by the Company as of March 31, 2009 on its net deferred tax assets.

Liquidity and Capital Resources

Analysis of liquidity and capital resources

As of March 31, 2010, we have unrestricted cash and cash equivalents of $32.2 million. We believe that we will have sufficient
capital to satisfy our liquidity needs over the next 12 months through working capital. We expect to meet our long-term liquidity requirements, including debt service, 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 additional debt, or common or preferred equity securities,
including convertible securities. Additionally, as noted elsewhere herein, on December 23, 2009, the Company completed the sale of 5.1 million shares through a registered direct offering of common stock at $2.55 per share. The net proceeds
after deducting offering expenses were $13.1 million. We used the net proceeds to fund a portion of the discounted payoff of $25.2 million for $36.6 million in nonrecourse senior and junior mezzanine loans on Two Commerce Square, which were
scheduled to mature in January 2010. Subsequent to March 31, 2010, we sold 4,236,275 shares of common stock as of May 12, 2010 at prices ranging from $3.67 to $5.03 per share in our at-the-market equity offering program. These
sales resulted in net proceeds to the Company of $15.3 million to be used for general corporate purposes.

We do not have any
present intent to reserve funds to retire existing debt upon maturity. We will instead seek to refinance this debt at maturity or retire the long-term debt through the issuance of securities, as market conditions permit. There can be no assurances
that such debt refinancing will be available at the time of such maturities on acceptable terms, if at all, and our cost of capital could increase as a result of any such debt refinancing. If we are unable to obtain debt refinancing for properties
in which we own an interest at maturity, we may lose some or all of our equity interests in such properties. Additionally, existing stockholders could experience substantial dilution in the event we are required to issue additional equity capital.

On March 6, 2010, an aggregate of $96.5 million in mortgage loans owed by subsidiaries of TPG/CalSTRS on unconsolidated
properties at Four Falls Corporate Center and Oak Hill Plaza/Walnut Hill Plaza matured and became due in full. The borrowers under these loans have not, as of May 12, 2010, made payment on these loans and they are currently in default. These
loans are non-recourse to the Company, and we do not anticipate making any payments or equity contributions to support the repayment or refinancing of these loans. The borrowers are currently in discussions with the lenders to restructure the debt
or facilitate a sale or other liquidation of these properties. We do not believe that the loss of our equity interests in these properties will have a material effect on our business or results of operations.

As of March 31, 2010, we have unfunded capital commitments to (1) our joint venture with CalSTRS of $0.4 million; and
(2) the Thomas High Performance Green Fund, an investment fund formed by us, CalSTRS and other institutional investors, of $50.0 million. With respect to our joint venture with CalSTRS, we are not obligated to fund our share of the capital
commitment for the acquisition of any new project, but we are obligated to fund tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007. We estimate we will fund all of the $0.4 million in 2010.
Our requirement to fund all or a portion of our commitments to the Thomas High Performance Green Fund is subject to our identifying properties to acquire that are mutually acceptable to us, and our partners. Our cash requirements for the Green Fund
could be reduced by contributions by us to the fund of assets in which we have an interest.



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In December 2009, our board of directors suspended its quarterly dividends to common
stockholders. The availability of funds to pay dividends is impacted by property-level restrictions on cash flows. With respect to our joint venture properties, we do not solely control decision making with respect to these properties, and may not
be able to obtain monies from these properties even if funds are available for distribution to us. In addition, we may enter future financing arrangements that contain restrictions on our use of cash generated from our properties. The payment of
cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital requirements, our overall financial condition, and any other factors deemed relevant by our board
of directors.

Development and Redevelopment Projects

We own interests in four development projects, and our joint venture with CalSTRS includes four redevelopment properties and two
development sites.

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

We have completed construction of the Murano, a 302-unit high-rise residential condominium project in downtown Philadelphia. We have
closed sales on 200 units as of March 31, 2010, and subsequent to March 31, 2010, we closed on the sale of eight units. During the three months ended March 31, 2010, we contracted for the sale of 12 units and closed on the sale of 9 units
resulting in a gain on sale of approximately $1.1 million. Murano is classified as condominium units held for sale on our balance sheet.

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.



| |  |  | Construction of the Murano was financed in part with a construction loan up to $142.5 million. Repayment of this loan is being made with proceeds from
the sales of condominium units. The loan has a balance of $32.2 million as of March 31, 2010. Subsequent to March 31, 2010, we closed on the sale of seven units and we have three units under contract and expected to close, which will
cumulatively reduce the principal balance by approximately $4.8 million. We are in discussions with the lender to extend the loan maturity to 2011 with additional options to extend further, which based on the principal amortization feature of the
loan, we believe is achievable. We have no guarantees on this debt other than the payment of interest through the maturity date.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The completed core and shell construction of two office buildings at our development site at Four Points Centre was financed in part with a
construction loan, which has an outstanding balance as of March 31, 2010 of $25.4 million with additional borrowing capacity of $9.9 million to fund tenant improvements and other project costs. The Four Points Centre construction loan has a
maturity date of July 31, 2012 with two one-year extension options subject to certain conditions. We have committed to pay down the principal amount of the loan in the total amount of $7.8 million of which we paid $3.9 million in October 2009,
$1.3 million in January 2010 and we will pay the balance in two equal installments, in June and December 2010. The interest rate on the loan is LIBOR plus 3.50% per annum. We have guaranteed all of the required principal payments due in 2010 of
$2.6 million (after the $1.3 million payment we made in January 2010) and 46.5% of the balance of the outstanding principal, interest and any other sum payable under this loan. After the remaining $2.6 million principal reductions we will make in
2010, the outstanding balance will be $22.8 million, which results in a maximum guarantee amount based on 46.5% of $10.6 million. We also provided additional collateral of approximately 62.4 acres of fully entitled unimproved land, which is
immediately adjacent to our Four Points Centre office buildings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Presently, we have not obtained construction financing for the development at Campus El Segundo.
| | - |  | ------------------------------------------------------------------------------------------------

If we finance 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.



26



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We are also involved in managing the following three entitlement projects:



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



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



| |  |  | Korean Air, a subsidiary of Hanjin Group, has retained us as fee developer for the entitlement, design and redevelopment of the 2.7 acre Wilshire Grand
property in downtown Los Angeles. The Wilshire Grand project envisions the development of two buildings, one approximately 65 stories and the other approximately 45 stories, connected by a podium up to six stories in height, to include
approximately 1.5 million square feet of office, 560 hotel rooms, and 100 residential condominiums, with supporting retail and restaurant uses, for a total project size of up to approximately 2.5 million gross square feet.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Leasing, Tenant Improvement and Capital Needs

In addition to our development and redevelopment projects, our One Commerce Square and Two Commerce Square properties require routine
capital maintenance in the ordinary course of business. The properties also require that we incur expenditures for leasing commissions and tenant improvement costs. The level of these expenditures varies from year to year based on several factors,
including lease expirations. We are contractually committed to incur expenditures of approximately $4.8 million in capital improvements, tenant improvements, and leasing commissions for the One Commerce Square and Two Commerce Square properties,
collectively, during 2010 through 2013.

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

Contractual Obligations

A summary of our contractual obligations at March 31, 2010 is as follows (in thousands):



|                                                        |  |      |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |        
|------------------------------------------------------- |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ---------- |  | ----- | ----- |  | - | ------- |  | - | -------
|                                                        |  | 2010 |        | 2011 |   | 2012   |  | 2013 |        | 2014 |   | Thereafter |  | Total
|Regularly scheduled principal payments (1)              |  | $    | 2,973  |      | $ | 1,971  |  | $    | 2,160  |      | $ | 1,946      |  | $     | 1,884 |  | $ | 1,996   |  | $ | 12,930 
|Balloon payments due at maturity (1)(2)                 |  |      | 32,158 |      |   | 17,000 |  |      | 22,772 |      |   | 106,446    |  |       |      |  |   | 121,209 |  |   | 299,585
|Interest payments  fixed rate debt (3)                 |  |      | 10,815 |      |   | 14,290 |  |      | 14,205 |      |   | 10,055     |  |       | 7,135 |  |   | 7,615   |  |   | 64,115 
|Interest payments  variable rate debt (3)              |  |      |       |      |   |       |  |      |       |      |   |           |  |       |      |  |   |        |  |   |       
|Capital commitments (4)                                 |  |      | 4,970  |      |   | 11     |  |      |       |      |   | 235        |  |       |      |  |   |        |  |   | 5,216  
|Operating lease (5)                                     |  |      | 225    |      |   | 310    |  |      | 322    |      |   | 335        |  |       | 122   |  |   |        |  |   | 1,314  
|Obligations associated with uncertain tax positions (6) |  |      |       |      |   |       |  |      |       |      |   |           |  |       |      |  |   |        |  |   |       
|                                                        |  |      |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |        
|Total                                                   |  | $    | 51,141 |      | $ | 33,582 |  | $    | 39,459 |      | $ | 119,017    |  | $     | 9,141 |  | $ | 130,820 |  | $ | 383,160
|                                                        |  |      |        |      |   |        |  |      |        |      |   |            |  |       |       |  |   |         |  |   |        



|(1) | Included within these regularly scheduled principal payments and balloon payments are amounts due under the Four Points Centre construction loan, which matures on
July 31, 2012 with two one-year extension options subject to certain conditions. We have provided a guarantee for a portion of principal and interest payable. We have also provided additional collateral of approximately 62.4 acres of fully
entitled unimproved land, which is immediately adjacent to our Four Points Centre office buildings. We have committed to pay down the principal amount of the loan in the total amount of $7.8 million, of which we paid $3.9 million in October, 2009,
$1.3 million in January, 2010 and we will pay the balance in two equal installments, in June and December, 2010. The loan has an unfunded balance of $9.9 million which is available to fund any remaining project costs. The interest rate on the loan
is LIBOR plus 3.50% per annum. The balance of the loan as of March 31, 2010 was $25.4 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The Murano construction loan has a balance of $32.2 million as of March 31, 2010 with a maturity date of July 31, 2010. There are no
extension options remaining on this loan. This loan is nonrecourse to the Company, but the Company guarantees the payment of interest during the term of the loan. We amortize the principal balance of the Murano construction loan with approximately
93% of the sales proceeds as we close on the sale of condominium units. Subsequent to March 31, 2010, we closed on the sale of eight units and we have two units under contract and expected to close, which will cumulatively reduce
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | the principal balance by approximately $4.8 million. We are in discussions with the lender to extend the loan maturity to 2011 with additional options to extend further, which, based on the
principal amortization feature of the loan, we believe is achievable. We have no guarantees on this debt other than the payment of interest through the maturity date.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | As of March 31, 2010, 76% of our debt was at contractually fixed rates. The information in the table above reflects our projected interest obligations for the
fixed-rate payments based on the contractual interest rates and scheduled maturity dates. The remaining 24% of our debt bears interest at variable rates based on LIBOR plus a spread that ranges from 3.25% to 3.75%. The interest payments on the
variable rate debt have not been reported in the table above because we cannot reasonably determine the future interest obligations on our variable rate debt as we cannot predict what LIBOR rates will be in the future. As of March 31, 2010, the
one-month LIBOR was 0.25%.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Capital commitments of our company and consolidated subsidiaries include approximately $4.8 million of tenant improvements and leasing commissions for certain tenants
in One Commerce Square and Two Commerce Square. We have an unfunded capital commitment of $0.4 million to our TPG/CalSTRS joint venture, which we estimate we will fund in 2010. We are not obligated to fund our share for the acquisition of any new
project, but we are obligated to fund tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



|(6) | The obligations associated with uncertain tax provisions under FASB ASC 740 in the table above should represent amounts associated with uncertain tax positions related
to temporary differences. However, reasonable estimates cannot be made about the amount and timing of payment, if any, for these obligations. As of March 31, 2010, $17.5 million of unrecognized tax benefits have been recorded as liabilities in
accordance with FASB ASC 740, and we are uncertain as to if and when such amounts may be settled. Included within the unrecognized tax benefits is $2.3 million of accrued interest. We have not recorded any penalties with respect to unrecognized
tax benefits.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

As of March 31, 2010, our company had investments in entities owning unconsolidated properties with stated ownership percentages
ranging from 6.25% to 50.0%. Therefore, we account for them using the equity method of accounting. The table below summarizes the outstanding debt for the properties owned by our unconsolidated real estate entities as of March 31, 2010 (in
thousands). For loans which had maturity dates extended subsequent to March 31, 2010, the new maturity date is reflected in the Maturity Date column. None of these loans are recourse to us other than as noted in footnote 5 below. Some of the
loans listed in the table below subject TPG/CalSTRS to customary non-recourse carve out obligations.



|                                  |  |                                |  |                 |         |              |           |                                         |          
|--------------------------------- |  | ------------------------------ |  | --------------- | ------- | ------------ | --------- | --------------------------------------- | ---------
|                                  |  | Interest Rate atMarch 31, 2010 |  | PrincipalAmount |         | MaturityDate |           | MaturityDate at end ofExtension Options
|City National Plaza (1)(2)        |  |                                |  |                 |         |              |           |                                         |          
|Senior mortgage loan (3)          |  | LIBOR + 1.07%                  |  | $               | 348,925 |              | 7/9/2010  |                                         | 7/9/2010 
|Senior mezzanine loan-Note A (3)  |  | LIBOR + 2.59%                  |  |                 | 67,886  |              | 7/9/2010  |                                         | 7/9/2010 
|Senior mezzanine loan-Note B (3)  |  | LIBOR + 1.90%                  |  |                 | 23,569  |              | 7/9/2010  |                                         | 7/9/2010 
|Senior mezzanine loan-Note C (3)  |  | LIBOR + 2.25%                  |  |                 | 23,569  |              | 7/9/2010  |                                         | 7/9/2010 
|Senior mezzanine loan-Note D (3)  |  | LIBOR + 2.50%                  |  |                 | 23,569  |              | 7/9/2010  |                                         | 7/9/2010 
|Senior mezzanine loan-Note E (3)  |  | LIBOR + 3.05%                  |  |                 | 22,293  |              | 7/9/2010  |                                         | 7/9/2010 
|Junior mezzanine loan (3)         |  | LIBOR + 5.00%                  |  |                 | 58,188  |              | 7/9/2010  |                                         | 7/9/2010 
|Note payable to former partner    |  | 5.75%                          |  |                 | 19,758  |              | 7/1/2012  |                                         | 1/4/2016 
|CityWestPlace                     |  |                                |  |                 |         |              |           |                                         |          
|Fixed                             |  | 6.16%                          |  |                 | 121,000 |              | 7/6/2016  |                                         | 7/6/2016 
|Floating (3)                      |  | LIBOR + 1.25%                  |  |                 | 92,400  |              | 7/1/2011  |                                         | 7/1/2011 
|San Felipe Plaza                  |  |                                |  |                 |         |              |           |                                         |          
|Mortgage loan-Note A (4)          |  | 5.28%                          |  |                 | 101,500 |              | 8/11/2010 |                                         | 8/11/2010
|Mortgage loan-Note B (4)          |  | LIBOR + 3.00%                  |  |                 | 16,200  |              | 8/11/2010 |                                         | 8/11/2010
|2500 City West                    |  |                                |  |                 |         |              |           |                                         |          
|Mortgage loan-Note A (4)          |  | 5.28%                          |  |                 | 70,000  |              | 8/11/2010 |                                         | 8/11/2010
|Mortgage loan-Note B (4)          |  | LIBOR + 3.00%                  |  |                 | 14,132  |              | 8/11/2010 |                                         | 8/11/2010
|Brookhollow Central I, II and III |  |                                |  |                 |         |              |           |                                         |          
|Mortgage loan-Note A (3) (4)      |  | LIBOR + 0.44%                  |  |                 | 24,154  |              | 8/9/2010  |                                         | 8/9/2010 



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|                                           |  |                                |  |                 |  |              |  |                                        
|------------------------------------------ |  | ------------------------------ |  | --------------- |  | ------------ |  | ---------------------------------------
|                                           |  | Interest Rate atMarch 31, 2010 |  | PrincipalAmount |  | MaturityDate |  | MaturityDate at end ofExtension Options
|Mortgage loan-Note B (3) (4)               |  | LIBOR + 4.25%                  |  | 9,437           |  | 8/9/2010     |  | 8/9/2010                               
|Mortgage loan-Note C (3) (4)               |  | LIBOR + 4.86%                  |  | 16,746          |  | 8/9/2010     |  | 8/9/2010                               
|2121 Market Street mortgage loan (5)       |  | 6.05%                          |  | 18,421          |  | 8/1/2033     |  | 8/1/2033                               
|Reflections I mortgage loan                |  | 5.23%                          |  | 21,686          |  | 4/1/2015     |  | 4/1/2015                               
|Reflections II mortgage loan               |  | 5.22%                          |  | 9,035           |  | 4/1/2015     |  | 4/1/2015                               
|Centerpointe I & II (6)                    |  |                                |  |                 |  |              |  |                                        
|Senior mortgage loan (3)                   |  | LIBOR + 0.60%                  |  | 55,000          |  | 2/9/2011     |  | 2/9/2012                               
|Mezzanine loan-Note A (3)                  |  | LIBOR + 1.51%                  |  | 25,000          |  | 2/9/2011     |  | 2/9/2012                               
|Mezzanine loan-Note B (3)                  |  | LIBOR + 2.49%                  |  | 21,618          |  | 2/9/2011     |  | 2/9/2012                               
|Mezzanine loan-Note C (3)                  |  | LIBOR + 3.26%                  |  | 22,162          |  | 2/9/2011     |  | 2/9/2012                               
|Fair Oaks Plaza                            |  | 5.52%                          |  | 44,300          |  | 2/9/2017     |  | 2/9/2017                               
|Austin Portfolio Joint Venture Properties: |  |                                |  |                 |  |              |  |                                        
|San Jacinto Center                         |  |                                |  |                 |  |              |  |                                        
|Mortgage loan-Note A                       |  | 6.05%                          |  | 43,000          |  | 6/11/2017    |  | 6/11/2017                              
|Mortgage loan-Note B                       |  | 6.05%                          |  | 58,000          |  | 6/11/2017    |  | 6/11/2017                              
|Frost Bank Tower                           |  |                                |  |                 |  |              |  |                                        
|Mortgage loan-Note A                       |  | 6.06%                          |  | 61,300          |  | 6/11/2017    |  | 6/11/2017                              
|Mortgage loan-Note B                       |  | 6.06%                          |  | 88,700          |  | 6/11/2017    |  | 6/11/2017                              
|One Congress Plaza                         |  |                                |  |                 |  |              |  |                                        
|Mortgage loan-Note A                       |  | 6.08%                          |  | 57,000          |  | 6/11/2017    |  | 6/11/2017                              
|Mortgage loan-Note B                       |  | 6.08%                          |  | 71,000          |  | 6/11/2017    |  | 6/11/2017                              
|One American Center                        |  |                                |  |                 |  |              |  |                                        
|Mortgage loan-Note A                       |  | 6.03%                          |  | 50,900          |  | 6/11/2017    |  | 6/11/2017                              
|Mortgage loan-Note B                       |  | 6.03%                          |  | 69,100          |  | 6/11/2017    |  | 6/11/2017                              
|300 West 6th Street                        |  | 6.01%                          |  | 127,000         |  | 6/11/2017    |  | 6/11/2017                              
|Research Park Plaza I & II                 |  |                                |  |                 |  |              |  |                                        
|Senior mortgage loan (3)(7)                |  | LIBOR + 0.55%                  |  | 23,560          |  | 6/9/2011     |  | 6/9/2012                               
|Mezzanine loan (3)(7)                      |  | LIBOR + 2.01%                  |  | 27,940          |  | 6/9/2011     |  | 6/9/2012                               
|Stonebridge Plaza II                       |  |                                |  |                 |  |              |  |                                        
|Senior mortgage loan (3)(7)                |  | LIBOR + 0.63%                  |  | 19,800          |  | 6/9/2011     |  | 6/9/2012                               
|Mezzanine loan (3)(7)                      |  | LIBOR + 1.76%                  |  | 17,700          |  | 6/9/2011     |  | 6/9/2012                               
|Austin Portfolio Bank Term Loan (7)(8)(9)  |  | LIBOR + 3.25%                  |  | 116,685         |  | 6/1/2013     |  | 6/1/2014                               



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|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         
|------------------------------------------------------------------------------------------------------- |  | ------------------------------ |  | --------------- | --------- | ------------ | -------- | --------------------------------------- | --------
|                                                                                                        |  | Interest Rate atMarch 31, 2010 |  | PrincipalAmount |           | MaturityDate |          | MaturityDate at end ofExtension Options
|Austin Senior Secured Priority Facility (10)                                                            |  | 10% - 20%                      |  |                 | 35,549    |              | 6/1/2012 |                                         | 6/1/2012
|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         
|Total outstanding debt of unconsolidated properties, excluding loans controlled by the special servicer |  |                                |  | $               | 2,137,782 |              |          |                                         |         
|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         
|                                                                                                        |  |                                |  |                
|Loans on Properties Controlled by the Special Servicer(11):                                             |  |                                |  |                 |           |              |          |                                         |         
|Four Falls Corporate Center                                                                             |  |                                |  |                 |           |              |          |                                         |         
|Mortgage loan-Note A                                                                                    |  | 5.31%                          |  |                 | 42,200    |              | 3/6/2010 |                                         | 3/6/2010
|Mortgage loan-Note B (3)(12)(13)                                                                        |  | LIBOR + 3.25%                  |  |                 | 9,867     |              | 3/6/2010 |                                         | 3/6/2010
|Oak Hill Plaza/Walnut Hill Plaza                                                                        |  |                                |  |                 |           |              |          |                                         |         
|Mortgage loan-Note A                                                                                    |  | 5.31%                          |  |                 | 35,300    |              | 3/6/2010 |                                         | 3/6/2010
|Mortgage loan-Note B (3)(12)(14)                                                                        |  | LIBOR + 3.25%                  |  |                 | 9,152     |              | 3/6/2010 |                                         | 3/6/2010
|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         
|Total outstanding debt of unconsolidated properties controlled by the special servicer                  |  |                                |  | $               | 96,519    |              |          |                                         |         
|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         
|Total outstanding debt of all unconsolidated properties                                                 |  |                                |  | $               | 2,234,301 |              |          |                                         |         
|                                                                                                        |  |                                |  |                 |           |              |          |                                         |         



The 30 day LIBOR rate for the loans above was 0.25% at March 31, 2010, except for the Austin Bank Term Loan (see footnotes 9 and 10).



|(1) | In the first quarter of 2010, we advised CalSTRS, our partner in City National Plaza, and facilitated the acquisition by an affiliate of CalSTRS of all of the
propertys mezzanine debt, which has a principal balance of approximately $219.1 million, and is scheduled to mature on July 9, 2010. An affiliate of CalSTRS acquired this debt in March 2010, and will contribute it to equity in the City
National Plaza partnership, reducing the leverage on the property by the full amount of the mezzanine loans. We are in discussions with CalSTRS to obtain an option to participate in the additional equity created by the conversion of the mezzanine
debt, exercisable before or after the maturity of the senior mortgage loan, up to our current 25% share of the existing City National Plaza equity. We are in discussions with lenders to refinance the senior mortgage loan. We believe there is
sufficient equity in this project to achieve a refinancing.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The City National Plaza senior mortgage loan and Notes B, C, D and E under the senior mezzanine loans are subject to exit fees equal to 0.25% of the loan amounts. Note
A under the senior mezzanine loan and the junior mezzanine loan are subject to an exit fee equal to 0.5% of the loan amount. Under certain circumstances all of the exit fees will be waived. Per our agreement with CalSTRS and its affiliate that
acquired these mezzanine loans, the full amount of the mezzanine loans will be contributed to equity in City National Plaza on or before the maturity of the senior mortgage loan. See note 1 above for further discussion.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | The partnership that owns each property has purchased interest rate cap agreements for the funded portion of these loans.
|--- | -------------------------------------------------------------------------------------------------------------------------



|(4) | We are in discussions with the lender to refinance this loan. We believe there is sufficient equity in this project to achieve a refinancing.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(5) | The 2121 Market Street mortgage loan is prepayable without penalty after May 1, 2013, at which date the outstanding principal amount of this loan will be
approximately $17.2 million. The interest rate will increase to the greater of 8.1% or the treasury rate plus 2.0% on August 1, 2013. Any amounts over the initial interest rate may be deferred to the extent excess cash is not available to make
such payments. Provided there is no deferred interest, the loan balance will be fully amortized on August 1, 2033, the maturity date of the loan. The loan is guaranteed by our Operating Partnership and our co-general partner in the partnership
that owns 2121 Market Street, up to a maximum amount of $3.3 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | The Centerpointe I & II senior mortgage loan bears interest at a rate equal to one month LIBOR plus 0.60%. The mezzanine loans bear interest at a rate such that the
weighted average of the rate on these loans and the rate on the senior mortgage loan secured by Centerpointe I & II equals LIBOR plus 1.59% per annum. The weighted average interest rate on the mezzanine loans as of March 31, 2010 was
2.6% per annum. The weighted average interest rate on all of the loans was 1.8% per annum. All of these loans have one one-year extension option remaining at our election subject to a debt service coverage ratio of 1:1.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | These loans have one one-year extension option at our election.
|--- | ---------------------------------------------------------------



|(8) | During 2008, the Austin Portfolio Joint Venture entered into an interest rate collar agreement for $96.25 million, in which it bought a cap and sold a floor. On
December 18, 2009, we entered into a settlement agreement with Lehman Brothers Holdings Inc. to terminate the interest rate collar agreement for the Austin Portfolio Joint Venture, which settled this obligation with the Lehman affiliate on
January 25, 2010.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(9) | The margin above LIBOR on the bank term loan is subject to adjustment under certain circumstances. The term loan is secured by mortgages on three of the Austin
Portfolio Joint Venture properties and a pledge of equity interests in the remaining seven Austin Portfolio Joint Venture properties. These mortgage liens and equity pledges also secure the Austin senior secured priority facility, which has a
priority right to repayment ahead of the Austin Portfolio Bank Term Loan.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | During 2009, the Austin Portfolio Joint Venture entered into agreements pursuant to which (i) an existing $100 million revolving loan was terminated, (ii) a
senior secured priority facility of $60 million was established which a subsidiary of TPG/CalSTRS agreed to fund 25% on a pari passu basis with affiliates of Lehman Brothers and a sovereign wealth fund that are partners in the Austin Portfolio
Joint Venture, and (iii) the venture purchased and retired $80 million of the Austin Portfolio bank term loan at a discount to face value, reducing that loan from $192.5 million to $112.5 million. The new $60 million Austin senior secured
priority facility, which has a priority right to repayment ahead of the Austin Portfolio Bank Term Loan, is senior in payment and right to the collateral to the Austin Portfolio Bank Term Loan. The Austin senior secured priority facility bears
interest at 10% per annum on the first $24 million, 15% per annum on the next $12 million and 20% per annum on the last $24 million. This restructure resolved the claims of the Austin Portfolio Joint Venture against Lehman arising
from Lehmans failure to fund the $100 million revolving loan.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Subsidiaries of TPG/CalSTRS (the Borrowers) were unable to repay the loans by the maturity date of March 6, 2010 and therefore, the loans are in
default. We are in discussions with the special servicer regarding a cooperative resolution on each of these assets, including either through a restructure of the debt, a sale or other transfer of the properties or the appointment of a receiver.
Pending a resolution of these loan defaults, we expect that we will continue to manage the properties pursuant to our management agreement with the Borrowers. The management and leasing agreements expired on March 1, 2010, and are automatically
renewed for successive periods of one year each, unless we elect not to renew the agreements. Due to the maturity date default, the lender has the authority to terminate us as the property manager. If the Borrowers are unable to extend or refinance
these loans, the lender could repossess the properties through foreclosure, which would result in a loss of fee revenue for us. The Borrowers are accruing interest on these loans at the default rate of 10.5% per annum beginning on the maturity
date of March 6, 2010.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | These loans are subject to exit fees equal to 1% of the loan amounts; however, under certain circumstances the exit fees will be waived. These loans bear interest at
the greater of the one month LIBOR or 2.25% per annum, plus the applicable margin. Due to the maturity date default discussed in note 11 above, the Borrower is accruing interest at the default rate of 10.5% per annum beginning on the
maturity date of March 6, 2010.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the special purpose entity which owns Oak Hill Plaza/Walnut Hill Plaza.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | This loan is secured by both a subordinate lien on the property and a payment guaranty issued by the special purpose entity which owns Four Falls Corporate Center.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

Cash Flows

Comparison of three months ended March 31, 2010 to three months ended March 31, 2009.

Cash and cash equivalents (excluding restricted cash) were $32.2 million as of March 31, 2010.

Operating Activities - Net cash used in operating activities decreased by $7.8 million to $4.2 million for the three months ended
March 31, 2010 compared to $12.0 million for the three months ended March 31, 2009. The net loss for the three months ended March 31, 2010 increased by $1.7 million to $3.4 million compared to a net loss of $1.7 million for the
comparable period. The significant differences in the adjustments to the net loss for the two periods relate to a decrease in accounts payable and other liabilities for the three months ended March 31, 2009 of approximately $10.2 million, which
was a higher use of cash in 2009 than the comparable period in 2010 of $1.1 million by $9.1 million. Additionally, our share of the net income from our unconsolidated joint ventures was lower in 2010 by $3.9 million due primarily to our share of a
gain on the extinguishment of debt of $67.0 million from the Austin Joint Venture Properties in 2009. Finally, there was an increase in our receivables from unconsolidated real estate entities of $2.3 million from approximately $2.1 million during
the three months ended March 31, 2009 compared to $0.2 million for the period ending March 31, 2010.

Investing
Activities - Net cash provided by investing activities increased by $3.5 million to a $1.6 million source of cash for the three months ended March 31, 2010 compared to a $1.9 million use of cash for the three months ended March 31, 2009.
The increase was primarily the result of $3.9 million in proceeds from the sale of condominiums at our Murano project due to an increase in settlements during 2010. Also, our expenditures for improvements to real estate decreased by $0.8 million to
$2.3 million for 2010 as compared to $3.1 million for 2009 resulting from a decrease in development activity.



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Financing Activities - Net cash used in financing activities increased by $7.1 million to a
$1.2 million use of cash for the three months ended March 31, 2010 compared to a $5.9 million source of cash for the three months ended March 31, 2009. The increase was primarily the result of lower proceeds from mortgage and other secured
loans which decreased by $5.9 million to $0.2 million for 2010 from $6.1 million for the comparable period in 2009. Additionally, our principal payments of mortgage and other secured loans increased to $6.2 million for 2010 which was a higher
use of cash than the comparable period in 2010 of $3.0 million by $3.2 million. This was offset by a decrease of $2.4 million in payments of dividends to common stockholders and distributions to limited partners of our Operating Partnership.

Inflation

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



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

A primary market risk faced by our company is interest rate risk. Our strategy is to match as closely as possible the expected holding
periods and income streams of our assets with the terms of our debt. In general, we use floating rate debt on assets with higher growth prospects and less stability to their income streams. Correspondingly, with respect to stabilized assets with
lower growth rates, we will generally use longer-term fixed-rate debt. As of March 31, 2010, our company had $74.5 million of outstanding consolidated floating rate debt, which is not subject to an interest rate cap.

The unconsolidated real estate entities have total debt of $2.2 billion, of which $1.1 billion bears interest at floating rates. As of
March 31, 2010, interest rate caps have been purchased for $0.9 billion of the floating rate loans.

Our fixed and
variable rate consolidated long-term debt at March 31, 2010 consisted of the following (in thousands):



|                               |  |            |         |   |               |   |        |       |  |   |         |  
|------------------------------ |  | ---------- | ------- | - | ------------- | - | ------ | ----- |  | - | ------- | -
|Year of Maturity               |  | Fixed Rate |         |   | Variable Rate |   |        | Total | 
|2010                           |  | $          | 373     |   |               | $ | 34,758 |       |  | $ | 35,131  |  
|2011                           |  |            | 1,971   |   |               |   | 17,000 |       |  |   | 18,971  |  
|2012                           |  |            | 2,160   |   |               |   | 22,772 |       |  |   | 24,932  |  
|2013                           |  |            | 108,392 |   |               |   |       |       |  |   | 108,392 |  
|2014                           |  |            | 1,884   |   |               |   |       |       |  |   | 1,884   |  
|Thereafter                     |  |            | 123,205 |   |               |   |       |       |  |   | 123,205 |  
|                               |  |            |         |   |               |   |        |       |  |   |         |  
|Total                          |  | $          | 237,985 |   |               | $ | 74,530 |       |  | $ | 312,515 |  
|                               |  |            |         |   |               |   |        |       |  |   |         |  
|Weighted average interest rate |  |            | 5.95    | % |               |   | 5.22   | %     |  |   | 5.78    | %

We utilize sensitivity
analyses to assess the potential effect of our variable rate debt. At March 31, 2010, our variable rate long-term debt represents 24% of our total long-term debt. If interest rates were to increase by 75 basis points, or by approximately 14.4%
of the weighted average variable rate at March 31, 2010, the net impact would be increased interest costs of $0.6 million per year.

As of March 31, 2010, the fair value of our mortgage and other secured loans and unsecured loan aggregate $281.8 million, compared
to the aggregate carrying value of $312.5 million.



|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.



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As required by Rule 13a-15(b), promulgated by the SEC under the Exchange Act, we have
carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures
as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information
required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SECs rules and forms.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting as defined in Rules 13a-15(f) or 15(d)-15(f) under the Exchange Act
that occurred during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

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

PART II. OTHER INFORMATION



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

Risks Related to Our
Business and Our Properties

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

Our joint venture and separate account management agreement relationships with CalSTRS provide us with substantial fee revenues. For the
three months ended March 31, 2010, approximately 21.1% of our revenue has been derived from fees earned from these relationships.

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

In addition, upon the occurrence of certain events of default by the Operating Partnership under the joint venture agreement or related
management, development service and leasing agreements, upon bankruptcy of our Operating Partnership, or upon the death or disability of either James A. Thomas, our Chairman, President and CEO, or John R. Sischo, 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) (each, a Buyout Default), CalSTRS may elect to purchase our joint venture interest
based on a three percent discount to the appraised fair market value at the time of the Buyout Default.

The joint venture
agreement with CalSTRS also previously prohibited any transfer of securities of the Company or limited partnership units in our Operating Partnership that would result in Mr. Thomas, his immediate family and any entities controlled thereby
owning less than 30% of our securities entitled to vote for the election of directors. On October 30, 2009, we entered into an amendment to the TPG/CalSTRS agreement such that in connection with the issuance of additional Company shares in one
or more public offerings, Mr. Thomas, his immediate family and controlled entities may reduce their collective ownership interest to no less than 10% of the total common shares and Operating Partnership units and no less than 15.0 million
shares and Operating Partnership units on a collective basis.

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



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

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

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

As of March 31, 2010, we held interests in 22 of our properties through
TPG/CalSTRS, 10 of which are held indirectly through TPG/CalSTRS interest in the Austin Portfolio Joint Venture. TPG/CalSTRS requires a unanimous vote of the joint ventures management committee on certain major decisions, including
approval of annual business plans and budgets, financings and refinancings, and additional capital calls not in compliance with an approved annual plan. The management committee currently consists of two members appointed by CalSTRS and one member
appointed by the Operating Partnership. All other decisions, including sales of properties, are made based upon a majority decision of the management committee. Thus CalSTRS has the ability to control certain decisions for the joint venture that may
result in an outcome contrary to our interests. The Operating Partnership has the responsibility and authority to carry out day to day management of the joint venture and to implement the annual plans approved by the management committee. In
addition to CalSTRS ability to control certain decisions relating to the joint venture, our joint venture agreement with CalSTRS includes provisions negotiated for the benefit of CalSTRS that could adversely affect us. Unless otherwise
determined by the management committee of the joint venture, we are required to use diligent efforts to sell each joint venture property generally within five years of that property reaching stabilization, except that the holding period for
Reflections I and Reflections II, 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. 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 one
or more of our assets at an inopportune time, or for prices that are lower than could be achieved if we had more flexibility in the timing for effecting sales.

In June 2007, a wholly-owned subsidiary of TPG/CalSTRS, entered into a partnership agreement and syndication agreement with an affiliate
of Lehman Brothers, Inc. in relation to the Austin Portfolio Joint Venture. As of March 31, 2010, 33% of the Lehman affiliates original 75% equity interest in the Austin Portfolio Joint Venture had been sold to an unrelated institutional
investor and the Lehman affiliate held 50% of the equity in the Austin Portfolio Joint Venture. The Lehman affiliate has the right to reduce or eliminate certain fees and payments otherwise payable to TPG/CalSTRS under the partnership agreement. The
Lehman affiliate has certain approval rights with respect to major decisions of the Austin Portfolio Joint Venture, although the TPG/CalSTRS subsidiary is in charge of operating, leasing and managing the Austin Portfolio Joint Venture assets within
approved budgets and guidelines.

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



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In addition, as a right specific to the Lehman affiliate, it can require the sale of one
Central Business District asset and one suburban asset by the Austin Portfolio Joint Venture at any time after June 1, 2011; further, Lehman and its successors and assigns can require the sale of the balance of the Austin Portfolio Joint
Venture assets after June 1, 2012, in each case subject to a right of first offer in favor of the other partners in the Austin Portfolio Joint Venture. The limited partners also have the right to remove the general partner under certain
circumstances. These rights could adversely affect TPG/CalSTRS and us.

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

We have entered into, and may enter into
in the future, certain joint venture acquisition arrangements with third parties in which we identify potential acquisition properties on behalf of the joint venture, and a portion (in some cases, a substantial portion) of the capital required for
each project would be funded by our joint venture partners. Although our joint venture partners have committed to fund property acquisitions, such joint venture partners may decide not to fund a particular or any potential acquisition properties for
any number of reasons, including such entities may not have the capital necessary to fund projects at the time of the proposed acquisition. This may be particularly relevant in light of the liquidity issues that many real estate funding sources have
faced during the recent credit crisis. Accordingly, if we identify potential acquisition opportunities in the future for these programs, we may not receive approval and/or funding from joint venture partners, notwithstanding any prior commitments
for funding. If we do not make any acquisitions under existing or future joint ventures, it could adversely affect our ability to grow our business in accordance with our business plan.

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

As of March 31, 2010, the 20 largest tenants for properties in which we held an ownership interest collectively leased 31.5% of the
rentable square feet of space at properties in which we hold an ownership interest, representing 38.4% of the total annualized rent generated by these properties.

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

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

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

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

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



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

We have significant debt obligations maturing in 2010 to
2012, and if we are not successful in extending the terms of this indebtedness or in refinancing this debt on acceptable economic terms or at all, our equity ownership in such properties and overall financial condition could be materially and
adversely affected.

As of March 31, 2010, our total consolidated indebtedness was approximately $312.5 million. In
addition, we own interests in unconsolidated entities that were subject to total indebtedness of $2.2 billion as of March 31, 2010. Mortgage loans, which comprise a portion of both the consolidated and unconsolidated indebtedness, are secured
by first deeds of trust on the related real property. Mezzanine loans and other secured loans are secured by our direct or indirect ownership interests in the entity that owns the related real property.

As of March 31, 2010, we had $17.0 million of consolidated debt related to the Campus El Segundo mortgage loan, which we have
guaranteed. This loan matures on July 31, 2011, and has three one-year extension options at our election subject to us complying with certain loan covenants. The lender has the right to require a $2.5 million principal reduction payment at the
time of each extension. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of March 31, 2010.

We have investments in entities owning unconsolidated properties with stated ownership percentages ranging from 6.25% to 50.0%. Our share
of the debt owed by these unconsolidated entities that matures in 2010 (exclusive of the March 6, 2010 maturities discussed below) is approximately $205.0 million (of which approximately $142.0 million relates to City National Plaza, $54.8
million of which was purchased by an affiliate of CalSTRS in March 2010 and will be contributed to the partnerships equity by CalSTRS; leaving the Companys net share of the CNP debt at $87.2 million before offsets for cash reserves). Our
share of the non-CNP debt maturing in 2010 (exclusive of the March 6, 2010 maturities discussed below) is approximately $63.2 million. We are in discussions with the lenders to refinance all of these loans. With the exception of the Four Falls
Corporate Center and Oak Hill Plaza/Walnut Hill Plaza loans which matured on March 6, 2010, and are discussed further below, we believe there is sufficient equity in these properties to refinance the maturing loans but additional equity
contributions may be required on some of these properties to achieve a refinancing. If we are unable to contribute our pro rata share and CalSTRS contributes it on our behalf, our ownership interest in the Joint Venture would be diluted. If we and
CalSTRS are unable to extend or refinance these loans, the lender could repossess the property through foreclosure, which would result in a non-cash impairment charge, potential loss of distributable cash flow and a loss of fee revenue for us.

On March 6, 2010, an aggregate of $96.5 million in mortgage loans owed by subsidiaries of TPG/CalSTRS on unconsolidated
properties at Four Falls Corporate Center and Oak Hill Plaza/Walnut Hill Plaza matured and became due in full. The borrowers under these loans have not, as of May 12, 2010, made payment on these loans and they are currently in default. These
loans are non-recourse to the Company, and we do not anticipate making any payments or equity contributions to support the repayment or refinancing of these loans. The borrowers are currently in discussions with the lenders to restructure the debt
or facilitate a sale or other liquidation of these properties. As a result of these defaults, we may not receive payment for management fees owed to us and could lose all or a substantial portion of our equity interest in these properties, which
equity interest on a GAAP basis is currently negative.

The Four Points Centre construction loan with an amount of $25.4
million outstanding matures on July 31, 2012 and has two one-year extension options at our election subject to us complying with certain conditions. We have committed to pay down principal in the total amount of $7.8 million; $3.9 million was
paid in October 2009, $1.3 million was paid in January, 2010 and we will pay the balance in two equal installments in June and December 2010. The construction loan maintains $9.9 million available for the completion of the project. The interest rate
on this loan is LIBOR plus 3.5% per annum. The first extension option is subject to a 75% loan to value test and a minimum debt yield, among other things. The second extension option is subject to a 75% loan to value test, executed leases
representing at least 90% of the net rentable area, and a minimum debt yield, among other things. As of January 31, 2011, if the Four Points office buildings are not at least 65% leased on terms consistent with the appraisal pro forma, we must
pre-fund 18 months of interest into a restricted cash account with the lender; if the buildings are less than 35% leased at that time, we will also have to pay $2.0 million as a principal reduction of the loan. We have guaranteed the completion of
construction, including



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tenant improvements, and have completed the core and shell of this property. Furthermore, we have guaranteed all of the required principal payments due in 2010 under the extension agreement of
$2.6 million (after the $1.3 million payment we made in January 2010) and 46.5% of the balance of the outstanding principal, interest and any other sum payable under this loan. After the remaining $2.6 million principal reductions we will make in
2010 (and assuming no additional borrowing for tenant improvements), the outstanding balance will be $22.8 million, which results in a maximum guarantee amount based on 46.5% of $10.6 million. Upon the occurrence of certain events our maximum
liability as guarantor will be reduced to 31.5% of all sums payable under this loan, and upon the occurrence of further events our maximum liability as guarantor will be reduced to 25% of all sums payable under this loan. We have agreed to certain
financial covenants on this loan as the guarantor, which we were in compliance with as of March 31, 2010. We have also provided additional collateral of approximately 62.4 acres of fully entitled unimproved land which is immediately adjacent to
Four Points Centre office building in Austin, Texas.

The Murano construction loan, with a balance of approximately $32.2
million as of March 31, 2010 matures on July 31, 2010. There are no extension options remaining on this loan. This loan is nonrecourse to the Company, but the Company and its development partners guarantee the payment of interest on the
loan during the extension term of the loan since July 2009. The interest rate we are paying on the loan is 7% per annum. We amortize the principal balance of the Murano construction loan with approximately 93% of the sales proceeds as we close
on the sale of condominium units. Subsequent to March 31, 2010, we closed on the sale of eight units and we have two units under contract and expected to close, which will cumulatively reduce the principal balance by approximately $4.8 million.
We are in discussions with the lender to extend the loan maturity to 2011, and with potential replacement lenders for new loans of up to two years. Based on the principal amortization feature of the loan, we believe a loan extension or a replacement
loan will be achievable but the interest rate may increase which could have an adverse effect on our investment return for the project. If we are unable to extend or refinance the loan, the lender could repossess the unsold units through
foreclosure, which would result in an additional non-cash impairment charge.

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

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



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



| |  |  | we may be unable to borrow additional funds as needed or on favorable terms;
| | - |  | ----------------------------------------------------------------------------



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



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



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



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



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



| |  |  | a default under any one of our mortgage loans with cross default provisions could result in a default on other of our 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, including $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 determines it is prudent.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

Because 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, 2010, $74.5 million of our consolidated debt and $1.1
billion of our unconsolidated debt was at variable interest rates. As of March 31, 2010, we had purchased interest rate caps covering $0.9 billion of the unconsolidated floating rate loans. Interest rate hedging arrangements we enter into to
cap our interest rate exposure involve risks, including that our hedging 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 approximately 20 markets in the United States for strategic opportunities to acquire office, mixed-use and other properties. Our ability to acquire properties on favorable terms and
successfully operate them is subject to the following significant risks:



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



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



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



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



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



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



| |  |  | market conditions may result in higher than expected vacancy rates and lower than expected rental rates; and
| | - |  | ------------------------------------------------------------------------------------------------------------



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

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

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

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

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



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



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



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



| |  |  | we may not complete projects on schedule or within budgeted amounts;
| | - |  | --------------------------------------------------------------------



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



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



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



| |  |  | occupancy rates and rents, or condominium prices and absorption rates in the case of the Murano, may fluctuate depending on a number of factors,
including market and economic conditions, and may result in our investment not being profitable;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adverse weather that damages the project or causes delays;
| | - |  | ----------------------------------------------------------



| |  |  | unanticipated changes to the plans or specifications;
| | - |  | -----------------------------------------------------



| |  |  | unanticipated shortages of materials and skilled labor;
| | - |  | -------------------------------------------------------



| |  |  | unanticipated increases in material and labor costs; and
| | - |  | --------------------------------------------------------



| |  |  | fire, flooding and other natural disasters.
| | - |  | -------------------------------------------

If we are not successful in our property development initiatives, it could adversely impact our revenue and profitability, causing a
significant downturn in our business, including our financial condition, results of operations, and the trading price of our common stock.

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

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

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

As of March 31, 2010, leases representing 4.9% and 3.4%
of the rentable square feet of the office and mixed-use properties in which we held an ownership interest will expire in 2010 and 2011, respectively. Further, an additional 16.9% of the square feet of these properties was available for lease as of
March 31, 2010. Rental rates on existing leases 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 or all expiring leases at lower rates. Current economic and
real estate market conditions have resulted in depressed leasing activity recently as a result of tenant unwillingness to make long term leasing commitments given recent upheaval in the financial markets, and it is unclear how long this market
condition may continue. If the rental rates for our properties decrease, our existing tenants do not renew their leases or we do not re-lease a significant portion of our available space and space for which leases will expire, our revenue and
profitability could be adversely impacted, causing a significant downturn in our financial condition, results of operations, cash flow, and the trading price of our common stock and impairing our ability to satisfy our debt service obligations.

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

Our business strategy requires us to rely
significantly on third-party sources to fund our capital needs. We may not be able to obtain debt or equity on favorable terms or at all. Since the second half of 2007 we have been affected by a tightening of the credit



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markets, and we may experience difficulty refinancing some of our existing debt or obtaining new debt to complete acquisitions. Any additional debt we incur will increase our leverage and may
impose operating restrictions on us. Any issuance of equity by our company to fund our portion of equity capital requirements could be dilutive to our existing stockholders, and could have a negative impact on our stock price. Our access to
third-party sources of capital depends, in part, on:



| |  |  | our current debt levels, which were $312.5 million of consolidated debt and $2.2 billion of unconsolidated debt as of March 31, 2010;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our current cash flow from operating activities, which resulted in a use of cash of $4.2 million for the three months ended March 31, 2010;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | the market price of our common stock;
| | - |  | -------------------------------------



| |  |  | the perception of the value of an investment in our common stock; and
| | - |  | ---------------------------------------------------------------------



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

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

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

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

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 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 lack of familiarity could adversely affect our ability to own, manage or
develop properties outside these regions successfully or at all or to achieve expected performance.

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

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



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In addition, the presence of contamination, or the failure to properly remediate contamination on a property may limit the ability of the owner or operator to sell, develop or rent that property
or to borrow using the property as collateral, and may cause our investment in that property to decline in value.

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

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

We
have removed or abated asbestos-containing building materials from certain tenant and common areas at our City National Plaza and Brookhollow properties. We continue to remove or abate asbestos from various areas of the building structures and as of
March 31, 2010, had accrued approximately $0.8 million for estimated future costs of such removal or abatement at these properties.

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

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

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

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

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

We and our Operating Partnership agreed
at the time of our public offering to indemnify Mr. Thomas against adverse direct and indirect tax consequences in the event that our Operating Partnership or the underlying property owner directly or indirectly sells, exchanges or otherwise
disposes (including by way of merger, sale of assets or otherwise) of any portion of its interests, in a taxable transaction, in either One Commerce Square or Two Commerce Square. These two properties represented 13.9% of annualized rent for
properties in which we held an ownership interest as of March 31, 2010. The indemnification obligation currently expires October 13, 2013, which may be further extended to October 13, 2016 provided Mr. Thomas and his controlled
entities collectively retain at least 50% of the Operating Partnership units received by them in connection with our formation transactions at the time of our initial public offering.

We also agreed at the time of the initial public offering to use commercially reasonable efforts to make approximately $210 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 at the time of our initial public offering.



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Risks Related to the Real Estate Industry

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

The success of our business and profitability of our operations are dependent on continued investment
in the real estate markets and access to capital and debt financing. A long term crisis of confidence in real estate investing and lack of available credit for acquisitions would be likely to constrain our business growth. As part of our business
goals, we intend to grow our properties portfolio with strategic acquisitions of core properties at advantageous prices, and core plus and value added properties where we believe we can bring necessary expertise to bear to increase property values.
In order to pursue acquisitions, we need access to equity capital and also property-level debt financing. Current conditions in the financial markets may adversely impact our ability to refinance existing debt and the availability and cost of credit
in the near future. Presently, access to capital and debt financing options continue to be restricted and it is uncertain how long current economic circumstances may last. Any consideration of sales of existing properties or portfolio interests may
be tempered by the depressed nature of property values at present. Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness depends on our operating and financial performance, which in turn is subject to
prevailing economic conditions.

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

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



| |  |  | vacancies or our inability to rent space on favorable terms;
| | - |  | ------------------------------------------------------------



| |  |  | inability to collect rent from tenants;
| | - |  | ---------------------------------------



| |  |  | difficulty in accessing credit in the present economic environment, in particular for larger mortgage loans;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | inability to finance property development and acquisitions on favorable terms;
| | - |  | ------------------------------------------------------------------------------



| |  |  | increased operating costs, including real estate taxes, insurance premiums and utilities;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | local oversupply, increased competition or reduction in demand for office space;
| | - |  | --------------------------------------------------------------------------------



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



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



| |  |  | changing submarket demographics; and
| | - |  | ------------------------------------



| |  |  | the significant transaction costs related to property sales, including a high transfer tax rate in the City of Philadelphia.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------

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

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

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

If one or more of our properties is not in compliance with the ADA, we would be required to incur additional costs to bring the property
or properties into compliance. In addition, non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. Typically, we are responsible for changes to a building structure that are
required by the ADA, which can be costly. In addition, we are required to operate our properties in compliance with fire and safety regulations,



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building codes and other land use regulations. We may be required to make substantial capital expenditures to comply with these requirements thereby limiting the funds available to operate,
develop and redevelop our properties and acquire additional properties. As a result, these expenditures could negatively impact our revenue and profitability.

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

We carry comprehensive liability, fire, flood, extended coverage, wind, earthquake, terrorism,
pollution legal liability, business interruption and rental loss insurance under our blanket policy covering all of the properties in which we own an interest in or manage for third parties, including our development properties (although we carry
only liability insurance for the California Environmental Protection Agency (CalEPA) headquarters building under our blanket policy because the 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.

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

Under their leases, our tenants are generally required to indemnify us 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 the property was irreparably damaged. In the event of a significant loss at one or more of the properties covered by our 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.

As of March 31, 2010, Mr. Thomas owned or controlled a significant interest in our Operating Partnership
consisting of 13,813,331 units, or a 30.6% interest in the Operating Partnership as of such date. In addition, our senior executive officers, excluding Mr. Thomas, collectively held an interest in Operating Partnership units and incentive units
(vested and unvested) representing an aggregate 4.2% equity interest in the Operating Partnership.

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

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 30 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.
Mr. Thomas is 73 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.



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Many of our other senior executives also have significant real estate industry experience.
Randall L. Scott, our Executive Vice President and Director, 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 investment efforts, including acquisition, financing and capital markets relationships. Thomas S.
Ricci, our Executive Vice President, has been extensively involved in the development of large, mixed-use and commercial projects. Diana M. Laing, our Chief Financial Officer and Secretary, has served as chief financial officer of two
publicly-traded real estate investment trusts. Paul S. Rutter, our Executive Vice President and General Counsel, has extensive experience, both as a real estate lawyer and as an executive in commercial real estate, including acquisitions, financing,
joint ventures and leasing of office and mixed use projects. While we believe that we could find acceptable replacements for these executives, the loss of any 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,
pursuant to a right granted to CalSTRS in our joint venture agreement with CalSTRS, the possible required sale of our joint venture interest to CalSTRS at 97% of fair value, unless within 180 days the Company names a replacement for such departed
executive who is reasonably acceptable to CalSTRS.

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

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

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

Each entity that received Operating Partnership units in our formation transactions received shares of our limited voting
stock that are paired with units in our Operating Partnership on a one-for-one basis. All of these entities are directly or indirectly controlled by Mr. Thomas, and, as a result, Mr. Thomas controls 100% of our outstanding limited voting
stock, or 34.1% of our outstanding voting stock (including outstanding shares of common stock owned by Mr. Thomas and his affiliates) as of March 31, 2010. These limited voting shares are entitled to vote in the election of directors, for
the approval of certain extraordinary transactions including any merger, sale or liquidation of the Company, amendments to our certificate of incorporation and any other matter required to be submitted to a separate class vote under Delaware law.
Mr. Thomas may have interests that differ from that of our public stockholders, including by reason of his interests held in Operating Partnership units, and may accordingly vote as a stockholder in ways that may not be consistent with the
interests of our public stockholders. This significant voting influence over certain matters may have the effect of delaying, preventing or deterring a change of control of our Company, or could deprive our stockholders of an opportunity to receive
a premium for their common stock as part of a sale of our Company.

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

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



| |  |  | vacancies on our board of directors may only be filled by the remaining directors;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | only the board of directors can change the number of directors;
| | - |  | ---------------------------------------------------------------



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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 our stockholders. These terms may include voting rights, including the right to
vote as a series on particular matters, preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and
therefore could reduce the value of our common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of
directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change in control, thereby preserving the current stockholders control of our Company.

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

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

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

Our certificate of incorporation authorizes our board of directors to issue authorized but
unissued shares of our common stock or preferred stock to classify or reclassify any unissued shares of our preferred stock and to set the preferences, rights and other terms of the classified or unclassified shares. Our board of directors could
establish a series of preferred stock that could, depending on the terms of the series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interests of our
stockholders.

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

Although we have
historically paid quarterly dividends on our common stock until December 2009, the payment of cash dividends in the future, if any, will be at the discretion of our board of directors and will depend upon such factors as earnings levels, capital
requirements, our overall financial condition, and any other factors deemed relevant by our board of directors. In February 2009, our board of directors reduced the quarterly dividend to $0.0125 per share, from $0.06 per share in 2008. In December
2009, our board of directors suspended the quarterly dividends to common stockholders. If the dividend payments are reinstated, such quarterly dividend payments may be further reduced or stopped again altogether in the future, in which case the only
opportunity to achieve a positive return on an investment in our common stock would be if the market price of our common stock appreciates.



|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.
|---- | ---------------------------------------------------------------------------------------------------



|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 13, 2010



THOMAS PROPERTIES GROUP, INC.By:

/s/ James A. ThomasJames A. Thomas
Chief Executive OfficerBy:

/s/ Diana M. LaingDiana M. Laing
Chief Financial Officer




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