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 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 rental payments, our ability to provide such services to third parties, conditions in the U.S. retail sector and overall real estate market conditions.

As of September 30, 2009, we owned interests in 55 operating properties consisting of 51 retail properties totaling approximately 7.9 million square feet of gross leasable area (including non-owned anchor space), three operating commercial properties totaling approximately 0.5 million square feet of net rentable area, and an associated parking garage. Also, as of September 30, 2009, we had an interest in seven properties in our development and redevelopment pipelines. Upon completion, we anticipate our current development and redevelopment properties to have approximately 1.1 million square feet of total gross leasable area.

In addition to our current development and redevelopment pipelines, we have a "shadow" development pipeline which includes land parcels that are undergoing pre-development activity and are in various stages of preparation for construction to commence, including pre-leasing activity and negotiations for third party financings. As of September 30, 2009, this shadow pipeline consisted of six projects that are expected to contain approximately 2.8 million square feet of total gross leasable area upon completion.

Finally, as of September 30, 2009, we also owned interests in other land parcels comprising approximately 95 acres that we currently plan to use for future expansion of existing properties, development of new retail or commercial properties or for sale to third parties. These land parcels are classified as "Land held for development" in the accompanying condensed consolidated balance sheet.

In the third quarter of 2009, as part of our regular quarterly review, we determined that it was appropriate to write off the net book value on the Galleria Plaza operating property in Dallas Texas and recognize a non-cash impairment charge of $5.4 million. Our estimated future cash flows, which considers recent negative property-specific events, are anticipated to be insufficient to cover costs due to significant ground lease obligations and expected future required capital expenditures. The Company leases the ground on which the property is situated and currently intends to turn over the operations of and convey the title to the center to the ground lessor which will increase the Company's annual cash flows by approximately $700,000. The non-cash impairment has no effect on the Company's liquidity and there is no mortgage on the property.

Current Economic Conditions and Impact on Our Retail Tenants

Our business continues to feel the effects of the extended turmoil in the U.S credit markets and the overall continued softening of the economic environment. We expect these difficult conditions to continue to significantly restrict consumer spending through the remainder of 2009 and into 2010.

Factors contributing to consumers spending less at stores owned and/or operated by our retail tenants include, among others:

· Shortage of Financing. Lending institutions continue to have historically tight credit standards, making it significantly more difficult for individuals and companies to obtain financing. The shortage of financing has caused, among other things, consumers to have less disposable income available for retail spending and has made it more difficult for businesses to grow and expand.

· Decreased Home Values and Increased Home Foreclosures. U.S. home values have decreased sharply, and difficult economic conditions have also contributed to a record number of home foreclosures. The historically high level of delinquencies and foreclosures, particularly among sub-prime mortgage borrowers, may continue into the foreseeable future.

· Rising Unemployment Rates. The U.S. unemployment rate continues to rise dramatically. According to the Bureau of Labor Statistics, by the end of the third quarter of 2009, approximately 15.1 million, or 9.8%, of Americans were unemployed. Rising unemployment rates could result in further contraction of consumer spending, thereby negatively affecting the businesses of our retail tenants.

· Decreasing Consumer Confidence. Consumer confidence is at its lowest level in decades, leading to a decline in spending on discretionary purchases. In addition, the significant increase in personal and business bankruptcies reflects an economy in distress, with financially over-extended consumers less likely to purchase goods and/or services from our retail tenants.

As discussed below, these conditions damage the businesses of our retail tenants and in turn have a negative impact on our business. To the extent these conditions persist or deteriorate further, our tenants may be required to curtail or cease their operations, which could materially and negatively affect our business in general and our cash flows in particular.

Impact of Economy on REITs, Including Us

As an owner and developer of community and neighborhood shopping centers, our operating and financial performance is directly affected by economic conditions in the retail sector of those markets in which our operating centers and development properties are located. As discussed above, due to the challenges facing U.S. consumers, the operations of our retail tenants are being negatively affected. In turn, this is having a negative impact on our business, including in the following ways:

· Difficulty In Collecting Rent; Rent Adjustments. When consumers spend less, our tenants typically experience decreased revenues and cash flows. This makes it more difficult for some of our tenants to pay their rent obligations, which is the primary source of our revenues. A number of tenants have requested decreases or deferrals in their rent obligation during the first nine months of 2009. We have granted some of these requests to assist our tenants through the current economic difficulties, which will negatively affect our cash flows in the short-term. In addition, we have increased our allowance for doubtful accounts as we anticipate having more difficulty in collecting current and future rent receivables.

· Termination of Leases. If our tenants continue to struggle to meet their rental obligations, they may be forced to vacate their stores and terminate their leases with us. During 2009, several tenants vacated their stores, and in some cases, terminated their leases with us. It has become increasingly more difficult to negotiate lease termination fees from these terminating tenants.

· Tenant Bankruptcies. The trend of bankruptcy filings by U.S. businesses has continued during 2009 and may continue into the foreseeable future. Bankruptcy declarations by our retail tenants has abated somewhat after increasing sharply in 2008 and in the first six months of 2009.

· Decrease in Demand for Retail Space. Reflecting the extremely difficult current market conditions, demand for retail space at our shopping centers decreased in late 2008 while availability increased due to tenant terminations and bankruptcies. The excess capacity generated by big box tenant bankruptcies has led to increased competition to lease these spaces and downward pressure on rental rates. While we have experienced increased leasing activity in recent months, overall tenancy at our shopping centers remains slightly lower than a year ago. As of September 30, 2009, our retail operating portfolio was approximately 91% leased and level with the leased percentage as of the end of the prior quarter.

· Decrease in Third Party Construction Activity. As a reflection of the various economic and other factors previously discussed, we have experienced a significant decline in our third party construction activity during 2008 and the first nine months of 2009, which had a negative impact on the revenues of our development, construction and advisory services segment. We anticipate that general economic conditions will likely result in lower levels of third party construction activity for the remainder of 2009 and beyond.

The factors discussed above, among others, continued to have a negative impact on our business in the third quarter of 2009. We expect that these conditions will continue into the foreseeable future.

Financing Strategy

As part of our overall financing and capital strategy to maintain a strong balance sheet with sufficient flexibility to fund our operating and development activities in a cost-effective way, we engaged in a number of financing activities in the third quarter of 2009. In August, the $8.2 million loan on our Bridgewater Crossing property was refinanced with a $7.0 million loan bearing interest at LIBOR plus 185 basis points and maturing in June 2013. We funded a $1.2 million paydown of this loan with cash. In September, the $15.8 million fixed rate mortgage loan on our Ridge Plaza property was retired prior to its October 2009 maturity using available cash.

In addition, subsequent to the end of the third quarter, in October we repaid in full our $11.8 million fixed rate mortgage loan on our Boulevard Crossing property prior to its December 2009 maturity, and, as a result, the only remaining 2009 debt maturities relate to scheduled monthly principal payments.

As of September 30, 2009, approximately $90.2 million of our consolidated indebtedness was scheduled to mature in 2010, including scheduled monthly principal payments. We continue to seek to refinance or extend the majority of these maturities on satisfactory terms. We believe we have good relationships with a number of banks and other financial institutions that will allow us an opportunity to refinance these borrowings with the existing lenders or replacement lenders. While we can give no assurance, due to the current status of negotiations with existing and alternative lenders, we believe we will have the ability to extend, refinance, or repay all of our debt that is maturing through 2010. To the extent necessary, we may also utilize the availability on our unsecured revolving credit facility, pursuant to which we had approximately $69.5 million of availability as of September 30, 2009, or available cash. We continue to seek alternative sources of financing and other capital in the event we are not able to refinance our 2010 maturities on satisfactory terms, or at all.

Obtaining new financing is also important to our business due to the capital needs of our existing development and redevelopment projects. The properties in our development and redevelopment pipelines, which are primary drivers for our near-term growth, will require a substantial amount of capital to complete. As of September 30, 2009, our unfunded share of the total estimated cost of the properties in our current development and redevelopment pipelines was approximately $23 million. While we believe we will have access to sufficient resources to be able to fund our investments in these projects through a combination of our $32.6 million in available cash and cash equivalents, new and existing construction loans and draws on our unsecured credit facility, a prolonged credit crisis will make it more costly and difficult to raise additional capital, if necessary.

Critical Accounting Policies and Estimates

Our critical accounting policies as discussed in our 2008 Annual Report on Form 10-K have not materially changed during 2009. See Notes 2 and 10 to the condensed consolidated financial statements in Item 1 of this report for a summary of significant accounting policies and recent accounting pronouncements.

Results of Operations

At September 30, 2009, we owned interests in 55 operating properties (consisting of 51 retail properties, three operating commercial properties and an associated parking garage) and seven entities that held interests in development or redevelopment properties.

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 interests in development or redevelopment properties.

The comparability of results of operations is significantly affected by our development, redevelopment, and operating property acquisition and disposition activities in 2008 and 2009. Therefore, we believe it is most useful to review the comparisons of our 2008 and 2009 results of operations (as set forth below under "Comparison of Operating Results for the Three Months Ended September 30, 2009 to the Three Months Ended September 30, 2008" and "Comparison of Operating Results for the Nine Months Ended September 30, 2009 to the Nine Months Ended September 30, 2008") in conjunction with the discussion of our significant development, redevelopment, and operating property acquisition and disposition activities during those periods, which is set forth directly below.

Development Activities

The following properties were in our development pipeline and were operational
or partially operational at various times from January 1, 2008 through September
30, 2009:

      Property Name               MSA           Economic Occupancy Date1   Owned GLA
 Eddy Street Commons       South Bend, IN       September 2009               165,000
 Cobblestone Plaza         Ft. Lauderdale, FL   March 2009                   157,957
 54th & College            Indianapolis, IN     June 2008                        N/A 2
 Bayport Commons           Tampa, FL            September 2007                94,756
 Gateway Shopping Center   Marysville, WA       April 2007                   100,949

2 Property is ground leased to a single tenant.

Property Acquisition Activities

In February 2008, we purchased Rivers Edge, a 110,875 square foot shopping center located in Indianapolis, Indiana, for $18.3 million. This property was purchased with the intent to redevelop; therefore, it is included in our redevelopment pipeline, as shown in the "Redevelopment Activities" table below. However, for purposes of the comparison of operating results, this property is classified as an acquired property during 2008 in the comparison of operating results for the "Comparison of Operating Results for the Nine Months Ended September 30, 2009 to the Nine Months Ended September 30, 2008" below.

Operating Property Disposition Activities

The following operating properties were sold from January 1, 2008 through
September 30, 2009:

         Property Name                    MSA            Disposition Date   Owned GLA
 Spring Mill Medical, Phase I1   Indianapolis, Indiana   December 2008         63,431
 Silver Glen Crossing            Chicago, Illinois       December 2008        132,716

Redevelopment Activities

The following properties were in our redevelopment pipeline at various times
during the period from January 1, 2008 through September 30, 2009:

       Property Name                 MSA              Transition Date1   Owned GLA
   Coral Springs Plaza     Ft. Lauderdale, Florida    March 2009            94,756
   Galleria Plaza2         Dallas, Texas              March 2009            44,306
   Courthouse Shadows      Naples, Florida            September 2008       134,867
   Four Corner Square      Maple Valley, Washington   September 2008        73,099
   Bolton Plaza            Jacksonville, Florida      June 2008            172,938
   Rivers Edge             Indianapolis, Indiana      June 2008            110,875
   Glendale Town Center3   Indianapolis, Indiana      March 2007           685,000
   Shops at Eagle Creek4   Naples, Florida            December 2006         75,944

2 During the third quarter of 2009, we determined it was appropriate to write-off the net book value of the Galleria Plaza property and recognized a non-cash impairment charge of $5.4 million.

3 Property was transitioned back into the operating portfolio in the third quarter of 2008 as redevelopment was substantially completed. However, because the property was under redevelopment during part of 2008, it is classified as such in the comparison of operating results tables below.

4 Property was transitioned to the operating portfolio in the first quarter of 2009 as redevelopment was substantially completed. However, because the property was under redevelopment during 2008, it is classified as such in the comparison of operating results tables below.

Comparison of Operating Results for the Three Months Ended September 30, 2009 to the Three Months Ended September 30, 2008

The following table reflects our condensed consolidated statements of operations for the three months ended September 30, 2009 and 2008 (unaudited):

                                                        Three months ended September 30,
                                                                                                   Increase
                                                                                                  (Decrease)
                                                            2009                  2008           2009 to 2008
Revenue:
Rental income (including tenant reimbursements)       $      22,066,538       $  23,195,631     $   (1,129,093 )
Other property related revenue                                1,177,057           3,797,675         (2,620,618 )
Construction and service fee revenue                          2,684,209           7,355,282         (4,671,073 )
Total revenue                                                25,927,804          34,348,588         (8,420,784 )
Expenses:
Property operating expense                                    4,427,364           4,093,457            333,907
Real estate taxes                                             2,735,820           3,502,958           (767,138 )
Cost of construction and services                             2,381,885           6,139,130         (3,757,245 )
General, administrative, and other                            1,388,645           1,452,845            (64,200 )
Depreciation and amortization                                 7,865,268           8,171,181           (305,913 )
Non-cash loss on impairment of real estate asset              5,384,747                   -          5,384,747
Total expenses                                               24,183,729          23,359,571            824,158
Operating income                                              1,744,075          10,989,017         (9,244,942 )
Interest expense                                             (6,815,787 )        (7,512,825 )         (697,038 )
Income tax benefit (expense) of taxable REIT
 subsidiary                                                      80,714            (131,691 )         (212,405 )
Income from unconsolidated entities                              73,524              65,641              7,883
Non-cash gain from consolidation of subsidiary                1,634,876                   -          1,634,876
Other income, net                                                 6,971              45,619            (38,648 )
(Loss) income from continuing operations                     (3,275,627 )         3,455,761         (6,731,388 )
Income from discontinued operations                                   -             320,409           (320,409 )
Consolidated net (loss) income                               (3,275,627 )         3,776,170         (7,051,797 )
Net income attributable to noncontrolling interests            (107,743 )          (855,274 )         (747,531 )
Net (loss) income attributable to Kite Realty
 Group Trust                                          $      (3,383,370 )     $   2,920,896     $   (6,304,266 )

Rental income (including tenant reimbursements) decreased approximately $1.1 million, or 5%, due to the following:

                                                                          Increase (Decrease)
                                                                              2009 to 2008
Properties fully operational during 2008 and 2009 & other                $           (1,868,536 )
Development properties that became operational or were partially
 operational in 2008 and/or 2009                                                        860,765
Properties under redevelopment during 2008 and/or 2009                                 (121,322 )
Total                                                                    $           (1,129,093 )

Excluding the changes due to transitioned development properties and the properties under redevelopment, the net $1.9 million decrease in rental income was primarily due to a $0.5 million decrease due to termination of big box tenants at three of our properties and $0.4 million from lower occupancy of small shop tenants at several other properties, a $0.4 million decrease due to the 2008 write-off to income of in-place lease liabilities at one of our properties, $0.2 million in rental income due to the second quarter 2009 sale of an outlot subject to a ground lease, and $0.4 million from lower recoveries due to real estate tax reductions at several of our operating properties.

Other property related revenue primarily consists of parking revenues, overage rent, lease termination income and gains on land parcel sales. This revenue decreased approximately $2.6 million, or 69%, as a result of a decrease of $2.5 million in gains on land parcel sales and a $0.1 million decrease in lease termination income.

Construction revenue and service fees decreased approximately $4.7 million, or 64%, primarily as a result of a decline in third party construction contracts and construction management fees due to the economic downturn and our decision to reduce our third party construction activity.

Property operating expenses increased approximately $0.3 million, or 8%, due to the following:

                                                                          Increase (Decrease)
                                                                              2009 to 2008
Properties fully operational during 2008 and 2009 & other                $              265,573
Development properties that became operational or were partially
 operational in 2008 and/or 2009                                                        215,495
Properties under redevelopment during 2008 and/or 2009                                 (147,161 )
Total                                                                    $              333,907

Excluding the changes due to transitioned development properties and the properties under redevelopment, the net $0.3 million increase in property operating expenses was primarily due to a $0.3 million increase in bad debt expense at a number of our operating properties.

Real estate taxes decreased approximately $0.8 million, or 22%, due to the following:

                                                                          Increase (Decrease)
                                                                              2009 to 2008
Properties fully operational during 2008 and 2009 & other                $             (953,523 )
Development properties that became operational or were partially
 operational in 2008 and/or 2009                                                         73,306
Properties under redevelopment during 2008 and/or 2009                                  113,079
Total                                                                    $             (767,138 )

Excluding the changes due to transitioned development properties and the properties under redevelopment, the net $1.0 million decrease in real estate taxes was primarily due to the effects of 2009 reassessments, especially in the state of Indiana, partially offset by the effects of appeals and reassessments recorded in 2008.

Cost of construction and services decreased approximately $3.8 million, or 61%, primarily as a result of a decline in third party construction contracts and construction management fees due to the economic downturn and our decision to reduce our third party construction activity.

Depreciation and amortization expense decreased approximately $0.3 million, or 4%, due to the following:

                                                                          Increase (Decrease)
                                                                              2009 to 2008
Properties fully operational during 2008 and 2009 & other                $             (393,117 )
Development properties that became operational or were partially
 operational in 2008 and/or 2009                                                        118,775
Properties under redevelopment during 2008 and/or 2009                                  (31,571 )
Total                                                                    $             (305,913 )

Excluding the changes due to transitioned development properties and the properties under redevelopment, the net $0.4 million decrease in depreciation and amortization expense was primarily due to a higher level of accelerated depreciation and amortization of vacated tenant costs at several of our operating properties in 2008 as compared to 2009.

The $5.4 million non-cash loss on impairment of a real estate asset in 2009 relates to the write-off of the net book value of our Galleria Plaza property. Our estimated future cash flows, which consider recent negative property-specific events, are anticipated to be insufficient to cover costs due to significant ground lease obligations and expected future required capital expenditures.

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