The following discussion should be read in connection with the accompanying historical financial statements and related notes thereto. In this discussion, unless the context suggests otherwise, references to "our Company," "we," "us" and "our" mean Kite Realty Group Trust and its subsidiaries.

Overview

Our Business and Properties

Kite Realty Group Trust, through its majority-owned subsidiary, Kite Realty Group, L.P., is engaged in the ownership, operation, management, leasing, acquisition, construction, expansion and development of neighborhood and community shopping centers and certain commercial real estate properties in selected growth markets in the United States. We also provide real estate facility management, construction, development and other advisory services to third parties. We derive revenues primarily from rents and reimbursement payments received from tenants under existing leases at each of our properties. We also derive revenues from providing management, leasing, real estate development, construction and real estate advisory services through our taxable REIT subsidiary. Our operating results therefore depend materially on the ability of our tenants to make required payments and overall real estate market conditions.

As of June 30, 2008, we owned interests in a portfolio of 51 operating retail properties totaling approximately 7.5 million square feet of gross leasable area (including non-owned anchor space) and also owned interests in four operating commercial properties totaling approximately 563,000 square feet of net rentable area and an associated parking garage. Also, as of June 30, 2008, we had an interest in 11 properties in our development/redevelopment pipeline (including our Glendale Town Center, Shops at Eagle Creek, and Bolton Plaza properties, all of which are undergoing a major redevelopment and Rivers Edge, a shopping center purchased in February 2008 that the Company is in the process of redeveloping). Upon completion, our development/redevelopment properties are anticipated to have approximately 2.4 million square feet of total gross leasable area.

In addition to our current development/redevelopment pipeline, we have a significant "visible shadow" development pipeline which includes land parcels that are undergoing pre-development activity and are in the final stages of preparation for construction to commence. As of June 30, 2008, this visible shadow pipeline consisted of five projects that are expected to contain approximately 2.6 million square feet of total gross leasable area upon completion.

Finally, as of June 30, 2008, we also owned interests in other land parcels comprising approximately 112 acres. These land parcels are classified as "Land held for development" in the accompanying consolidated balance sheet.

Current Market Conditions

The United States in general, and the specific markets in which we operate, continue to face an increasingly uncertain and challenging economic environment. As an owner and developer of community and neighborhood shopping centers, our performance is linked to economic conditions in the retail industry in those markets where our operating centers and development properties are located. This is particularly true in Indiana, Florida and Texas, the states where the majority of our properties are located and North Carolina, where a significant amount of our development projects and land held for development are located.

These challenging economic conditions have been created, in part, by events in the credit, mortgage and housing markets. Fluctuations in interest rates, falling real estate prices and a significant increase in the number of high risk, or sub-prime, mortgages contributed to dramatic increases in mortgage delinquencies and defaults in 2007 and the first half of 2008. The historically high level of delinquencies among sub-prime borrowers in the United States is expected to continue in the foreseeable future. These conditions have caused lending institutions to tighten credit standards, making it more difficult for individuals and companies to obtain financing on favorable terms, if at all. Obtaining favorable financing is important to our business due to, among other things, the capital needs of our existing development projects. In addition, we may seek to refinance the current

In addition, the current state of the economy, including the effects of inflation, consumer credit availability, consumer debt levels, energy costs, business layoffs, downsizing and industry slowdowns is affecting the operations of some of our tenants. This, in turn, is having an impact on our business. Some of our existing tenants are having a more difficult time paying their rent obligations and as a result we have had to restructure a number of leases with such tenants. We have also had certain tenants terminate their leases with us. In addition, due to the challenging economic environment, some of our existing and prospective tenants currently are, and may continue to be, unwilling to enter into or renew leases with us on favorable terms or at all. These conditions are negatively affecting the market for retail space. As a result, the overall tenancy for our retail space has declined over the last 12 months and may continue to decline in the future. As of June 30, 2007, our retail portfolio was approximately 96% leased compared to approximately 93% as of June 30, 2008.

Our Dual Growth Strategy

Despite the current challenging environment, we continue to focus on our dual growth strategy. The first part of this strategy is to focus on increasing our internal growth by leveraging our existing tenant relationships to improve the performance of our existing operating property portfolio. We intend to focus on improving the operational efficiencies of our existing portfolio by attempting to, among other things, lower our variable costs while increasing ancillary income at our existing properties. The second part of our growth strategy is to focus on achieving external growth through the expansion of our portfolio. We continue to develop our current development pipeline and prepare the properties in our visible shadow pipeline for the commencement of construction. In addition, we continue to pursue targeted acquisitions of both land and neighborhood and community shopping centers in attractive markets with strong economic and demographic characteristics, as well as additional joint venture capital partners. We expect to incur additional debt in connection with any future development or acquisitions of real estate. We may also dispose of certain real estate that no longer fits our portfolio or growth strategy.

We believe we will continue to have access to reliable capital that will allow us to refinance fixed and variable rate debt, even in this current challenging environment. In January and February 2008, we were able to take advantage of current conditions and extend the maturity dates of outstanding indebtedness from 2008 to 2009 at six of our consolidated properties and one of our unconsolidated properties. In February 2008, we also refinanced fixed rate debt on outstanding indebtedness at one of our properties, replacing the fixed rate with a variable rate of LIBOR + 1.35% and extended the maturity date from 2008 to 2011. As a result of this activity, we extended the maturity dates to 2009 or later on approximately $83.4 million of indebtedness, including our share of unconsolidated indebtedness. In addition, in July 2008, we entered into a $30 million unsecured term loan agreement, discussed below in "Liquidity and Capital Resources", and used a portion of the proceeds to pay down the our unsecured revolving credit facility..

We will continue to take advantage of our access to reliable capital and low interest rates to the extent available to us to refinance variable rate debt. We also believe that, notwithstanding the challenging conditions, our strong demographics, experience with prior downturns in the economy and solid current development and visible shadow pipeline will allow us to continue to execute our dual growth strategy in 2008.

Results of Operations

At June 30, 2008, we owned interests in 56 operating properties (consisting of 51 retail properties, four operating commercial properties and an associated parking garage) and 11 entities that held development or redevelopment properties in which we have an interest (including our Glendale Town Center, Shops at Eagle Creek, and Bolton Plaza properties, all of which are undergoing major redevelopment and Rivers Edge, a shopping center purchased in February 2008 that the Company intends to redevelop). Of the 67 total properties held at June 30, 2008, two operating properties and one parcel of pre-development land were owned through joint ventures and accounted for under the equity method.

At June 30, 2007, we owned interests in 53 operating properties (consisting of 48 retail properties, four operating commercial properties and an associated parking garage) and 12 entities that held development or redevelopment properties in which we have an interest (including our Glendale Town Center and Shops at Eagle Creek properties which were also undergoing major redevelopment at that time). Of the 65 total properties held at June 30, 2007, two operating properties were owned through joint ventures and accounted for under the equity method.

Development Activities

The following development properties became operational or partially operational
from January 1, 2007 through June 30, 2008:



                                                        Economic
  Property Name                        MSA           Occupancy Date1    Owned GLA
  --------------------------    -----------------    ---------------    ----------
  Bridgewater Marketplace I     Indianapolis, IN     January 2007           26,000
  Sandifur Plaza2               Tri-Cities, WA       January 2007           12,538
  Gateway Shopping Center
  Phase I & II                  Marysville, WA       April 2007             83,000
  Tarpon Springs Plaza          Naples, FL           July 2007              82,546
  Bayport Commons               Tampa, FL            September 2007         97,200
  Cornelius Gateway             Portland, OR         September 2007         21,000
  Beacon Hill Phase II          Crown Point, IN      December 2007          19,160
  54th & College                Indianapolis, IN     June 2008                 N/A 3

Operating Property Acquisition & Disposition Activities

In February 2008, we purchased Rivers Edge Shopping Center, a 111,000 square foot shopping center located in Indianapolis, Indiana, for $18.3 million. We utilized approximately $2.7 million of proceeds from the November 2007 sale of our 176th & Meridian property. The remaining purchase price of $15.6 million was funded initially through a draw on our unsecured revolving credit facility and subsequently refinanced with a variable rate loan bearing interest at LIBOR + 125 basis points and maturing on February 3, 2009, with a one-year extension option. We intend to redevelop this property. The results of operations of 176th & Meridian have been reflected as discontinued operations in the accompanying consolidated statement of operations for the three and six month periods ended June 30, 2007.

Redevelopment Activities

Glendale Town Center

In 2007, we began to redevelop the Glendale Mall property in Indianapolis, Indiana into a 685,000 total square foot power center (renamed Glendale Town Center). As of June 30, 2008, this center was 88% leased. This center's primary anchor, a new 129,000 square foot (non-owned) Target, opened in July 2008. The center also includes Macy's, Lowe's Home Improvement (non-owned), Staples, Kerasotes Theatre, Panera Bread, the Indianapolis-Marion County Public Library, a number of new small shops and professional office spaces and one additional outlot. We currently anticipate the majority of the remaining construction work to be completed by the end of 2008.

Shops at Eagle Creek

We are currently redeveloping the space formerly occupied by Winn-Dixie at the Shops at Eagle Creek in Naples, Florida into two smaller spaces. Staples has signed a lease for approximately 25,800 square feet of the space and opened for business in

Bolton Plaza

We are currently redeveloping Bolton Plaza Shopping Center in Jacksonville, Florida. The former anchor tenant's lease at the shopping center expired in May 2008 and was not renewed. We are currently analyzing several redevelopment plans.

Rivers Edge

We are currently in the process of redeveloping our Rivers Edge Shopping Center in Indianapolis, Indiana. The current anchor tenant's lease at this property will expire in March 2010 and we are marketing the space to potential anchor tenants for the center that anchor tenant's departure. We currently anticipate our total investment in the redevelopment at Rivers Edge will be approximately $5 million.

Comparison of Operating Results for the Three Months Ended June 30, 2008 to the
Three Months Ended June 30, 2007

The following table reflects our consolidated statements of operations for the
three months ended June 30, 2008 and 2007 (unaudited):



                                           Three Months Ended June 30         Increase
                                       ----------------------------------    (Decrease)
                                             2008               2007        2008 to 2007
                                       -----------------   --------------   -------------
Revenue:
Rental income (including tenant
reimbursements)                        $      23,530,208     $ 23,160,358    $    369,850
Other property related revenue                 2,979,574        2,286,084         693,490
Construction and service fee revenue           8,311,318       10,176,315      (1,864,997 )
Expenses:
Property operating expense                     4,026,890        3,519,107         507,783
Real estate taxes                              3,382,051        3,077,480         304,571
Cost of construction and services              7,024,400        9,521,852      (2,497,452 )
General, administrative, and other             1,259,407        1,628,848        (369,441 )
Depreciation and amortization                  8,466,474        8,111,904         354,570
                                          --------------       ----------      ----------
Operating income                              10,661,878        9,763,566         898,312
Add:
Other income, net                                 31,676           90,052         (58,376 )
Equity in earnings of unconsolidated
entities                                          86,121           99,579         (13,458 )
Deduct:
Interest expense                               7,351,499        6,175,084       1,176,415
Income tax expense of taxable REIT
subsidiary                                       251,858            7,991         243,867
Minority interest in income of
consolidated subsidiaries                         19,756          247,465        (227,709 )
Limited Partners' interests in the
continuing operations of the
Operating Partnership                            697,273          781,376         (84,103 )
                                          --------------       ----------      ----------
Income from continuing operations              2,459,289        2,741,281        (281,992 )
Operating income from discontinued
operations, net of Limited Partners'
interests                                             -            24,846         (24,846 )
                                          --------------       ----------      ----------
Net income                             $       2,459,289     $  2,766,127    $   (306,838 )
                                          --------------       ----------      ----------

Rental income (including tenant reimbursements) increased approximately $0.4 million, or 2%, due to the following:

                                                               Increase
                                                          (Decrease) 2008 to
                                                                 2007
                                                          ------------------
        Development properties that became operational
        or partially operational in 2007 or 2008            $  1,539,968
        Property acquired during 2008                            493,436
        Properties under redevelopment during 2007 and
        2008                                                     557,664
        Properties fully operational during 2007 and
        2008 & other                                          (2,221,218 )
                                                              ----------
        Total                                               $    369,850
                                                              ----------

Excluding the changes due to transitioned development properties, the acquisition of a property, and the properties under redevelopment, the net $2.2 million decrease in rental income was primarily due to the following:

• $0.9 million due to the write-off to income of intangible lease liabilities in connection with the termination of a lease at our Silver Glen Crossings property in the second quarter of 2007;

• $0.4 million decrease at four of our properties due to the termination of tenants in the first half of 2008, which includes the loss of rent as well as the write-off to income of intangible lease assets;

• $0.3 million real estate tax refund, net of related professional fees, reimbursable to tenants at our Market Street Village property for fiscal years 2006 and 2007, which was received in the second quarter of 2008;

• $0.2 million decrease in real estate tax reimbursements due to amounts recorded in the second quarter of 2007 as a result of increased real estate tax assessments in prior years;

• $0.1 million decrease at our Union Station parking garage property related to a change in the structure of our agreement from a lease to a management agreement with a third party; and

• $0.1 million net decrease in common area maintenance expense, including insurance recoveries, at a number of our operating properties.

Other property related revenue primarily consists of parking revenues, overage rent, lease settlement income and gains on land sales. This revenue increased approximately $0.7 million, or 30%, primarily as a result of a $1.0 million increase in gains on land sales and an increase of $0.3 million in parking revenue at our Union Station parking garage related to the change in structure of our agreement from a lease to a management agreement with a third party. These increases were partially offset by a $0.6 million decrease in lease settlement income.

Construction revenue and service fees decreased approximately $1.9 million, or 18%, primarily due to decreased levels of third party construction contracts as the Company continues to increase consolidated joint venture construction activities, which is eliminated in consolidation.

Property operating expenses increased approximately $0.5 million, or 14%, due to the following:

                                                           Increase 2008 to
                                                                 2007
                                                           ----------------
         Development properties that became operational
         or partially operational in 2007 or 2008            $    388,998
         Property acquired during 2008                             52,186
         Properties under redevelopment during 2007 and
         2008                                                      48,910
         Properties fully operational during 2007 and
         2008 & other                                              17,689
                                                               ----------
         Total                                               $    507,783
                                                               ----------

Excluding the changes due to transitioned development properties, the acquisition of a property, and the properties under redevelopment, the net $17,689 increase in property operating expenses was primarily due to a $0.1 million increase in non-

Real estate taxes increased approximately $0.3 million, or 10%, due to the following:

                                                         Increase (Decrease)
                                                             2008 to 2007
                                                         --------------------
       Development properties that became operational
       or partially operational in 2007 or 2008             $     86,948
       Property acquired during 2008                              72,166
       Properties under redevelopment during 2007 and
       2008                                                      256,836
       Properties fully operational during 2007 and
       2008 & other                                             (111,379 )
                                                              ----------
       Total                                                $    304,571
                                                              ----------

Excluding the changes due to transitioned development properties, the acquisition of a property, and the properties under redevelopment, the net $0.1 million decrease in real estate taxes was primarily due to a real estate tax refund, net of related professional fees, of $0.3 million for fiscal years 2006 and 2007 at our Market Street Village property, which was received in the second quarter of 2008. This decrease was partially offset by a $0.2 million net increase in real estate tax expenses, primarily at our Indiana properties as a result of reassessments, a portion of which is recoverable from our tenants.

Cost of construction and services decreased approximately $2.5 million, or 26%, primarily due to decreased levels of third party construction contracts as the Company continues to increase consolidated joint venture construction activities, which is eliminated in consolidation.

General, administrative and other expenses decreased approximately $0.4 million, or 23%. This decrease is primarily due to decreased salaries, benefits and incentive compensation expense and lower legal, professional and other expenses.

Depreciation and amortization expense increased approximately $0.4 million, or 4%, due to the following:

                                                         Increase (Decrease)
                                                             2008 to 2007
                                                         --------------------
       Development properties that became operational
       or partially operational in 2007 or 2008             $    556,723
       Property acquired during 2008                             252,263
       Properties under redevelopment during 2007 and
       2008                                                     (143,716 )
       Properties fully operational during 2007 and
       2008 & other                                             (310,700 )
                                                              ----------
       Total                                                $    354,570
                                                              ----------

Excluding the changes due to transitioned development properties, the acquisition of a property, and the properties under redevelopment, the net $0.3 million decrease in depreciation and amortization expense was primarily due to a write-off of approximately $1.0 million of intangible lease liabilities in connection with the termination of a lease at our Silver Glen Crossings property in the second quarter of 2007. This decrease was partially offset by the following:

• $0.5 million increase related to the acceleration of depreciation and amortization of vacated tenant costs related to the termination of tenants at four of our operating properties in the second quarter of 2008; and

• $0.1 million increase at our 30 South property related to the depreciation and amortization expense of tenant improvements and leasing costs related to a significant new tenant that began occupying space beginning in the first

Other income decreased approximately $0.1 million, or 65%, primarily as a result of decreased interest income earned on our outstanding cash balances and decreased interest income earned on escrow reserves.

Interest expense increased approximately $1.2 million, or 19%, due to the following:

                                                               Increase
                                                          (Decrease) 2008 to
                                                                 2007
                                                          ------------------
        Development properties that became operational
        or partially operational in 2007 or 2008            $  1,163,905
        Property acquired during 2008                            166,070
        Properties fully operational during 2007 and
        2008 & other                                            (153,560 )
. . .