TPGI Thomas Properties Grp., Inc. (MM)

---

---

---

---

---

1.	Organization and Description of Business

---

(1)	Certain undeveloped land parcels are being targeted for sale.

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

(3)	In September 2012 , TPG/CalSTRS Austin, LLC acquired all the properties formerly owned by TPG-Austin Portfolio Syndication Partner JV, LP. See Note 3 for a further discussion.

2.	Summary of Significant Accounting Policies

---

---

---

3.	Unconsolidated Real Estate Entities

•	City National Plaza (acquired January 2003)

•	Reflections I (acquired October 2004)

•	Reflections II (acquired October 2004)

•	San Felipe Plaza (acquired August 2005)

•	CityWestPlace land (acquired June 2006)

•	CityWestPlace (acquired June 2006)

•	Fair Oaks Plaza (acquired January 2007)

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

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

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

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

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

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

•	San Jacinto Center (acquired September 2012)

•	Frost Bank Tower (acquired September 2012)

•	One Congress Plaza (acquired September 2012)

•	One American Center (acquired September 2012)

•	300 West 6th Street (acquired September 2012)

•	Park Centre (acquired September 2012)

•	Great Hills Plaza (acquired September 2012)

•	Westech 360 I-IV (acquired September 2012)

---

---

(1)	Our net equity investment in the various properties controlled by TPG/CalSTRS Austin, LLC as of September 30, 2012 , was $110.4 million , as presented earlier in this note.

(2)	The potential loss of future fee revenues which we earn in connection with the management and leasing agreements with the various properties controlled by the respective limited liability companies. As of September 30, 2012 , we had total receivables of $1.1 million and $0.6 million related to TPG/CalSTRS and TPG/CalSTRS Austin, LLC, respectively.

(3)	Unfunded capital commitment to TPG/CalSTRS was $10.9 million as of September 30, 2012 .

(4)	TPG/CalSTRS Austin, LLC owns the eight Austin properties and TPG, together with Madison, have unfunded capital commitments of approximately $15.0 million . Of that amount, TPG's unfunded capital commitment is approximately $10.0 million or 66.67% as of September 30, 2012 .

---

(1)	Total includes interest income of $10 and $12 for the three months ended September 30, 2012 , and 2011 , respectively, and $32 and $40 for the nine months ended September 30, 2012 , and 2011 , respectively.

---

---

(1)	Total includes interest income of $10 and $12 for the three months ended September 30, 2012 , and 2011 , respectively.

---

(2)	Total includes interest income of $32 and $40 for the nine months ended September 30, 2012 and 2011 , respectively.

---

4.	Mortgage Loans

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

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

(3)

The interest rate as of September 30, 2012 was 4.00%  per annum. The Campus El Segundo mortgage loan had an October 31, 2012 maturity date with two remaining twelve month extensions. The lender and borrower have agreed to terms to extend and modify the loan, and are currently in process of documenting such modification. The modification is expected to include a deferral of a $2.5 million principal pay down, which was to have been made on October 31, 2012 , to April 30, 2013 . While this documentation is pending, the lender has agreed to extend the maturity date to November 30, 2012 . We have guaranteed this loan. We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of September 30, 2012.

(4)

The interest rate as of September 30, 2012 was 3.75%  per annum. As of September 30, 2012 , $6.2 million was available to be drawn to fund tenant improvement costs and certain other project costs related to two office buildings. The loan has a one-year extension option at our election subject to certain conditions. The option to extend is subject to (1) a loan-to-value ratio and a minimum appraised land ratio of 62.5% , and (2) the adjusted net operating income of the property and improvements as a percentage of the outstanding principal balance must be at least 10.0% . If the loan-to-value ratio or the minimum debt yield is not met, we can pay down the principal balance in an amount sufficient to satisfy the requirement. The debt yield is calculated by dividing the net operating income of the property by the outstanding principal balance of the loan. Beginning in August, 2014 , we are required to pay down the loan balance by $42,000 each month. As of September 30, 2012 , the property had a net operating loss. We have guaranteed completion of the tenant improvements and 46.5% of the balance of the outstanding principal balance and interest payable on the loan, which results in a maximum guarantee of $11.4 million as of September 30, 2012 . We have agreed to certain financial covenants on this loan as the guarantor, which we were in compliance with as of September 30, 2012 . We have also provided additional collateral of approximately 67.79 acres of fully entitled unimproved land, which is immediately adjacent to the office buildings.

(5)

The interest rate as of September 30, 2012 was 4.00%  per annum and the loan matures on December 15, 2013 . On each of December 31, 2012 and June 30, 2013, the loan is subject to a maximum balance of $8.6 million and $4.3 million , respectively. TPG gave the lender a limited guaranty which (i) guarantees repayment of the loan in the event of certain bankruptcy events affecting the borrower, (ii) guarantees payment of the lender's damages from customary “bad boy” actions of the borrower or TPG (such as fraud,  physical waste of the property, misappropriation of funds and similar bad acts); and (iii) guarantees payment of the amount, if any, by which the loan balance at the time exceeds 80% of the bulk sale value of the collateral upon an acceleration of the loan triggered by a borrower default.

---

5.	Income (Loss) per Share and Dividends Declared

---

6.	Equity

---

---

---

7.	Income Taxes

---

8.	Fair Value of Financial Instruments

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

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

9.	Commitments and Contingencies

---

---

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

---

---

---

---

---

---

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

(2)

Included within these balloon payments are amounts due under the Four Points Centre mortgage loan. We have provided a guarantee for a portion of principal and interest payable. We have also provided collateral of approximately 67.79 acres of fully entitled unimproved land, which is immediately adjacent to our Four Points Centre office buildings.The loan is scheduled to mature on July 31, 2014 , with a one-year extension option subject to certain conditions.The option to extend is subject to (1) a loan-to-value ratio and a minimum appraised land ratio of 62.5% , and (2) the adjusted net operating income of the property and improvements as a percentage of the outstanding principal balance must be at least 10.0% . If these requirements are not met, we can pay down the principal balance in an amount sufficient to satisfy these requirements. The debt yield is calculated by dividing the net operating income of the property by the outstanding principal balance of the loan. Through September 30, 2012 , the property has been generating net operating losses. Beginning in August, 2014 , we are required to pay down the loan balance by $42,000 each month. The loan has an unfunded balance of $6.2 million which is available to fund any remaining project costs. The balance of the loan as of September 30, 2012 was $24.5 million .

(3)

The Murano mortgage loan has a balance of $11.9 million as of September 30, 2012 . The loan is scheduled to mature on December 15, 2013 . On each of December 31, 2012 and June 30, 2013, the loan is subject to a maximum balance of $8.6 million and $4.3 million , respectively. TPG gave the lender a limited guaranty which (i) guarantees repayment of the loan in the event of certain bankruptcy events affecting the borrower, (ii) guarantees payment of the lender's damages from customary “bad boy” actions of the borrower or TPG (such as fraud,  physical waste of the property, misappropriation of funds and similar bad acts); and (iii) guarantees payment of the amount, if any, by which the loan balance at the time exceeds 80% of the bulk sale value of the collateral upon an acceleration of the loan triggered by a borrower default.

(4)

The Campus El Segundo mortgage loan has a balance of $14.5 million as of September 30, 2012 and an October 31, 2012 maturity date with two remaining twelve month extensions. The lender and borrower have agreed to terms to extend and modify the loan, and are currently in process of documenting such modification. The modification is expected to include a deferral of a $2.5 million principal pay down, which was to have been made on October 31, 2012 , to April 30, 2013 . While this documentation is pending, the lender has agreed to extend the maturity date to November 30, 2012 . We have guaranteed this loan.

(5)	As of September 30, 2012 , 82.1% of our debt was at contractually fixed rates ranging from 5.67% to 6.30% . The

---

(6)

Capital commitments of our Company and consolidated subsidiaries include approximately $ 9.4 million of tenant improvements and leasing commissions for certain tenants in One Commerce Square and Two Commerce Square, of which $2.1 million is expected to be paid in 2012 . Our partner, Brandywine, through preferred equity contributions, will partially fund these capital commitments with their remaining $8.9 million contributions. The amounts expected to be funded by Brandywine are not reflected on the Contractual Obligations table. Additionally, our Company and consolidated subsidiaries have capital commitments of approximately $1.7 million of tenant improvements and leasing commissions for certain tenants in Four Points Centre of which the entire amount is expected to be funded by additional borrowings available under the loan and paid in 2012 . We have an unfunded capital commitment of $10.9 million to TPG/CalSTRS, of which we estimate we will fund $3.3 million in 2012 for contractual obligations existing as of September 30, 2012 . We are not obligated to fund our share for the acquisition of any new project, but we are obligated to fund tenant improvements and other capital improvements for projects that were acquired prior to June 1, 2007 .

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

(8)

The obligations associated with uncertain tax positions in the table above should represent amounts associated with uncertain tax positions related to temporary book-tax differences. However, reasonable estimates cannot be made about the amount and timing of payment, if any, for these obligations. As of September 30, 2012 , $11.8 million of unrecognized tax benefits have been recorded as liabilities in accordance with FASB ASC 740, and we are uncertain as to if and when such amounts may be settled. Additionally, as of September 30, 2012 , we have reversed accrued interest with respect to such unrecognized tax benefits due to the expiration of a statute limitations period. We have not recorded any penalties with respect to unrecognized tax benefits.

---

(1)

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 .

---

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

---

ITEM 4.	CONTROLS AND PROCEDURES

---

ITEM 1A.	RISK FACTORS

---

---

---

•	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;

•	because we have agreed to use commercially reasonable efforts to maintain certain debt levels to provide the ability

---

•	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.

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

---

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

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

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

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

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

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

•	adverse weather that damages the project or causes delays;

•	unanticipated changes to the plans or specifications;

•	unanticipated shortages of materials and skilled labor;

•	unanticipated increases in material and labor costs; and

•	fire, flooding and other natural disasters.

•	our current debt levels, which were $285.0 million of consolidated debt and $1.4 billion of unconsolidated debt, of which our share was $344.8 million as of September 30, 2012 ;

•	our ability to generate consistent cash flow from operating activities, which resulted in a net use of cash of $1.7

---

•	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.

---

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

•	inability to collect rent from tenants;

---

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

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

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

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

•	fluctuating condominium prices and absorption rates;

•	costs of complying with changes in governmental regulations;

•	the relative illiquidity of real estate investments;

•	changing submarket demographics; and

•	the significant transaction costs related to property sales.

---

---

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

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

•	there is no provision for cumulative voting for directors;

•	directors may only be removed for cause; and

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

---

ITEM 4.	MINE SAFETY DISCLOSURES

ITEM 5.	OTHER INFORMATION

ITEM 6.	EXHIBITS

---