Analysts: Thomas Poised to Outperform

In addition to Thomas' earnings performance for the second quarter ending June 30, the Baird report notes the L.A.-based company has five projects in development, is expanding its investment management business, has $180 million of commitments for a high-performance green fund targeting environmentally sustainable buildings, has ample cash on hand to fund its growth and is likely to realize gains on asset sales.

Specifically, the analysts say Thomas is marketing interests in the 2.6-million-sf City National Plaza in Los Angeles and three Houston assets--deals that may close by the end of this year or early 2009. Bids for a stake of 49% to 75% in City National Plaza are due in September.

Thomas currently is marketing a stake of 50% to 75% in is Houston portfolio: the 980,000-sf San Felipe Plaza, 1.5-million-sf CityWestPlace and 578,284-sf 2500 City West. Management has estimated pricing for the portfolio to be around $250 per sf. Bids are expected in September too. "Given the strength of the Houston economy and office market, there is significant institutional interest in Houston assets," the Baird team concludes.

Thomas' primary markets for its office properties remain generally healthy with some pockets of softness, according to Baird. The report sees Houston as a top market nationally with little vacancy for Thomas and rental rates sharply up from previous years. In Austin, where TPGI owns a 6.3% interest in the former Equity Office Properties portfolio, analysts say "its downtown assets are exceeding underwriting, while suburban assets are not quite as strong."

Thomas, which trades under the symbol TPGI, reported second-quarter advisory and investment management business revenues of $8.6 million, "a double-digit percentage increase both on a sequential and year-over-year basis," according to the Baird analysis. The analysts expect continued growth of the advisory fee revenue from sources such as a new Thomas venture with UBS to acquire stabilized office properties, from the green fund from a TPGI joint venture with CalSTRS. The down side of such revenue is that "it can be inconsistent due to the nature of one-time advisory work and acquisition and disposition fees," they point out in the report.

The five TPGI projects, which are in various stages of development or planning, include two office projects and a residential project in Los Angeles [Campus El Segundo, Lankershim and Universal Village], one office project in Austin [Four Points] and one condominium project in Philadelphia [Murano].

Campus El Segundo comprises 26 acres slated for office and a hotel in the El Segundo submarket near Los Angeles International Airport while the Lankershim development will include 1.5 million sf of office and television production facilities. The Universal Village, a redevelopment of the 135-acre Universal Studios back lot, is envisioned as a 3,000-unit residential development.

In Austin, Thomas is completing two 100,000-sf office buildings in the Four Points project, which is expected to be completed shortly at a cost of about $325 per sf. According to Thomas Properties management, leasing for these buildings "has been sluggish, but is beginning to pick up now that the buildings are closer to completion," Baird's team says. Thomas Properties has entitlements for nearly two million sf of mixed-use space on the 260-acre site.

The Murano condominium building in Philadelphia is nearly complete and expected ultimately to produce a $39-million gross profit for TPGI, based on Baird's projection that all of the 302 units will be sold by the middle of 2009. The latest count has 129 of the 302 units under contract. The Baird report notes that the bulk of the higher second-quarter earnings performance by TPGI "was due to additional revenues and gains recognized from the sale of 123 units at the Murano condominium project."

Although Thomas Properties' overall portfolio occupancy slipped to 85.6% from 86.5% due to several lease expirations during the second quarter, TPGI has made up for much of the turnover by re-leasing the space after Q2 ended, according to Baird. The report cited TPGI's after-tax cash flow of $11.9 million and 50 cents per share for the three months ending June 30 in comparison to after-tax cash flow of $6.2 million and 30 cents per share for the three months ending June 30, 2007.