Investment case for TPGI

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Review a sample of our research - our investment case for US-listed real estate operating company Thomas Properties Group (TPGI).

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Investment case for TPGI

  1. 1. Thomas Properties Group (Nasdaq: TPGI)The Manual of Ideaswww.manualofideas.comDecember 1, 2011
  2. 2. Table of Contents• Overview• Business Model• Ownership and Management• Market Valuation• Intrinsic Value• Risk• Catalysts• Appendix I — Valuation Detail• Appendix II — Selected Property Data 2
  3. 3. Overview
  4. 4. What is TPGI?• A real estate operating company that owns interests in property assets, as well as operates a fee-based business providing investment advisory, property management, leasing and development services.• Headquartered in Los Angeles, TPGI owns interests in operating and development properties located in Austin, Houston, Los Angeles, Philadelphia, and the D.C. metro area. 4
  5. 5. Brief History• 1996: Jim Thomas forms Thomas Properties as a successor to Maguire Thomas Partners. At the time, Thomas Properties owns interests in and manages nearly 2.0 million sq ft of commercial office space at Commerce Square in the Philadelphia Central Business District (CBD).• 1999: Thomas adds investment advisory services for institutional investors as a core business strategy. CalSTRS* relationship begins with Thomas Properties managing the 800 South Hope Street building in Los Angeles on behalf of CalSTRS.* California State Teachers’ Retirement System. 5
  6. 6. Brief History (continued)• 2002: Establishes the CalSTRS joint venture. The JV buys 7.5+ million sq ft of wholly-owned office properties in 2003-07, including the City National Plaza in Los Angeles CBD.• 2004: IPO — sells 14 million shares at $12.00/share. Additional share sales follow in 2007 (9M shares @ $16), 2009 (5M shares @ $2.55), and in 2010 (4M shares @ $3.67-5.03).• 2007: CalSTRS JV acquires a 25% interest in the Austin Portfolio JV. The Portfolio comprises ten office properties with ~3.5 million sq ft in Austin, TX. 6
  7. 7. TPGI Today• Operating Portfolio: Owns interests in 23 operating properties with nearly 13 million sq ft, most of which is Class A* office space.• Development Pipeline: Owns interests in five mixed-use developments as well as a completed, for-sale residential condo project in Philadelphia.• Fee-Based Business: Provides asset/property management to the CalSTRS JV including the Austin Portfolio (19 properties), as well as property management and other services to third parties (five operating properties; three entitlement projects).* Most prestigious buildings competing for premier office users with rents above average for the area(http://www.boma.org/Resources/classifications/Pages/default.aspx). 7
  8. 8. Holding Company Structure Thomas Properties CEO Jim Thomas Group, Inc. (TPGI) (and other L.P.’s) Owns ~25% Owns ~75% (reported under non-controlling (TPGI consolidates TPG L.P) interests by TPGI) Operating Partnership (TPG L.P.) Consolidated JV Operations* Operations - CalSTRS JV (9 op. and 2- 3 operating properties development properties)- 3 development properties - Austin JV (10 op. properties)- For-sale condo project - 1 operating property- Fee-based business (separate JV)* Reported as “investments in unconsolidated real estate entities” on TPGI’s balance sheet with related “equity in net income/(loss) ofunconsolidated real estate entities” reported on TPGI’s income statement. 8
  9. 9. Business Model
  10. 10. Business Model“Full-service” real estate company with fourintegrated areas of business focus:1) Property operations2) Property acquisitions3) Property development4) Investment management 10
  11. 11. Property OperationsProperties in which TPGI owns an interest in ormanages the property. Revenue derives from:• Rental income, parking income, and tenant reimbursements – Leases generally contain provisions that require tenants to reimburse TPGI for a portion of property operating expenses and real estate related taxes associated with the property.• Property management fees – For the CalSTRS JV properties, based on 2-3% of property gross revenue plus reimbursement of personnel costs for certain of TPGI’s employees; paid monthly based on one-year agreements.• Asset management fees – For the CalSTRS JV properties, based on net operating income for “stabilized” properties and percentage of appraised value for other properties; paid monthly.• Leasing commissions – Generally market-based leasing commission rates. 11
  12. 12. Property AcquisitionsTPGI has historically acquired properties both forits own account and for third parties,* targeted atthree categories of properties:• “Core” — properties that are stabilized (occupancy at ~95%) at the time of purchase;• “Core plus” — under-performing properties that can be brought to market potential through improved management;• “Value-add” — properties, requiring redevelopment, repositioning and investment to achieve desired returns.* Mainly on behalf of the CalSTRS joint venture (including a separate account relationship). When acting for third parties, TPGI typically earnsacquisition fees ( paid at the time the property is acquired, as a percentage of the acquisition price, and/or for a period depending on propertyoperating performance). 12
  13. 13. Property Development TPGI has experience in developing/redeveloping land for its own account and for third parties*: • Own account — TPGI owns interests in development projects in Austin, Houston, Los Angeles, and Philadelphia totalling 300+ acres of land and nearly six million square feet of entitled space. Past developments include the Murano, a luxury residential condo tower in Philadelphia (completed in 2008; TPGI still owns interests in 70 units out of a total of 302 units) • On behalf of third parties — TPGI is entitling third-party-owned land in Los Angeles for NBC Universal and Korean Air. Past developments include the headquarters building for the California Environmental Protection Agency in Sacramento (completed in 2000; TPGI continues to property-manage the building).* When acting for third parties, TPGI typically earns development fees (dependent, for example, on the progress of entitlements). 13
  14. 14. Investment managementTPGI advises institutional investors on propertyportfolios:• TPGI is an SEC-registered investment advisor since 2000.• CalSTRS — TPGI’s biggest mandate dates back to 1999. TPGI asset-manages two properties under a separate account relationship with CalSTRS in addition to asset-management services for properties within the CalSTRS joint venture (including the Austin Portfolio). TPG L.P. is the general partner and owns 25% of the limited partnership interests in the CalSTRS JV. 14
  15. 15. New Strategy Announced in Mid-2011Key parts of the updated strategy include:*• Sell land and reduce development assets to ~10% of NAV.• Sell non-core operating assets that have achieved their maximum value, are underperforming, or do not fit into the long-term plan.• Redeploy sales proceeds in “high barrier to entry” markets with a focus on western U.S. cities and wholly-owned or controlled assets.• Reduce leverage on the portfolio to a target of 50% loan-to-value.• Convert to REIT status “at the appropriate time.”• Continue to focus on maximizing the portfolio’s recurring cash flow and NOI growth, creating value by repositioning value-add properties, and continue capital relationships with institutional investors to acquire trophy quality office properties, with a goal of increasing ownership interests in ventures.* Based on the company presentation from June 2011 (slide 20): http://ir.tpgre.com/phoenix.zhtml?c=178549&p=irol-irhome 15
  16. 16. Ownership andManagement
  17. 17. Equity Structure Units in TPG L.P. are TPGI shareholders own ~75% of the operating redeemable for partnership through which TPGI carries out all operations. common stock on a one-for-one basis. TPGI is the sole general partner in TPG L.P.TPG L.P. — Ownership as of September 30, 2011: % of Votes per(in millions) Outstanding TPG L.P. Share/UnitCommon stock (TPGI) 37.1 74.7% 1 1TPG L.P. operating partnership units (not listed) 12.3 25.3% 1 (limited) 2Shares/Units Outstanding in TPG L.P. 49.4 100.0%1 Excludes ~0.4 million incentive partnership units.2 Each operating partnership unit issued in connection with the formation of the partnership at the time of TPGIs IPO in 2004 was paired withone share of limited voting stock. These shares of limited voting stock are not transferable separate from the limited partnership units they arepaired with, and each operating partnership unit is redeemable together with one share of limited voting stock for cash, or, at TPGIs election,one share of common stock on a one-for-one basis. A unit and a share of common stock have essentially the same economic characteristics asthey share equally in the total net income or loss and distributions of the operating partnership. Each share of limited voting stock entitles itsholder to one vote on the election of directors, certain extraordinary transactions, including a merger or sale of TPGI, and amendments to thecertificate of incorporation. However, shares of limited voting stock are not entitled to any regular or special dividend payments or otherdistributions. 17
  18. 18. Incentivized Management… TPGI / TPG L.P. — Major Holders (excludes dilutive securities) 1 Com m on % of % of Com m on Partnership & Com m on Partnership % of (in millions) Stock Units Units Stock Units TPG L.P. Chairman and CEO Jim Thomas 3.1 12.3 15.4 8% 100% 31% Other insiders 1.7 0.0 1.7 5% 0% 3% Total insiders 4.8 12.3 17.1 13% 100% 35% Third Avenue Management 7.7 0.0 7.7 21% 0% 16% Teachers Advisors / TIAA-CREF 5.2 0.0 5.2 14% 0% 11% Lyle Weisman (filing group) 3.4 0.0 3.4 9% 0% 7% Jennison Associates 2.2 0.0 2.2 6% 0% 4% CEO Thomas owns 31% of the economics and has been buying shares recently.1Dilutive securities include restricted stock, phantom shares, stock options, and incentive partnership units. Based on the number of dilutivesecurities and TPGI’s share price performance, we estimate the dilution to be not material to the investment case. 18
  19. 19. …with Experience…• James Thomas (Chairman, President and CEO) – 74 years old; founded TPGI’s predecessor in 1996 and led TPGI through its IPO in 2004. Prior to TPGI, Thomas was co-managing partner of Maguire Thomas Partners from 1983 until 1996. Thomas was also CEO and owner of the Sacramento Kings and the ARCO Arena from 1992 until 1999.• John Sischo (Co-COO) – 54 years old; joined TPGI’s predecessor in 1998 as CFO after spending eight years leading Bankers Trusts real estate practice in Los Angeles.• Paul Rutter (Co-COO and General Counsel) – 57 years old; joined TPGI in 2008; previously at Maguire Properties since 2006 and a managing shareholder of law firm Gilchrist & Rutter from 1983 until 2006.• Diana Laing (CFO) – 56 years old; joined TPGI in 2004; previously CFO at Triple Net Properties, New Pacific Realty, Firstsource, Arden Realty, and Southwest Property Trust. 19
  20. 20. …and Concern for Equity Value• New strategy announced in mid-2011 focuses on closing gap between market value and NAV.• $120,000 base salary of CEO Thomas. Thomas’ total compensation, including stock awards, was ~$2 million cumulative for the three years ended 2010.• Less than $1 million of bonuses for top executives during 2008-10.• Downsized equity offering in late 2009 due to a low share price of $2-3 at the time. 20
  21. 21. Market Valuation
  22. 22. Share Price Since IPO… TPGI remains near 2009 lows despite only modest dilution*, a largely intact property base and fee business, recovery in credit markets, as well as operational progress (year-to-date NOI growth, 2010 property debt refinancings, asset sales).* ~25% more shares/units versus yearend 2007. 22
  23. 23. …Belies A More Stable NAV(at period-end) 2005 2006 2007 2008 2009 2010 18-Nov-11TPGI share price $12.50 $16.01 $10.78 $2.59 $2.96 $4.22 $2.78Tangible book value per share/unit 1 $4.43 $4.34 $6.06 $5.55 $4.40 $4.02 $3.89Premium/(discount) to tangible book 182% 269% 78% -53% -33% 5% -29% • Net asset value per share/unit is down ~10% since yearend 2005. • While TPGI trades at a nearly 30% discount to NAV, the latter understates intrinsic value (see next slide), which implies even greater undervaluation. 1 Latest figure is based on TPGI’s balance sheet as of September 30, 2011. 23
  24. 24. Market Valuation Shortcomings of Traditional Stock price (18-Nov-11) $2.78 Valuation Ratios Include: 1 Common stock/TPG L.P. units (millions) 49.8 Market value (100% of TPG L.P.) $138 million - Properties generally stated at 2 depreciated cost; Plus: Pro-rata debt (30-Sep-11) $526 million - JV’s carried at only ~$10M; Minus: Pro-rata unrestricted cash (30-Sep-11) $52 million - Ignores value of fee business Implied Enterprise Value $612 million - Ignores development properties 3 - Ignores value of fee business Tangible book (30-Sep-11) $194 million Implied MV/TB 0.71x - Ignores development properties Pro-rata sq ft of operating property 3.7 million sq ft - Ignores development properties Implied EV / sq ft ($) $164 - Ignores value of fee business 4 TTM pro-rata ATCF $12 million Implied MV / ATCF (ann.) 11x Traditional approaches do not Oct-2011 annualized, pro-rata NOI 5 $53 million properly reflect intrinsic value. Implied EV / NOI (ann.) 12x Property-level, sum-of-the-parts valuation is required !1 Includes ~0.4 million incentive partnership units.2 Pro-rata reflects consolidated financials plus TPG L.P.s share of unconsolidated investments. Pro-rata debt excludes non-recourse debt controlled by a receiver.3 Including share of TPG L.P. unitholders.4 After-tax cash flow (Non-GAAP measure reported by the company).5 Based on net operating income represented by the sum of i) NOI for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 24The ratio is based on an adjusted enterprise value to reflect TPG L.P.s pro-rata share of currently committed leasing capital costs.
  25. 25. Perception and RealityThe “Market” Is Focused On: What the “Market” Is Missing:• High Debt • Most Debt is Non-recourse – ~$475 million of pro-rata net debt – No corporate debt, little exposure to (nearly 4x market value). recourse debts/other commitments.• GAAP Losses • Cash Flow Positive – Consolidated net loss of $14 million – TTM pro-rata, after-tax cash flow of for the TTM to Sep-2011 (due to D&A). $12 million (~10% yield).• Capital Intensive and • Large Fee Business and Commodity-Like Business Experienced, “Owner”-CEO – TPGI lacks a competitive edge – CalSTRS relationship and strong versus larger property companies. management are advantages.• Exposed to U.S. Real Estate • Focus on Class A Office – Entire industry remains “out-of- – Key assets include “trophy” buildings favor.” in Philadelphia and L.A. CBD’s. 25
  26. 26. Intrinsic Value
  27. 27. Valuation Approach• Sum-of-the-Parts: – Operating properties (by property) – Development properties (by property) – Fee business – Net current assets• Above structure based on TPGI’s net asset value workbook as of September 30, 2011 http://ir.tpgre.com/phoenix.zhtml?c=178549&p=irol-NavWorkBook 27
  28. 28. NAV Workbook: Base Case Base case assumptions/outputs using management’s NAV Workbook: Outputs Assumptions Net Asset Value NAV per Share/Unit Asset Base Case Base Case Base Case Capitalization Rate Operating Properties: Applied to "Stabilized NOI" 1 Consolidated operating properties 8% $113 million $2.27 TPG/CalSTRS JV operating properties 8% $93 million 1.87 2121 Market Street, Philadelphia, JV 8% $6 million 0.12 Austin Portfolio JV operating properties 8% $4 million 0.08 Subtotal - Operating Properties $216 million $4.34 Development Properties: % of Book Carrying Value Murano condominium project 100% $27 million $0.53 Up to 3x upside % of Costs Incurred to Date using Pre-development projects 100% $90 million $1.80 reasonable Subtotal - Development Properties $116 million $2.33 inputs in management’s Multiple Applied to NAV workbook Fee Business: TTM Net Fee Income structure TTM net fee income: $21M 8x $169 million $3.39 Subtotal - Fee Business $169 million $3.39 Consolidated Net Current Assets: % of Book Carrying Value Net current assets (9/30/11): $48M 100% $48 million $0.96 Subtotal - Net Current Assets $48 million $0.96 Total Net Asset Value $549 million $11.021 Stabilized net operating income assumes occupancy at 95%. For properties less than 95% leased, this represents the sum of i) current annualized net operating income, andii) an upward adjustment to net operating income based on current market rent to achieve 95% occupancy. For properties that are more than 95% leased, this represents the 28sum of i) current annualized net operating income, and ii) a downward adjustment to net operating income based on average in place rent to achieve 95% occupancy.
  29. 29. NAV Workbook: Sensitivities Scenario analysis using management’s NAV Workbook: Outputs Assumptions Net Asset Value ($mn) NAV Per Share/Unit Asset Bear Base Bull Bear Base Bull Bear Base Bull Capitalization Rate Operating Properties: Applied to "Stabilized NOI" 1 Consolidated operating properties 10% 8% 6% $45 $113 $217 $0.90 $2.27 $4.35 TPG/CalSTRS JV operating properties 10% 8% 6% 41 93 188 0.82 1.87 3.77 2121 Market Street, Philadelphia, JV 10% 8% 6% 3 6 11 0.06 0.12 0.21 Austin Portfolio JV operating properties 10% 8% 6% 3 4 9 0.06 0.08 0.19 Subtotal - Operating Properties $91 $216 $425 $1.84 $4.34 $8.52 Development Properties: % of Book Carrying Value Murano condominium project 50% 100% 150% $6 $27 $48 $0.12 $0.53 $0.97 % of Costs Incurred to Date Pre-development projects 50% 100% 150% $36 $90 $143 $0.73 $1.80 $2.87 Wide range of Subtotal - Development Properties $42 $116 $191 $0.85 $2.33 $3.84 values, but still 100%+ upside Multiple Applied to in a “bear case” Fee Business: TTM Net Fee Income TTM net fee income: $21M 6x 8x 10x $126 $169 $211 $2.54 $3.39 $4.23 Subtotal - Fee Business $126 $169 $211 $2.54 $3.39 $4.23 Consolidated Net Current Assets: % of Book Carrying Value Net current assets (9/30/11): $48M 75% 100% 100% $36 $48 $48 $0.72 $0.96 $0.96 Subtotal - Net Current Assets $36 $48 $48 $0.72 $0.96 $0.96 Total Net Asset Value $296 $549 $874 $5.95 $11.02 $17.551 Stabilized net operating income assumes occupancy at 95%. For properties less than 95% leased, this represents the sum of i) current annualized net operating income, andii) an upward adjustment to net operating income based on current market rent to achieve 95% occupancy. For properties that are more than 95% leased, this represents thesum of i) current annualized net operating income, and ii) a downward adjustment to net operating income based on average in place rent to achieve 95% occupancy. 29
  30. 30. NAV Workbook: Conclusions• Up to 3x upside from recent share price in a base case, using reasonable inputs in management’s NAV workbook structure.• NAV is highly sensitive to small changes in inputs (especially capitalization rates)…• …but still 100%+ upside even in a bear case.• Management’s NAV workbook is the right valuation approach, as it is based on a property-level build-up of net asset value.• Includes value for high-margin, capital-light fee business.• Shortcomings include: no consideration for corporate G&A costs; only partial adjustment to reflect Brandywine’s preferred equity investment in Commerce Square; and no explicit adjustments for corporate and other taxes. Management’s NAV workbook highlights the favorable, asymmetric return-to-risk profile of TPGI 30
  31. 31. Refining the Valuation• Include G&A costs – Due to the assumption that TPGI continues under present leadership and corporate structure (assumes no potential sale to a trade buyer).• Reduce common equity value for Commerce Square property – Due to a preferred equity investment by Brandywine Realty Trust (BDN) in 2010.• Cross-check values versus comparable transactions and implied property “FCF yields”• Other adjustments to reflect more conservative assumptions• Tax considerations 31
  32. 32. Refining the Valuation: G&A Costs 2006-10 TTM to 2006 2007 2008 2009 2010 Average Sep-2011 Corporate G&A ($mn) $17 $18 $17 $17 $14 $17 $16 Assumed multiple 5x Estimated value drag from corporate G&A ($mn) -$83 Estimated value drag from corporate G&A - $ per TPGI share -$1.67 Employ ees (y earend) * 127 180 176 159 158 160 n/a • G&A costs are corporate costs of TPGI and include, among others, compensation for executive management, other employees and directors; costs of being a public company; and rental expenses for leasing the corporate office space. • We reduce the base case valuation by $1.67 to account for this “value drag.”* Includes employees involved in property management whose costs are reimbursed under relevant agreements with CalSTRS. Thesereimbursable property personnel costs are excluded from G&A. 32
  33. 33. Refining the Valuation: Commerce Square • Single most valuable property, based on estimated value to TPGI • Fully consolidated within TPGI’s financials • Accounted within “consolidated operating properties” in the NAV calculation on slide 28*One and Two Commerce Square * Represents $119 million ($2.39 per share/unit) of the base case value of $113 million ($2.27 per share/unit). The value is greater (Philadelphia CBD) than the total as the only other consolidated operating property - Four Points Centre - is assumed to have a negative value to TPGI. 33
  34. 34. Commerce Square: Key Stats Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital StabilizationOne Commerce Square High-rise office; 942,866 88% 93% $14 million $15 million $1 million $3 million(1987) Philadelphia CBDTw o Commerce Square High-rise office; 953,276 86% 91% $14 million $15 million $1 million $5 million(1992) Philadelphia CBD 1,896,142 87% 92% $28 million $31 million $2 million $8 million• “Trophy” property in Philadelphia’s Central Business District.• Tenants include PwC (~20% of sq ft at Two Commerce), E&Y, Grant Thornton, Delaware Investments, Reliance Standard, IBM, Fiserv, Stevens & Young, Wolters Kluwer, McCormick Taylor and others.• No material near-term lease expiries (PwC lease expires in 2014).1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existingleases. 34
  35. 35. Commerce Square - Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per On Oct-2011 Loan-to- To RepayStabilized NOI Value Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit Ann. NOI 1 Value Debt Non-recourse; 9.0% $169 million $179 $129 million n/m 75% n/m n/m n/m 77% 23 5.7% / Jan-16 Non-recourse; 9.0% $171 million $180 $107 million n/m 75% n/m n/m n/m 63% 18 6.3% / May -13 9.0% $340 million $179 $236 million $79 million * 75% $59 million $1.19 15% 69% 20 Approximates the purchase price per After sq ft, on a stabilized basis, of nearby adjustments, still Three Logan Square, which worth nearly half Brandywine (BDN) acquired in 2010. of TPGI’s recent (Source: Brandywine CEO Sweeney on BDN’s market value. 4Q10 earnings call)Stated after the $25 million preferred equity investment by Brandywine (BDN) in 2010. In addition to a 9.25% accruing return on the preferred, BDN gets a 25% interest in the Commerce Square LPs. The $25 million is to be used for property improvements. As such, we have assumed that the investment is used for committed leasing costs of $1.7 million and incremental costs of $8.3 million, as estimated by management. This leavesanother ~$10 million to improve the competitive position of the property ($5 million has already been funded and spent as of September 30, 2011).1 Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). The interestpayment includes a charge for a return on Brandywines preferred equity, even though this is not payable in cash. BDN will contribute a total of $25 million of preferredequity to the partnerships, of which $5 million has been contributed as of September 30, 2011, with the balance to be contributed by December 31, 2012. 35
  36. 36. Commerce Square: Conclusion• Estimated contribution of $1.19 to NAV: – Reflects downward adjustment of $1.20 from NAV workbook base case to account for: • Estimated negative value drag from Brandywine preferred equity investment; • Recent comparable transaction in Philadelphia CBD (implied asset value per square foot of ~$180 is in-line with Brandywine’s acquisition of Three Logan Square (on a “stabilized” basis). – Mortgage interest payments are manageable based on current NOI. • Commerce Square is solidly free cash flow positive. – Implied LTV of our valuation is reasonable at ~70%. • ~20 years to repay debt, even allowing for a return on the preferred equity. – No significant near-term lease expiries. – $25 million Brandywine investment more than enough to “stabilize” the property, per management estimates. 36
  37. 37. Refining the Valuation: Other Adjustments• CalSTRS JV operating properties: – Cap rates fine-tuned to reflect 2010 mortgage refinancings at five of the nine properties (excl. Austin Portfolio); resulting values are cross-checked with implied property “FCF yields” and LTVs. – Results in an upward adjustment of $25 million ($0.49 per share/unit) relative to the base case valuation.• Development properties: – Value revised downward by $16 million ($0.33 per share/unit) to reflect zero value for the MetroStudio development in Los Angeles (only development with no entitlements to date).• Fee business: – Value revised downward by $52 million ($1.04 per share/unit) to reflect a more conservative “net contribution” based on the 2008-10 average net contribution.• Net current assets: – Applied a 10% discount to the base case valuation in the NAV workbook. 37
  38. 38. Refining the Valuation: Tax Considerations• Minimal cash taxes paid in 2008-10.• Retains significant NOL’s. – $23M of net operating loss carryforwards for federal purposes and $26M for state purposes at yearend 2010 (subject to varying expirations from 2018 through 2031). The net deferred tax asset is $15M as of September 30, 2011.• NOL’s are not explicitly included in our valuation…• …neither are potential tax liabilities due on any asset sales. Potential future taxes should be mitigated by available NOL’s, high D&A/G&A, and the high cost basis for some properties (e.g. Austin Portfolio acquired in 2007) 38
  39. 39. Putting It All TogetherManagement’s NAV workbook revisited: Managements NAV Workbook Adjusted Valuation Net Asset Value NAV per Share/Unit Net Asset Value NAV per Share/UnitAsset Base Case Base Case Adjusted AdjustedOperating Properties:Consolidated operating properties $113 million $2.27 $49 million $0.99TPG/CalSTRS JV operating properties $93 million 1.87 $118 million 2.362121 Market Street, Philadelphia, JV $6 million 0.12 $6 million 0.12Austin Portfolio JV operating properties $4 million 0.08 $4 million 0.08Subtotal - Operating Properties $216 million $4.34 $176 million $3.55Development Properties:Murano condominium project $27 million $0.53 $27 million $0.53Pre-development projects $90 million $1.80 $73 million $1.47Subtotal - Development Properties $116 million $2.33 $100 million $2.00Subtotal - Fee Business $169 million $3.39 $117 million $2.35Subtotal - Net Current Assets $48 million $0.96 $43 million $0.86Subtotal - Corporate Overheads $0 million $0.00 -$83 million -$1.67Total Net Asset Value $549 million $11.02 $353 million $7.09 We estimate TPGI’s intrinsic value at $7 per share (see detailed assumptions in the Appendix) 39
  40. 40. Thoughts On Intrinsic Value• Deleveraging benefits to the equity contribute to growth in intrinsic value over time – Most of TPGI’s operating properties are FCF-positive and have sustainable capital structures. This is reinforced by the refinancings of five CalSTRS JV properties in 2010 at average loan-to-values of ~50%, based on management.• Hedge against potential inflation – Most of the property-level debt is at fixed interest rates, and some of it has recently been refinanced at 5-6% for terms extending up to 2020. Given TPGI’s quality portfolio, including “trophy” properties at Commerce Square in Philadelphia and City National Plaza in Los Angeles, inflation-adjusted rent increases should be achievable.• Significant fee-based platform relative to market value – TPGI has a remarkable asset and property management platform for a company of its size. Building on the relationship with CalSTRS, TPGI may be able to secure other partners, including perhaps sovereign wealth funds, in the future. The high-margin, capital-light nature of the business makes it very valuable. 40
  41. 41. Risk
  42. 42. Key Risks (and Mitigations) to Our Investment Case• Execution risk tied to the new strategy – Asset sales may be realized at lower net values than estimated and/or may take longer to close  mitigated by quality assets and our already conservative value assumptions. – Capital allocation risk tied to potential acquisitions using existing cash or cash from sales proceeds  mitigated by an incentivized management team intent on increasing NAV.• Continuation risk tied to CalSTRS relationship – TPGI’s fee income depends largely on the continuation of the CalSTRS JV and separate account agreements. These may be terminated on short notice and depend on certain factors, including on the role and ownership interest of CEO Thomas  this is mitigated by a succession plan developed in discussions with CalSTRS; indications that the relationship remains healthy (e.g. no onerous terms in recent capital structure changes at certain JV properties); and TPGI’s success in attracting third-party fee-based clients (e.g. NBC Universal, Korean Air, Lehman Brothers Holdings, city of Sacramento).• Illiquidity risk tied to the shares – TPGI’s removal from the Russell 2000 Index in June 2011 exacerbated an already low trading volume  this is mitigated by a favorable, outsized return-to-risk profile of the shares. 42
  43. 43. Low Risk of Permanent Capital Loss Estim ated Value to TPGIAsset Per Share/Unit Corporate net cash plus TPGI’sUnrestricted pro-rata cash (30-Sep-11) $1.05 interest in two “trophy” properties alone approximateOne/Tw o Commerce Square recent market value. $1.19(Philadelphia CBD) TPGI has no corporate debt andCity National Plaza minimal loss exposure to $0.44 property-level debts (most are(Los Angeles CBD) non-recourse) and unfunded commitments. $2.68 43
  44. 44. Catalysts
  45. 45. Closing the Discount to NAV…• Asset monetizations due to new strategy – 6 operating properties are currently marketed for sale (2500 City West and Brookhollow in Houston, TX; Research Park Plaza and the retail space portion of Four Points Centre in Austin, TX; Centerpointe in Fairfax, VA; and 2121 Market Street in Philadelphia, PA). 2500 City West is “in escrow” as of November 2011. – Remaining 70 Murano condos in Philadelphia, PA, are for sale. 12 units have been sold YTD through September 30, 2011. – TPGI is “in discussions” to sell land parcels at various pre-developments including in Austin, Houston (land at 2500 City West is “in escrow” as of November 2011), Los Angeles (El Segundo; one parcel sold in October 2011) and Philadelphia.• Conversion to REIT (dividend reintroduction) as part of new strategy – Once non-income producing assets have been sold, TPGI will be able to convert into a REIT, which is management’s stated strategy. Most office REIT’s in the U.S. have recently traded at a premium to reported NAV. TPGI reintroduced a quarterly dividend of $0.015 per share ($0.06 annualized) in November. The dividend has significant potential to increase over time. We estimate management’s new strategy should yield ~$2.70 per share/unit from cash proceeds of announced asset sales over the next 2-3 years 45
  46. 46. …in CEO Jim Thomas’ words:*• “Focused on the implementation of our new strategic plan and we’re making steady progress in that regard.”• “A priority under that plan is to dispose of operating properties that have reached their maximum value, are underperforming, or do not fit into our long-term plan.”• “Another priority is to reduce the size of our non-income producing development pipeline to approximately 10% of net asset value.” – Sold El Segundo parcel in October 2011 – In the process of putting a land parcel in Philadelphia on the market – Ongoing discussions regarding land sales in Houston, Austin and El Segundo* Based on comments made during the company’s Q3 conference call on November 3, 2011. 46
  47. 47. Appendix I
  48. 48. Consolidated Operating Properties - One Commerce Square (75%*) - Two Commerce Square (75%*) - Four Points Centre (100%)* Brandywine’s 25% share of Commerce Square is reported under non-controlling interests on TPGI’s balance sheet.
  49. 49. Commerce Square — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital StabilizationOne Commerce Square High-rise office; 942,866 88% 93% $14 million $15 million $1 million $3 million(1987) Philadelphia CBDTw o Commerce Square High-rise office; 953,276 86% 91% $14 million $15 million $1 million $5 million(1992) Philadelphia CBD 1,896,142 87% 92% $28 million $31 million $2 million $8 million 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 49
  50. 50. Commerce Square — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per On Oct-2011 Loan-to- To RepayStabilized NOI Value Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit Ann. NOI 1 Value Debt Non-recourse; 9.0% $169 million $179 $129 million n/m 75% n/m n/m n/m 77% 23 5.7% / Jan-16 Non-recourse; 9.0% $171 million $180 $107 million n/m 75% n/m n/m n/m 63% 18 6.3% / May -13 9.0% $340 million $179 $236 million $79 million * 75% $59 million $1.19 15% 69% 20 Approximates the purchase price per sq ft, on a Worth nearly half stabilized basis, of nearby Three Logan Square, of TPGI’s recent which Brandywine (BDN) acquired in 2010. market value. (Source: Brandywine CEO Sweeney on BDN’s 4Q10 earnings call)* Stated after the $25 million preferred equity investment by Brandywine (BDN) in 2010. In addition to a 9.25% accruing return on the preferred, BDN getsa 25% interest in the Commerce Square LPs. The $25 million is to be used for property improvements. As such, we have assumed that the investment isused for committed leasing costs of $1.7 million and incremental costs of $8.3 million, as estimated by management. This leaves another ~$10 million toimprove the competitive position of the property ($5 million has already been funded and spent as of September 30, 2011). 1Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). The interest payment includes a charge for a return on Brandywines preferred equity even though it is not in cash. 50
  51. 51. Four Points Centre — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital StabilizationFour Points Centre 2 Suburban office; 3 192,062 29% n/m $0 million $2 million $0 million $6 million(2008) Austin, TX 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 Excludes wholly-owned retail space with 6,600 rentable square feet. The retail project, which has no related debt outstanding, is contracted to sell. Also excluded is entitled, but undeveloped land at the location (see development properties). 3 The property was completed only in 2008. Occupancy was 17% in 2009 and 18% in 2010. 51
  52. 52. Four Points Centre — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Recourse ov er 47% of debt 9.0% $13 million $70 $23 million -$10 million 100% -$10 million -$0.20 n/m 174% n/m (~$11M); L+3.5% / Jul-12 Negative NAV due to debt exceeding estimated asset value. TPGI has liability as the lender has recourse on ~47% of the debt. Maximum liability is $11 million. 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 52
  53. 53. Operating Properties Held in Joint Ventures(2121 Market Street JV)
  54. 54. 2121 Market Street — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization2121 Market Street Residential/retail; 154,959 100% 2 100% 2 $2 million $2 million $0 million $0 million(2001) Philadelphia 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 The occupancy figures represent the retail/office tenants only, and excludes the 168 residential units at the property. The property 54 includes 133k sq ft of residential and 21k sq ft of retail space in total.
  55. 55. 2121 Market Street — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Recourse $3M 8.0% $29 million $190 $18 million max imum; $11 million 50% $6 million $0.12 12% 61% 13 6.1% / Jan-33 Property is actively marketed for sale based on management’s new strategy 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 55
  56. 56. Operating Properties Held in CalSTRS JV* (9 properties**)* TPG L.P. is the general partner and owns 25% of the limited partnership interests in TPG/CalSTRS, LLC, a joint venture with the California State Teachers’Retirement System. This gives TPG an indirect 25% interest in the common equity of properties owned by TPG/CalSTRS, except for City National Plaza ofwhich TPG owns 8%. TPG/CalSTRS was formed in December 2002, with most of the properties acquired in 2004/05 (City National Plaza was acquired in2003). TPG acts as the managing member of TPG/CalSTRS.** Excludes three Pennsylvania-based properties with defaulted loans. As the loans are non-recourse to both TPGI/TPG L.P. and the TPG/CalSTRS JV, andthe entities do not anticipate making any further payments or equity contributions, these properties are excluded here.
  57. 57. City National Plaza — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital StabilizationCity National Plaza High-rise office; 2,496,084 88% 81% $48 million $52 million $10 million $12 million(1973) Los Angeles CBD 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 57
  58. 58. City National Plaza — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt $350M mortgage: non-rec.; 5.9% / Jul-20 7.0% $715 million $286 $370 million $345 million 8% $27 million $0.55 7% 52% 14 $20M note: non-rec.; 5.8% / Jul-12 LBA Realty bought nearby 550 South Hope at ~$280/sq ft in a distressed deal in May 2011. Mortgage refinanced in 2010, extending the maturity to 2020 at a KBS Realty bought nearby 445 5.9% fixed interest rate Figueroa St. at ~$330/sq ft in September 2010. 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 58
  59. 59. City West Place — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;City West Place 2 Westchase, 1,473,020 99% 98% $25 million $24 million $0 million $0 million(1993/1998/2001) Houston 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 Excludes entitled, but undeveloped land at the location (see development properties). 59
  60. 60. City West Place — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Buildings I & II ($121M): non-rec.; 6.2% / Jul-16; 7.0% $344 million $234 $216M $129 million 25% $32 million $0.65 10% 63% 17 Buildings III & IV ($95M): non-rec.; 5.0% / Mar-20 Refinanced buildings III & IV in 2nd most valuable October 2010 at a "50% loan to operating property value," which implies a to TPGI, based on ~$260/sq ft asset value. our estimates 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 60
  61. 61. San Felipe Plaza — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization High-rise office;San Felipe Plaza San Felipe/Voss, 980,472 88% 91% $14 million $16 million $2 million $3 million(1984) Houston 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 61
  62. 62. San Felipe Plaza — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Non-recourse; 7.0% $222 million $226 $110M $112 million 25% $28 million $0.56 8% 50% 12 4.8% / Dec-18 Refinanced in July 2010 at an "average loan to value of 50%" (including concurrent refinancings at 2500 City West / Brookhollow) 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 62
  63. 63. 2500 City West — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;2500 City West 2 Westchase, 578,284 94% 94% $9 million $10 million $2 million $1 million(1982) Houston 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 Excludes entitled, but undeveloped land at the location (see development properties). 63
  64. 64. 2500 City West — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Non-recourse; 7.0% $134 million $231 $65M $69 million 25% $17 million $0.35 8% 49% 11 5.5% / Dec-19 Refinanced in July 2010 at an Property is actively "average loan to value of marketed for sale based on 50%" (including concurrent management’s new strategy refinancings at San Felipe / Brookhollow) 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 64
  65. 65. Brookhollow I-III — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;Brookhollow I-III Northw est, 806,004 66.6% 2 64% 2 $5 million $9 million $0 million $20 million(I:72/ II:79 / III:81) Houston 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 The low occupancy is due to a lack of tenants at building #I, which needs to be redeveloped. 65
  66. 66. Brookhollow I-III — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Non-recourse; 9.0% $77 million $95 $38M $39 million 25% $10 million $0.19 11% 50% 9 L+2.6% / Jul-13 Property is actively marketed for sale based on Refinanced in July 2010 at an "average management’s new strategy Low value per square foot relative to loan to value of 50%" other Houston properties is warranted (including concurrent due to need to redevelop building I (no refinancings at San tenants currently) Felipe / 2500 City West ) 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 66
  67. 67. Centerpointe I&II — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;Centerpointe I&II Fairfax (w ithin 421,859 92% 71% 2 $9 million $9 million $1 million $1 million(I:1987 / II:1989) D.C. metro area) 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 Occupancy is an average for 2007-10 as the building was acquired in 2007. 67
  68. 68. Centerpointe I&II — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt $55M mortgage: non- common: rec.; L+0.6% / Feb-12 25% 9.0% $102 million $241 $66M $0 million $2 million $0.04 n/m 65% 16 $11M mezz loan: non- preferred: rec.; L+3.3% / Feb-12 5% Property is actively The NAV estimate is stated after marketed for sale based on allocations to preferred equity. management’s new strategy The $2 million ($0.04 per share/unit) of estimated value reflects a 5% preferred equity interest. 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 68
  69. 69. Fair Oaks Plaza — Snapshot Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;Fair Oaks Plaza Fairfax (w ithin 179,688 89% 85% 2 $3 million $3 million $1 million $0 million(1986) D.C. metro area) 1 Represents the sum of i) net operating income for October 2011, annualized; and ii) the annual straight-line rent adjustment for existing leases. 2 Occupancy is an average for 2007-10 as the building was acquired in 2007. 69
  70. 70. Fair Oaks Plaza — Valuation Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Non-recourse; 9.0% $37 million $208 $44M -$7 million 25% $0 million $0.00 n/m 118% 57 5.5% / Feb-17 Negative NAV due to debt exceeding estimated asset value. TPGI has no liability, however, as the mortgage is non-recourse to TPGI, TPG L.P. and the TPG/CalSTRS JV. 1Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 70
  71. 71. Reflections I — Snapshot & Valuation Pro-forma Currently Estimated Occupancy 2006-10 Oct-2011 NOI at 95% Committed Addl CapitalProperty Rentable as of Average Annualized Occupancy Leasing to Achieve 1(Year Built / Renovated) Description Square Feet 30-Sep-11 Occupancy NOI ("Stabilized") Capital Stabilization Suburban office;Reflections I Reston (w ithin 123,546 0% 2 80% 2 $0 million $3 million $0 million $8 million(2000) D.C. metro area) 1 Represents the sum of i) net operating income for October 2011, annualized; Zero NAV due to debt approximating estimated and ii) the annual straight-line rent adjustment for existing leases. 2 Long-time tenant Raytheon Company left in 2010. asset value. The mortgage is non-recourse. Implied Outstanding Debt (100%) Estimated Estimated Estimated Implied Implied Cap Rate Estimated Asset Total Net TPG L.P. Value Value To "FCF Yield" Implied Years Applied to Asset Value as of Recourse? Asset Share To TPG L.P. Per on Current Loan-to- To RepayStabilized NOI Value 1 Per Sq Ft 30-Sep-11 Rate / Maturity Value of NAV TPG L.P. Share/Unit NOI 2 Value Debt Non-recourse; 9.0% $21 million $173 $21M $0 million 25% $0 million $0.00 n/m 99% n/m 5.2% / Apr-15 1 Stated after currently committed and estimated incremental leasing capital costs to achieve stabilization (per management estimates). 2 Defined as (TPG L.P.s share of October 2011 annualized NOI less estimated annual interest payment) / (estimated value of the property to TPG L.P.). 71

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