Thomas Properties Group (TPGI)

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $9,849,000, $13,156,000, and $13,594,000 for the years ended December 31, 2008, 2007, and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $1,566,000 for the year ended December 31, 2008, increased revenue by $4,420,000 for the year ended December 31, 2007 and decreased revenue by $304,000 for the year ended December 31, 2006. The

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excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that the revenues should have been presented in tenant reimbursements instead of other. Accordingly, we reclassified such reimbursements from the other revenue caption to the tenant reimbursements revenue caption, and the corresponding expense from the other revenue caption to the operating expense caption for the year ended December 31, 2006 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “other” and “operating” in the consolidated statements of operations for the year ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.4 million, $(0.2) million, and $5.2 million, respectively. This reclassification had no impact on operating income and net income or members’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment decreased revenue by $3,044,000, $5,678,000, and $5,501,000 for the years ended December 31, 2008, 2007 and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $80,000, $16,000 and $259,000 for the years ended December 31, 2008, 2007 and 2006, respectively. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in rents and other receivables. We also maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the high quality of the existing tenant base, reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative square footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statements of operations, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that revenues should have been presented in tenant reimbursements instead of parking and other. Accordingly, we reclassified such reimbursements from the parking and other revenue caption to the tenant reimbursements revenue caption, and we reclassified the corresponding expense from the parking and other revenue caption to the rental property operating and maintenance expense caption for the year ended December 31, 2006 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “parking and other” and “rental property operating and maintenance” in the consolidated statements of operations for the year ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.8 million, $(0.1) million, and $5.7 million, respectively. This reclassification had no impact on operating income, net income, and earnings per share or stockholders’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have

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THOMAS PROPERTIES GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL INFORMATION—(Continued)

substantial continuing involvement with the real estate asset sold. If the criteria for profit recognition under the full-accrual method are not met, we defer gain recognition and account for the continued operations of the property by applying the deposit or percentage of completion method, as appropriate, until the appropriate criteria are met. With respect to a parcel we sold at Campus El Segundo in 2006, we deferred a portion of the gain as we were obligated to fund certain infrastructure improvements with respect to the sold parcel; therefore we recognized the deferred gain on the percentage of completion method. The improvements were completed in 2008 and the remaining deferred gain balance was recognized.

We have one high-rise condominium project for which we use the percentage of completion accounting method to recognize revenues and costs. Revenues and costs for projects are recognized using the percentage of completion method of accounting when construction is beyond the preliminary stage, the buyer is committed to the extent of being unable to require a refund except for non-delivery of the unit, sufficient units in the project have been sold to ensure that the property will not revert to rental property, the sales proceeds are collectible and the aggregate sales proceeds and the costs of the project can be reasonably estimated. Revenues are recognized on the individual project’s aggregate value of units which have closed and units for which the home buyers have signed binding agreements of sale and are based on the percentage of total estimated construction costs that have been incurred. The total estimated costs of the project are allocated to these units on a relative sales value basis. Total estimated revenues and construction costs are reviewed periodically, and any change is applied to current and future periods.

Forfeited customer deposits are recognized as revenue in the period in which we determine that the customer will not complete the purchase of the condominium unit and when we determine that we have the right to keep the deposit. As of December 31, 2008, there were six forfeitures totaling $574,000, of which $528,000 was recognized in 2008, and $46,000 was recognized in 2007.

Investment advisory fees are based on a percentage of net operating income earned by a property under management and are recorded on a monthly basis as earned. Property management fees are based on a percentage of the revenue earned by a property under management and are recorded on a monthly basis as earned. Generally, 50% of leasing fees are recognized upon the execution of the lease and the remainder upon tenant occupancy unless significant future contingencies exist. Development fees are recognized as the real estate development services are rendered using the percentage-of-completion method of accounting based on total project costs incurred to total estimated costs.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $9,849,000, $13,156,000, and $13,594,000 for the years ended December 31, 2008, 2007, and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $1,566,000 for the year ended December 31, 2008, increased revenue by $4,420,000 for the year ended December 31, 2007 and decreased revenue by $304,000 for the year ended December 31, 2006. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

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TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL INFORMATION—(Continued)

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that the revenues should have been presented in tenant reimbursements instead of other. Accordingly, we reclassified such reimbursements from the other revenue caption to the tenant reimbursements revenue caption, and the corresponding expense from the other revenue caption to the operating expense caption for the year ended December 31, 2006 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “other” and “operating” in the consolidated statements of operations for the year ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.4 million, $(0.2) million, and $5.2 million, respectively. This reclassification had no impact on operating income and net income or members’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold.

Revenue Recognition

FACE="Times New Roman" SIZE="2">All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $9,849,000,
$13,156,000, and $13,594,000 for the years ended December 31, 2008, 2007, and 2006, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $1,566,000
for the year ended December 31, 2008, increased revenue by $4,420,000 for the year ended December 31, 2007 and decreased revenue by $304,000 for the year ended December 31, 2006. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or
specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk
profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant
reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements
caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the tenants and are also included in the tenant reimbursements caption on the
consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing
obligation to provide services to such former tenants.

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TPG/CalSTRS, LLC

FACE="Times New Roman" SIZE="2">(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL
INFORMATION—(Continued)

During the fourth quarter of 2007, our management concluded that the accounting for certain
reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue
basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that the revenues should have been presented in tenant reimbursements instead of other. Accordingly, we reclassified such reimbursements
from the other revenue caption to the tenant reimbursements revenue caption, and the corresponding expense from the other revenue caption to the operating expense caption for the year ended December 31, 2006 to be consistent with the
presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “other” and “operating” in the consolidated statements of operations for the year ended
December 31, 2006 have increased (decreased) from the amounts previously reported by $5.4 million, $(0.2) million, and $5.2 million, respectively. This reclassification had no impact on operating income and net income or members’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real
Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold.

FACE="Times New Roman" SIZE="2">Derivative Instruments and Hedging Activities

SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended and interpreted by SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, establishes accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS No. 133, TPG/CalSTRS records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of
derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as
interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $12,135,000, $13,759,000, and $5,777,000 for the years ended December 31, 2007, 2006, and 2005, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $5,810,000 for the year ended December 31, 2007, decreased revenue by $319,000 for the year ended December 31, 2006, and increased revenue by $585,000 for the year ended December 31, 2005. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the

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Table of Contents

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL INFORMATION—(Continued)

tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

During the fourth quarter of 2007, our management concluded that the accounting for certain reimbursements (primarily tenants’ over-standard usage of certain operating expenses such as electricity and business use and occupancy taxes) related to our property operations, should have been presented on a gross basis versus a net revenue basis, pursuant to EITF 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent”, and that the revenues should have been presented in tenant reimbursements instead of other. Accordingly, we reclassified such reimbursements from the other revenue caption to the tenant reimbursements revenue caption, and the corresponding expense from the other revenue caption to the operating expense caption for the years ended December 31, 2006 and 2005 to be consistent with the presentation for the year ended December 31, 2007. As a result, amounts reflected as “tenant reimbursements”, “other” and “operating” in the consolidated statements of operations for the years ended December 31, 2006 have increased (decreased) from the amounts previously reported by $5.4 million, $(0.2) million, and $5.2 million, respectively, and for the year ended December 31, 2005 have increased (decreased) from the amounts previously reported by $2.5 million, $(0.1) million, and $2.4 million, respectively. This reclassification had no impact on operating income and net income or members’ equity.

We recognize gains on sales of real estate when the recognition criteria in SFAS No. 66 “Accounting for Sales of Real Estate” (“SFAS 66”) have been met, generally at the time title is transferred and we no longer have substantial continuing involvement with the real estate asset sold.

Revenue Recognition

FACE="Times New Roman" SIZE="2">All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $12,135,000,
$13,759,000, and $5,777,000 for the years ended December 31, 2007, 2006, and 2005, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $5,810,000
for the year ended December 31, 2007, decreased revenue by $319,000 for the year ended December 31, 2006, and increased revenue by $585,000 for the year ended December 31, 2005. The excess of rents recognized over amounts
contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for
doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or
specific credit considerations. If estimates of collectability differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk
profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant
reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Amounts allocated to tenants based on relative footage are included in the tenant reimbursements
caption on the consolidated statements of operations. Revenues generated from requests from tenants, which result in over-standard usage of services are directly billed to the

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Table of Contents

TPG/CalSTRS, LLC

FACE="Times New Roman" SIZE="2">(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL
INFORMATION—(Continued)

tenants and are also included in the tenant reimbursements caption on the consolidated statements of operations. Lease termination fees, which are included
in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $13,759,000, $5,777,000, and $2,446,000 for the years ended December 31, 2006, 2005, and 2004, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases decreased revenue by $319,000 for the year ended December 31, 2006 and increased revenue by $585,000 and $2,959,000 for the years ended December 31, 2005 and 2004, respectively. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $13,759,000, $5,777,000, and $2,446,000 for the years ended December 31, 2006, 2005, and 2004, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases decreased revenue by $319,000 for the year ended December 31, 2006 and increased revenue by $585,000 and $2,959,000 for the years ended December 31, 2005 and 2004, respectively. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

(a) Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases. The impact of the straight line rent adjustment increased revenue by $5,777,000, $2,446,000, and $1,260,000 for the years ended December 31, 2005 and 2004, and period from January 28, 2003 through December 31, 2003, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $585,000, $2,959,000, and $2,820,000 for the years ended December 31, 2005 and 2004, and period from January 28, 2003 through December 31, 2003, respectively. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated balance sheets and contractually due but unpaid rents are included in accounts receivable. TPG/CalSTRS also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying consolidated statement of operations, are recognized when the related leases are canceled and TPG/CalSTRS has no continuing obligation to provide services to such former tenants.

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Table of Contents

TPG/CalSTRS, LLC

(A Delaware Limited Liability Company)

NOTES TO CONSOLIDATED FINANCIAL INFORMATION—(Continued)

(a) Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases.

Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees of $103,000 and $763,000 for the six months ended June 30, 2005 and the year ended December 31, 2004, respectively, which are included in other income in the accompanying combined statements of revenues and certain expenses, are recognized when the leases are canceled and the landlord has no continuing obligation to provide services to such former tenants.

(a) Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the terms of the leases.

Tenant reimbursements for real estate taxes, common area maintenance, and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees of $352,000, which are included in other income in the accompanying combined statement of revenues and certain expenses, are recognized when the related leases are canceled and the landlord has no continuing obligation to provide services to such former tenants.

Revenue Recognition

All leases are classified as operating leases and minimum rents are recognized on a straight-line basis over the lease terms, commencing on the date that possession is taken by the tenant. The impact of the straight line rent adjustment decreased revenue by $1.0 million, $4.1 million, $6.2 million and $4.2 million for the periods from October 13, 2004 through December 31, 2004 and from January 1, 2004 through October 12, 2004, and the years ended December 31, 2003 and 2002, respectively. Additionally, the net impact of the amortization of acquired above market leases and acquired below market leases increased revenue by $82,000 for the period from October 13, 2004 through December 31, 2004. The excess of rents recognized over amounts contractually due pursuant to the underlying leases is included in deferred rents in the accompanying consolidated and combined balance sheets and contractually due but unpaid rents are included in rents and other receivables. We also maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or specific credit considerations. If estimates of collectibility differ from the cash received, then the timing and amount of our reported revenue could be impacted. The credit risk is mitigated by the high quality of the existing tenant base, reviews of prospective tenant’s risk profiles prior to lease execution and continual monitoring of our tenant portfolio to identify potential problem tenants.

Tenant reimbursements for real estate taxes, common area maintenance and other recoverable costs are recognized in the period that the expenses are incurred. Lease termination fees, which are included in other income in the accompanying consolidated and combined statements of operations, are recognized when the related leases are canceled and we have no continuing obligation to provide services to such former tenants.

Investment advisory fees are based on a percentage of net operating income earned by a property under management and are recorded on a monthly basis as earned. Property management fees are based on a percentage of the revenue earned by a property under management and are recorded on a monthly basis as earned. Generally, 50% of leasing fees are recognized upon the execution of the lease and the remainder upon tenant occupancy unless significant future contingencies exist. Development fees are recognized as the real estate development services are rendered using the percentage-of-completion method of accounting.