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 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 September 30, 2008, we owned interests in a portfolio of 52 operating retail properties totaling approximately 8.5 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 September 30, 2008, we had an interest in 10 properties in our development/redevelopment pipeline (including our Shops at Eagle Creek, Bolton Plaza, Rivers Edge, Courthouse Shadows, and Four Corner Square properties, all of which are undergoing a major redevelopment). Upon completion, our development/redevelopment properties are anticipated to have approximately 1.3 million square feet of total gross leasable area.

In addition to our current development/redevelopment pipeline, we have a "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 September 30, 2008, this visible shadow pipeline consisted of five projects, four of which are consolidated, one of which is unconsolidated, that are expected to contain approximately 2.9 million square feet of total gross leasable area upon completion.

Finally, as of September 30, 2008, we also owned interests in other land parcels comprising approximately 106 acres. These land parcels are classified as "Land held for development" in the accompanying consolidated balance sheet.

Recent Turmoil in Financial Markets and Current Economic Conditions

The United States stock and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many stocks to fluctuate substantially and the spreads on prospective debt financings to widen considerably. These circumstances have materially impacted liquidity in the financial markets, making terms for certain financings less attractive, and in some cases have resulted in the unavailability of financing. The recent turmoil in the stock and credit markets has exacerbated an already difficult environment for obtaining financing, discussed below.

At the beginning of the credit crisis in 2007, concerns about high risk, or sub-prime, mortgage loans in the housing market and their investment derivatives led to significant consolidation in the financial services industry. The historically high level of delinquencies and foreclosures among sub-prime mortgage borrowers in the United States is expected to continue in the foreseeable future. These conditions, brought on by fluctuations in interest rates, falling real estate prices and the number of borrowers with sub-prime mortgages, have caused lending institutions to tighten credit standards, making it more difficult for individuals and companies, including some of our tenants, to obtain financing on favorable terms, if at all. The tightening of credit standards has caused credit risk spreads to widen dramatically and securitization activity to be severely hampered. Many financial institutions that have relied heavily on short-term financing in repurchase markets are now facing much more stringent borrowing conditions. Asset prices continue to be volatile and many financial markets and institutions remain under considerable stress. As a result of these conditions, a number of major financial institutions have had to record significant losses and write-downs of their assets to their current fair values. These actions have intensified concerns about credit and liquidity risks and have resulted in a further sharp reduction of market liquidity and in some cases, bank buy-outs and failures.

The turbulence in the financial markets has amplified an increasingly uncertain and challenging economic environment, both in the United States in general, and in the specific markets in which we operate. In addition to the financial industries, events in the financial markets are having a negative effect on many businesses, consumers and the economy as a whole. Companies of all types and sizes are finding it increasingly more difficult to address their liquidity and capital needs and consumers are dealing with increasing levels of unemployment and decreasing levels of confidence, resulting in less consumer spending.

Impact of Recent Events on Us and Our Growth Strategy

Like other real estate companies, the downturn in the U.S. economy and the tightening of the credit markets has had a significant impact on us and our business. As an owner and developer of community and neighborhood shopping centers, our performance is directly 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 in North Carolina, where a significant amount of our development projects and land parcels held for development are located. 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. In turn, this 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 certain leases with such tenants. We have also had certain tenants terminate their leases with us, including Circuit City at our Sunland Towne Center property and Barnes and Noble and Linens 'N Things, both of which were tenants at our Cedar Hill Plaza property. In addition, due to the challenging economic environment, some of our existing and prospective tenants may 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 somewhat over the last 12 months and may continue to decline in the future. As of September 30, 2008, our retail operating portfolio was approximately 92% leased compared to approximately 95% as of September 30, 2007. In addition, these conditions make it more difficult for us to lease space in our development projects, which may adversely affect the expected returns from these projects or delay their completion.

On November 10, 2008, Circuit City Stores, Inc. filed a petition for bankruptcy protection under Chapter 11 of the federal bankruptcy laws. As of this date, Circuit City leased space at three of our properties, which, under the federal bankruptcy laws, it can elect to affirm or reject. It may also seek to receive rent reductions or deferrals or other lease modifications from us. At this time, Circuit City has not announced its plans with respect to its three leases with us. As of the date of its bankruptcy filing, Circuit City represented a total of approximately 2.0% of our total operating portfolio annualized base rent and approximately 1.6% of our total operating portfolio owned gross leasable area.

From a capital perspective, as of September 30, 2008, approximately $206 million of our debt matures either in the fourth quarter of 2008 or in 2009 (approximately $230 million including our share of unconsolidated debt), excluding scheduled monthly principal payments for the remainder of 2008 and 2009. While we believe we have good relationships with a number of banks and other financial institutions that will allow us to refinance substantially all of this debt (with the existing lender or a replacement lender), even in this current challenging environment, it is important that we identify alternative sources of capital in the event we are not able to refinance these loans on satisfactory terms, or at all.

Since July 2008, we have raised approximately $102.8 million in proceeds from a new term loan that matures in July 2011 and from an equity offering of 4,750,000 of our common shares for net proceeds of approximately $47.8 million. These funds were primarily used to pay down our unsecured revolving credit facility, which created additional availability under this facility to pay down debt as it matures, if necessary. As of November 10, 2008, approximately $80 million was available to be drawn under this facility and we had an additional approximately $12 million of cash and cash equivalents on hand. In addition, we have sought, and will continue to seek, to extend or refinance our debt that is maturing in the near term. For example, in October 2008, we extended the maturity dates from 2009 to 2010 on our variable rate debt at four of our consolidated properties (Estero Town Center, Tarpon Springs Plaza, Rivers Edge Shopping Center, and Bridgewater Marketplace). In addition, in October 2008, we also refinanced our variable rate debt at our Gateway Shopping Center from and extended the maturity date from 2009 to 2011. As a result of these activities, we extended the maturity dates to 2010 or later on approximately $78.8 million of indebtedness

Obtaining favorable financing also is important to our business due to, among other things, the capital needs of our existing development and redevelopment projects. Our development and redevelopment pipelines, which are the primary drivers for our growth, require a substantial amount of capital. As of September 30, 2008, our unfunded share of the total known estimated cost of our development and redevelopment pipelines was approximately $56 million. While we believe we will have access to sufficient funding to be able to fund our investments in these projects through a combination of new and existing construction loans and draws on our unsecured credit facility (which, as noted above, currently has $80 million of availability), a prolonged credit crisis will make it more costly to raise necessary capital, or could cause us to reevaluate some of these projects.

We will continue to take advantage of our access to reliable capital and a historically low interest rate environment to the extent available to us in this environment to refinance our maturing debt and other capital needs. We also believe that, notwithstanding the challenging conditions, our strong demographics, experience with prior downturns in the economy and solid development pipeline will allow us to continue to execute our business strategy in the near term. For a more detailed discussion of our capital needs, see "Liquidity and Capital Resources - Short and Long-Term Liquidity Needs - Upcoming Debt Maturities" below.

Results of Operations

At September 30, 2008, we owned interests in 57 operating properties (consisting of 52 retail properties, four operating commercial properties and an associated parking garage) and 10 entities that held development or redevelopment properties in which we have an interest (including Shops at Eagle Creek, Bolton Plaza, Courthouse Shadows, and Four Corner Square 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 September 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 September 30, 2007, we owned interests in 55 operating properties (consisting of 50 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 and Shops at Eagle Creek properties which were also undergoing major redevelopment at that time). Of the 66 total properties held at September 30, 2007, two operating properties were owned through joint ventures and accounted for under the equity method.

The comparability of results of operations is significantly affected by our development, redevelopment, and operating property acquisition and disposition activities in 2007 and 2008, discussed below.

Development Activities

The following development properties became operational or partially operational from January 1, 2007 through September 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. In October 2008, we extended the maturity date on this loan one additional year. 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 nine month periods ended September 30, 2007.

Redevelopment Activities

Glendale Town Center

In 2007, we began to redevelop our Glendale Mall property in Indianapolis, Indiana into a 685,000 total square foot power center (renamed Glendale Town Center). 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. As of September 30, 2008, this center was approximately 92% leased. The redevelopment of this property is substantially complete and, accordingly, it was transferred into our operating portfolio from the redevelopment pipeline in the third quarter 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 August 2008. We are continuing to market the remaining space for lease. We have also completed a number of additional renovations at the property throughout the first nine months of 2008, including a new roof on the Staples and remaining junior anchor spaces, new store fronts, masonry additions to the façade and columns as well as new parking lot pavement, parking bumpers and striping. This property was transitioned into the redevelopment pipeline in the fourth quarter of 2006. We currently anticipate our total investment in the redevelopment at Shops at Eagle Creek will be approximately $3.5 million.

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. This property was moved to the redevelopment pipeline in the second quarter of 2008. We currently anticipate our total investment in the redevelopment at Bolton Plaza will be approximately $6.2 million.

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 upon that anchor tenant's departure. This property was moved to the redevelopment pipeline in the second quarter of 2008. We currently anticipate our total investment in the redevelopment at Rivers Edge will be approximately $5 million.

Courthouse Shadows

We are currently redeveloping our Courthouse Shadows Shopping Center in Naples, Florida. In addition to the existing center, we may construct an additional building to support approximately 6,000 square feet of small shop space. We also intend to modify the existing façade, pylon signage, and upgrade the landscaping and lighting. This property was moved to the redevelopment pipeline in the third quarter of 2008. We currently anticipate our total investment in the redevelopment at Courthouse Shadows will be approximately $2.5 million.

Four Corner Square

We are currently redeveloping our Four Corner Square Shopping Center in Maple Valley, Washington. In addition to the existing center, we also own approximately ten acres of land adjacent to the center which will be utilized in the redevelopment. We intend to construct several new buildings as well as maintaining portions of the existing buildings at the center. We anticipate the majority of the existing center will remain open during the redevelopment. This property was transitioned to the redevelopment pipeline in the third quarter of 2008. This property was moved to the redevelopment pipeline in the third quarter of 2008. We currently anticipate our total investment in the redevelopment Four Corner Square will be approximately $0.5 million.

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

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

                                          Three Months Ended September 30         Increase
                                       --------------------------------------    (Decrease)
                                             2008                 2007          2008 to 2007
                                       -----------------    -----------------   ------------
Revenue:
Rental income (including tenant
reimbursements)                        $      23,848,180     $     22,511,302    $ 1,336,878
Other property related revenue                 3,797,675            3,223,938        573,737
Construction and service fee revenue           7,355,282            7,583,235       (227,953 )
Expenses:
Property operating expense                     4,184,274            3,827,878        356,396
Real estate taxes                              3,619,869            3,132,986        486,883
Cost of construction and services              6,139,131            6,539,643       (400,512 )
General, administrative, and other             1,452,845            1,702,354       (249,509 )
Depreciation and amortization                  8,295,167            7,019,703      1,275,464
                                          --------------       --------------      ---------
Operating income                              11,309,851           11,095,911        213,940
Add:
Other income, net                                 45,619              519,760       (474,141 )
Equity in earnings of unconsolidated
entities                                          65,640               48,024         17,616

   Interest expense                         7,512,825      6,619,179          893,646
   Income tax expense of taxable REIT
   subsidiary                                 131,691         32,789           98,902
   Minority interest in income of
   consolidated subsidiaries                   22,230         14,781            7,449
   Limited Partners' interests in the
   continuing operations of the
   Operating Partnership                      833,468      1,124,927         (291,459 )
                                            ---------      ---------      -----------
   Income from continuing operations        2,920,896      3,872,019         (951,123 )
   Operating income from discontinued
   operations, net of Limited Partners'
   interests                                       -          19,376          (19,376 )
                                            ---------      ---------      -----------
   Net income                             $ 2,920,896    $ 3,891,395    $    (970,499 )
                                            ---------      ---------      -----------

Rental income (including tenant reimbursements) increased approximately $1.3 million, or 6%, due to the following:

                                                               Increase
                                                          (Decrease) 2008 to
                                                                 2007
                                                          ------------------
        Development properties that became operational
        or partially operational in 2007 or 2008            $  1,530,461
        Property acquired during 2008                            482,935
        Properties under redevelopment during 2007 and
        2008                                                    (101,513 )
        Properties fully operational during 2007 and
        2008 & other                                            (575,005 )
                                                              ----------
        Total                                               $  1,336,878
                                                              ----------

Excluding the changes due to transitioned development properties, the acquisition of a property, and the properties under redevelopment, the net $0.6 million decrease in rental income was primarily due to the following:

• $0.6 million decrease at five of our properties due to the termination of tenants in 2007 and the first nine months of 2008, which includes the net effect of the loss of rent as well and the write-off to income of intangible lease related amounts; and

• $0.2 million decrease in real estate tax refund, net of related professional fees, reimbursable to tenants at our Galleria Plaza property for fiscal years 2006 and 2007, which was received in the third quarter of 2008.

These decreases were partially offset by an increase of $0.1 million due to the termination of a tenant at one of our properties in the third quarter of 2008, which included the write-off to income of intangible lease obligations.

Other property related revenue primarily consists of parking revenues, overage rent, lease settlement income and gains on land sales. This revenue increased approximately $0.6 million, or 18%, primarily as a result of an increase of $0.4 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 and a $0.3 million increase in gains on land sales. These increases were partially offset by a $0.1 million decrease in overage rent due to the termination of a tenant at our Bolton Plaza property.

Construction revenue and service fees decreased approximately $0.2 million, or 3%, 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.

. . .