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 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 64.7% as of September 30, 2009 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)

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

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

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

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

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

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

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

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

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

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

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

Comparison of three months ended September 30, 2009 to three months ended September 30, 2008

Total revenues. Total revenues increased by $17.2 million, or 66.9%, to $42.9 million for the three months ended September 30, 2009 compared to $25.7 million for the three months ended September 30, 2008. The significant components of revenue are discussed below.

Rental revenues. Rental revenue remained consistent for each of the three month periods ended September 30, 2009 and 2008.

Tenant reimbursements. Tenant reimbursements decreased by $1.4 million, or 23.3%, to $4.6 million for the three months ended September 30, 2009 compared to $6.0 million for the three months ended September 30, 2008. The decrease was primarily related to a scheduled lease expiration in June 2008 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 decreased by $0.3 million, or 33.3%, to $0.6 million for the three months ended September 30, 2009 from $0.9 million for the three months ended September 30, 2008. The decrease was primarily related to a decrease in transient parking revenue related to a non-recurring exhibition adjacent to our Commerce Square property in 2008, and lower occupancy in 2009 at 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 $0.8

million, or 44.4%, from $1.8 million for the three months ended September 30, 2008 to $2.6 million for the three months ended September 30, 2009 primarily due to an increase in lease commissions related to lease transactions at 1835 Market Street and Pacific Financial Plaza. There was also an increase in developer fees related to Wilshire Grand. We began earning fees on Wilshire Grand in April 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 $0.8 million, or 19.0%, from $4.2 million for the three months ended September 30, 2008 to $3.4 million for the three months ended September 30, 2009 primarily due to a decrease of $0.5 million in lease commission revenue generated from Frost Bank Tower as well as an overall decrease in leasing and construction management activity.

Reimbursement of property personnel costs. This caption represents the reimbursement for property personnel salary, payroll taxes and benefits. The decrease of $0.3 million or 17.6% to $1.4 million for the three months ended September 30, 2009 compared to $1.7 million for the three months ended September 30, 2008 was primarily due to reductions in bonus accruals and employer contributions to our retirement plan.

Condominium sales. This caption represents revenue recognized for the Murano condominium units and parking spaces which closed during the three months ended September 30, 2009. The increase of $19.3 million or 536.1% to $22.9 million for the three months ended September 30, 2009 compared to $3.6 million for the three months ended September 30, 2008 is due to increased volume. For the three months ended September 30, 2009, we recognized revenue associated with 56 units as compared to 2 units for the corresponding three-month period ended September 30, 2008.

Total expenses. Total expenses increased by $25.8 million, or by 87.5%, to $55.3 million for the three months ended September 30, 2009 compared to $29.5 million for the three months ended September 30, 2008. The significant components of expense are discussed below.

Property operating and maintenance expense. Property operating and maintenance remained consistent compared to the three months ended September 30, 2008.

Real estate taxes. Real estate taxes increased by $0.3 million or 18.8% to $1.9 million for the three month period ended September 30, 2009 from $1.6 million for the three month period ended September 30, 2008 due to the completion of construction of two office buildings at Four Points Centre, which were assessed based on their improvements. In addition, property taxes for these buildings were capitalized while under construction.

Investment advisory, management, leasing and development services expenses. Expenses for these services decreased by $1.3 million, or 31.7%, to $2.8 million for the three months ended September 30, 2009 compared to $4.1 million for the three months ended September 30, 2008, primarily due to 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 $0.3 million or 17.6% to $1.4 million for the three months ended September 30, 2009 compared to $1.7 million for the three months ended September 30, 2008 was primarily due to reductions in bonus accruals and employer contributions to our retirement plan.

Cost of condominium sales. This caption represents costs recognized for the Murano condominium units and parking spaces which closed during the three months ended September 30, 2009. The increase of $17.8 million or 574.2% for three months ended September 30, 2009 compared to the three months ended September 30, 2008 is due to increased volume in the current quarter. For the three months ended September 30, 2009, we recognized costs associated with 56 units as compared to 2 units for the corresponding period ended September 30, 2008.

Rent - unconsolidated entities. Rent - unconsolidated entities remained consistent compared to the three months ended September 30, 2008.

Interest expense. Interest expense increased by $1.0 million, or 17.2%, to $6.8 million for the three month period ended September 30, 2009 from $5.8 million for the three month period ended September 30, 2008. The increase in interest expense is primarily attributable to interest costs no longer being capitalized on Murano and our Four Points Centre office buildings due to the substantial completion of construction on these projects in the second half of 2008.

Depreciation and amortization expense. Depreciation and amortization remained consistent compared to the three months ended September 30, 2008.

General and administrative. General and administrative expense decreased by $0.3 million, or 7.1%, to $3.9 million for the three months ended September 30, 2009 compared to $4.2 million for the three months ended September 30, 2008. This was primarily due to a reduction in compensation, professional fees, information technology, travel and entertainment expenses as a result of cost saving measures.

Impairment loss. For the three months ended September 30, 2009, we recognized a non-cash impairment charge of $8.6 million related to our Murano condominium project whose units are held for sale. The charge was recorded to reflect the units at their estimated fair value. There was no corresponding charge for the three months ended September 30, 2008.

Interest income. Interest income decreased by $0.6 million for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 due to declining cash and cash equivalents balances and lower interest rates.

Equity in net loss 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 and equity in net loss for the three months ended September 30, 2009 and 2008 (in thousands):

                                                               Three months ended
                                                                 September 30,
                                                              2009           2008
Revenues                                                    $  79,373      $  78,071

Expenses:
Operating and other                                            40,846         44,306
Interest                                                       24,959         30,710
Depreciation and amortization                                  29,251         32,184
Impairment loss                                                 8,049             -

Total expenses                                                103,105        107,200

Loss from continuing operations                               (23,732 )      (29,129 )
Income (loss) from discontinued operations                        (86 )          (34 )

Net loss                                                    $ (23,818 )    $ (29,163 )

Thomas Properties' share of net loss                           (3,993 )       (4,751 )
Intercompany eliminations                                         890            783

Equity in net loss of unconsolidated real estate entities   $  (3,103 )    $  (3,968 )

Aggregate revenue increased as a result of new leases entered into at higher rental rates. Aggregate operating and other expenses for unconsolidated real estate entities for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 decreased by $2.7 million to due lower real estate taxes for certain properties due to reassessed values and a decrease in property operating and maintenance expense. Interest expense for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 decreased primarily due to declining interest rates. Depreciation and amortization for unconsolidated real estate entities decreased for the three months ended September 30, 2009 compared to the three months ended September 30, 2008 primarily due to a $3.5 million decrease in amortization expense attributable to asset write offs for early lease terminations and extensions as well as certain leases nearing expiration, offset by an increase of $0.6 million in depreciation attributable to routine additions of fixed assets. A non-cash impairment charge of $8.0 million was recorded in the quarter ended September 30, 2009 related to certain unconsolidated real estate assets.

Benefit/provision for income taxes. Provision for income taxes increased by $1.6 million to a benefit of $0.2 million for the three months ended September 30, 2009 compared to a provision of $1.4 million for the three months ended September 30, 2008. The increase was primarily due to the Company's loss before income taxes and noncontrolling interests of $15.5 million for the three months ended September 30, 2009, compared to loss before income taxes and noncontrolling interests of $7.2 million for the three months ended September 30, 2008.

Comparison of nine months ended September 30, 2009 to nine months ended September 30, 2008

Total revenues. Total revenues decreased by $63.9 million, or 42.5%, to $86.4 million for the nine months ended September 30, 2009 compared to $150.3 million for the nine months ended September 30, 2008. The significant components of revenue are discussed below.

Rental revenues. Rental revenue decreased by $0.8 million or 3.4% to $22.5 million for the nine months ended September 30, 2009 compared to $23.3 million for the nine months ended September 30, 2008. The decrease was primarily related to a scheduled expiration in June 2008 of a significant tenant at Two Commerce Square representing approximately 375,000 rentable square feet. Approximately 66% of the space from this lease expiration has been leased to former subtenants or new tenants at current market rates, which are lower than the expired lease rates.

Tenant reimbursements. Tenant reimbursements decreased by $3.9 million, or 19.4%, to $16.2 million for the nine months ended September 30, 2009 compared to $20.1 million for the nine months ended September 30, 2008. The decrease was primarily related to a scheduled lease expiration in June 2008 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 decreased by $0.5 million, or 18.5%, to $2.2 million for the nine months ended September 30, 2009 from $2.7 million for the nine months ended September 30, 2008. The decrease was primarily related to a decrease in transient parking revenue related to a special exhibition adjacent to our Commerce Square property in 2008, and lower occupancy in 2009 at 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 $1.6 million, or 28.6%, to $7.2 million for the nine months ended September 30, 2009 from $5.6 million for the nine months ended September 30, 2008 primarily due to an increase in lease commissions related to tenants at 800 South Hope, 1835 Market Street and Pacific Financial Plaza. There was also an increase in developer fees related to Wilshire Grand offset by a decrease in lease commissions from various properties. We began earning fees on Wilshire Grand in April 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 $2.5 million, or 18.2%, to $11.2 million for the nine months ended September 30, 2009 from $13.7 million for the nine months ended September 30, 2008 primarily due to a decrease of $1.8 million in lease commission revenue from Research Park Plaza, Frost Bank Tower and the Houston properties. In addition, there was a decrease of $0.7 million in construction management fees due to a decrease in redevelopment activities at City National Plaza and Brookhollow.

Reimbursement of property personnel costs. This caption represents the reimbursement for property personnel salary, payroll taxes and benefits. The decrease of $0.9 million or 17.6% to $4.2 million for the nine months ended September 30, 2009 compared to $5.1 million for the nine months ended September 30, 2008 was primarily due to reductions in bonus accruals and employer contributions to our retirement plan.

Condominium sales. This caption represents revenue recognized for the Murano condominium units and parking spaces which closed during the nine months ended September 30, 2009. The decrease of $56.9 million or 71.3% to $22.9 million for the nine months ended September 30, 2009 compared to the $79.8 million for the nine months ended September 30, 2008 is due to a decrease in volume. For the nine months ended September 30, 2009 we recognized revenue associated with 60 units as compared to 125 units for the corresponding nine-month period ended September 30, 2008.

Total expenses. Total expenses decreased by $31.3 million, or by 22.4%, to $108.2 million for the nine months ended September 30, 2009 compared to $139.5 million for the nine months ended September 30, 2008. The significant components of expense are discussed below.

Property operating and maintenance expense. Property operating and maintenance decreased by $0.5 million, or 2.6%, to $18.4 million for the nine months ended September 30, 2009 compared to $18.9 million for the nine months ended September 30, 2008, primarily due to lower operating expenditures due to lower occupancy, offset by a $0.9 million increase in the homeowner's association fees at Murano for unsold units.

Real estate taxes. Real estate taxes increased by $0.6 million or 12.5% to $5.4 million for the nine month period ended September 30, 2009 from $4.8 million for the nine month period ended September 30, 2008 due to the completion of construction of two office buildings at Four Points Centre, which were assessed based on their improvements. In addition, property taxes for these buildings were capitalized while under construction.

Investment advisory, management, leasing and development services expenses. Expenses for these services decreased by $3.9 million, or 31.2%, to $8.6 million for the nine months ended September 30, 2009 compared to $12.5 million for the nine months ended September 30, 2008, primarily due to 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 $0.9 million or 17.6% to $4.2 million for the nine months ended September 30, 2009 compared to $5.1 million for the nine months ended September 30, 2008 was primarily due to reductions in bonus accruals and employer contributions to our retirement plan.

Cost of condominium sales. This caption represents costs recognized for the Murano condominium units and parking spaces which closed during the nine months ended September 30, 2009. The decrease of $41.3 million or 66.4% for the nine months ended September 30, 2009 to $20.9 million compared to the $62.2 million for the nine months ended September 30, 2008 is due to lower volume. For the nine months ended September 30, 2009, we recognized costs associated with 60 units as compared to 125 units for the corresponding period ended September 30, 2008.

Rent - unconsolidated entities. Rent - unconsolidated entities remained consistent compared to the nine months ended September 30, 2008.

Interest expense. Interest expense increased by $6.7 million, or 48.9%, to $20.4 million for the nine month period ended September 30, 2009 from $13.7 million for the nine month period ended September 30, 2008. The increase in interest expense is primarily attributable to interest costs no longer being capitalized on Murano and the Four Points Centre office buildings due to the substantial completion of construction on these projects in the second half of 2008.

Depreciation and amortization expense. Depreciation and amortization expense increased by $0.9 million or 10.6% to $9.4 million for the nine months ended September 30, 2009 compared to $8.5 million for the nine months ended September 30, 2008 due to depreciation of routine additions to fixed assets at Commerce Square.

General and administrative. General and administrative expense decreased by $1.5 million, or 11.0%, to $12.1 million for the nine months ended September 30, 2009 compared to $13.6 million for the nine months ended September 30, 2008. This was primarily due to a reduction in compensation, professional fees, information technology, travel and entertainment expenses as a result of cost saving measures.

Impairment loss. For the nine months ended September 30, 2009, we recognized a non-cash impairment charge of $8.6 million related to our Murano condominium project whose units are held for sale. The charge was recorded to reflect the units at their estimated fair value. There was no corresponding charge for the nine months ended September 30, 2008.

Gain on sale of real estate. Gain on sale of real estate decreased by $3.6 million, or 100%, for the nine months ended September 30, 2009 due to the 2008 recognition of deferred gain upon completion of infrastructure costs related to the sale of a 14.1 acre parcel at Campus El Segundo.

Gain from early extinguishment of debt. Gain from early extinguishment of debt increased by $0.2 million or 66.7% to $0.5 million for the nine months ended September 30, 2009 from $0.3 million for the nine months ended September 30, 2008. During the nine months ended September 30, 2009, we repaid an unsecured loan at a discount of $0.5 million. The gain from early extinguishment of debt recognized during the nine months ended September 30, 2008 resulted from the One Commerce Square mortgage defeasance.

Interest income. Interest income decreased by $2.0 million, or 87.0%, to $0.3 million for the nine months ended September 30, 2009 compared to $2.3 million for the nine months ended September 30, 2008 due to declining cash and cash equivalents balances and lower interest rates.

Equity in net income (loss) 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 income (loss) and equity in net income (loss) for the nine months ended September 30, 2009 and 2008 (in thousands):

                                                                  Nine months ended
. . .