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.

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, redevelopment, 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 leases at our properties. Our operating results therefore depend materially on the ability of our tenants to make required rental payments, conditions in the United States retail sector, and overall economic and real estate market conditions.

At September 30, 2012, we owned interests in 60 properties consisting of 53 retail operating properties, five retail properties under redevelopment, and two operating commercial properties. As of this date, we also owned interests in two in-process retail development properties. In addition as of this date, the Company also had one retail operating property and two commercial properties that were classified as held for sale as of September 30, 2012.

In addition to our in-process developments and redevelopments, we have future developments which include 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 financing. As of September 30, 2012, these future developments consisted of three projects that are expected to contain 1.1 million square feet of total gross leasable area upon completion.

Finally, as of September 30, 2012, we also owned interests in other land parcels comprising 96 acres that may be used for future expansion of existing properties, development of new retail or commercial properties or sold to third parties. These land parcels are classified as "Land held for development" in the accompanying consolidated balance sheets.

Current Business Environment

Economic conditions have remained uneven throughout 2012. A stabilized economic recovery has not been achieved due to continued challenges in the labor market, slowing growth in Europe and China, the possible U.S. "fiscal cliff", and uncertainty about the November U.S. election. Overall, economic growth in the United States continued to reflect weakness during the third quarter of 2012 with the overall economy growing at 1.9%, which is short of the economic improvement necessary to decrease unemployment in a material manner. Meanwhile, the housing sector has finally started to demonstrate signs of momentum with new home sales and permits continuing to increase from recent historically low levels. However, this improvement could also be negatively impacted by declines in consumer spending due to potential tax increases in January 2013.

As noted above, the prospect of a prolonged economic recovery continues to be uncertain. In the face of this uncertainty, however, some retailers are considering the expansion of their businesses and in certain cases have expressed optimism through expansion plans and capital allocation decisions. Where prudent and consistent with our strategy, we will seek to capitalize on our relationships with tenants to maximize our growth. We believe there will continue to be additional leasing opportunities during 2012 and 2013, particularly as tenants seek to lease new space or renew existing space in connection with lease expirations, expansions, and other considerations.

The lingering overall weakness in the U.S. economy has led to conditions that may continue to impact our business in a number of ways, including soft consumer demand; increasing tenant bankruptcies; curtailment of certain of our tenants' operations; delays or postponements by current or potential tenants from entering into long-term leases with us; decreased demand for retail space; difficulty in collecting rent; our need to make rent adjustments and concessions; the possible need to outlay additional capital to assist a tenant in the opening of its business; and termination by our tenants of their leases with us.

Ongoing Actions Taken to Capitalize on the Current Business Environment

During the current quarter, we continued to execute on our strategy to maximize shareholder value, including:

Acquisition, Development, and Redevelopment Activities: On July 31, 2012, the Company acquired 12th Street Plaza in Vero Beach, Florida for a purchase price of $15.2 million. This center is anchored by Publix Supermarkets and is part of the strong trade area within the Treasure Coast of Florida.

We continued construction at our Delray Marketplace project in Delray Beach, Florida. As of September 30, 2012, the Company has executed 30 leases at this property, including anchors Publix and Frank Theatres, and the property is 77.2% leased or committed. The total estimated costs of this project are expected to be $94 million, and the project is scheduled to open in the fourth quarter of 2012.

The Company also continued construction at its Holly Springs Towne Center project in Holly Springs, North Carolina (Raleigh MSA). During the quarter, the Company closed on a $37.5 million construction loan for the Holly Springs Towne Center project. As of September 30, 2012, the project is 83.5% leased or committed.

In addition, the Company continued construction at its Four Corner Square project in Maple Valley, Washington (Seattle MSA). During the quarter, the Company closed on a $23.0 million construction loan for the Four Corner square project. As of September 30, 2012, the project is 85.3% leased or committed.

Access the Capital Markets. Subsequent to September 30, 2012, the Company completed a public equity offering of 12,075,000 common shares at an offering price of $5.20 per share under a previously filed registration statement, for net offering proceeds of approximately $60 million. These proceeds were initially used to repay amounts outstanding under the Company's unsecured revolving credit facility and may be redeployed in the future for other general corporate purposes, including the acquisition of properties and redevelopment costs.

In addition, we are party to Equity Distribution Agreements with certain sales agents pursuant to which we may sell, from time to time, up to an aggregate of $50 million of our common shares. We continue to monitor the capital markets and may consider raising additional capital through the issuance of our common shares, preferred shares or other securities. During the three and nine months ended September 30, 2012, the Company issued 434,377 common shares at an average price of $5.27 per share for net proceeds of $2.2 million, and 618,589 common shares at an average price of $5.25 per share for net proceeds of $3.0 million, respectively.

Continued Focus on Operations. We continued to execute on our operating and leasing strategy. During the current quarter, we executed comparable new and renewal leases totaling 231,000 square feet and improved the net operating income of our operating retail properties. Our same property net operating income improved 1.9% compared to the quarter ended September 30, 2011, due to higher rental rates and improved expense recoveries.

Results of Operations

At September 30, 2012, we owned interests in 60 properties consisting of 53 retail operating properties, five retail properties under redevelopment, and two operating commercial properties. As of this date, we also owned interests in two in-process retail development properties. In addition as of this date, the Company also had one retail operating property and two commercial properties that were classified as held for sale as of September 30, 2012.

At September 30, 2011, we owned interests in 63 properties consisting of 53 retail operating properties, six retail properties under redevelopment, and four operating commercial properties. As of this date, we also owned interests in two in-process retail development properties.

The comparability of results of operations in 2011 and 2012 is affected by our development, redevelopment, and operating property acquisition and disposition activities during these periods. Therefore, we believe it is useful to review the comparisons of our results of operations for these periods in conjunction with the discussion of our development, redevelopment, and operating property acquisition and disposition activities during those periods, which is set forth below.

Development Activities

The following development properties were partially operational at various times from January 1, 2011 through September 30, 2012:

                                                 Economic
                                                Occupancy
    Property Name               MSA               Date1        Owned GLA

South Elgin Commons,
Phase II2                Chicago, IL          September 2011      83,000
Cobblestone Plaza2       Ft. Lauderdale, FL   March 2009         133,214
DePauw University
Bookstore & Café         Greencastle, IN      September 2012      11,974
Zionsville Walgreens     Indianapolis, IN     September 2012      14,550

1 Represents the date on which we started receiving rental payments under tenant leases or ground leases at the property or the tenant took possession of the property, whichever was earlier.

2 Construction of each of these properties was completed in phases. The Economic Occupancy Date indicated for each of these properties refers to its initial phase. South Elgin Commons was sold in June 2012.

Property Acquisition Activities

In July 2012, the Company acquired 12th Street Plaza in Vero Beach, Florida for a purchase price of $15.2 million. 12th Street Plaza is a 138,000 square foot shopping center anchored by Publix Supermarket and Stein Mart. As of September 30, 2012, the center was 96.6% leased.

In June 2012, the Company acquired Cove Center in Stuart, Florida for a purchase price of $22.1 million. Cove Center is a 155,000 square foot unencumbered shopping center anchored by Publix Supermarket and Beall's Department Store. As of September 30, 2012, the center was 94.9% leased.

In June 2011, the Company acquired Lithia Crossing, an unencumbered shopping center in Tampa, Florida, for a purchase price of $13.3 million.

In February 2011, the Company acquired Oleander Place in Wilmington, North Carolina for a purchase price of $3.5 million. Subsequent to the acquisition, the Company executed a lease termination agreement with the former anchor and a new lease with Whole Foods and transitioned the property to an in-process redevelopment. In connection with the lease termination agreement, the Company received a lease termination fee of $0.8 million.

Property Disposition & Held for Sale Activities

In February 2012, the Company and its joint venture partner sold Gateway Shopping Center in Marysville, Washington for a sales price of $29.4 million. The net proceeds were utilized to retire the variable-rate loan of $20.4 million, and the Company's share of the remaining proceeds was approximately $7 million.

In June 2012, the Company sold South Elgin Commons in South Elgin, Illinois for a sales price of $25 million. The net proceeds were utilized to retire the construction loan of $15.4 million and to fund a portion of the purchase price of Cove Center.

In the third quarter of 2012, the Company sold its Coral Springs Plaza property near Fort Lauderdale, Florida and its 50 South Morton property near Indianapolis, Indiana. These properties were sold for an aggregate net loss of approximately $0.1 million. The majority of the net proceeds from the sale were used to pay down the Company's unsecured revolving credit facility.

In addition, the Company reclassified its Preston Commons retail property near Dallas, Texas and its Indiana State Motorpool and Pen Products commercial properties in Indianapolis, Indiana as held for sale. The Company expects to close on the sale of each of these properties in the fourth quarter of 2012. Each sale currently is expected to result in a financial statement gain.

Redevelopment Activities

The following properties were in redevelopment status at various times during the period from January 1, 2011 through September 30, 2012:

     Property Name                MSA          Transition Date1   Owned GLA

Courthouse Shadows          Naples, Florida    September 2008       134,867
                            Maple Valley,
Four Corner Square3         Washington         September 2008        29,167
                            Jacksonville,
Bolton Plaza                Florida            June 2008            172,938
                            Indianapolis,
Rivers Edge2                Indiana            June 2008            149,209
                            Wilmington,
Oleander Place4             North Carolina     March 2011            43,806
Rangeline Crossing
(formerly The Centre) 5     Carmel, Indiana    March 2011            77,455

Other Property Activities

In February 2011, the Company completed the acquisition of the remaining 40% interest in Rangeline Crossing (formerly The Centre), a redevelopment property in Indianapolis, Indiana from its joint venture partners and assumed all leasing and management responsibilities for the property. The purchase price of the 40% interest was $2.2 million, including the settlement of a $0.6 million loan made by the Company.

Same Property Net Operating Income

The Company believes that net operating income ("NOI") is helpful to investors as a measure of its operating performance because it excludes various items included in net income that do not relate to or are not indicative of its operating performance, such as depreciation and amortization, interest expense, and impairment, if any. The Company believes that NOI for our "same properties" ("Same Property NOI") is helpful to investors as a measure of its operating performance because it includes only the NOI of properties that have been owned for the full period presented, which eliminates disparities in net income due to the redevelopment, acquisition or disposition of properties during the particular period presented, and thus provides a more consistent metric for the comparison of the Company's properties. NOI and Same Property NOI should not, however, be considered as alternatives to net income (calculated in accordance with GAAP) as indicators of the Company's financial performance.

The following table reflects same property net operating income (and reconciliation to net loss attributable to common shareholders) for the three and nine months ended September 30, 2012 and 2011:

                                     Three Months Ended September 30,            Nine Months Ended September 30,
                                      2012             2011       % Change       2012            2011        % Change
Number of properties at
period end1                                   49             49                         49              49

Leased percentage at
period-end                                 93.0%          92.7%                      93.0%           92.7%

Net operating income - same
properties (49 properties)2        $  14,142,327   $ 13,881,556        1.9 % $  42,301,125   $  40,988,124        3.2 %

Reconciliation to Most
Directly Comparable GAAP
Measure:

Net operating income - same
properties                         $  14,142,327   $ 13,881,556              $  42,301,125   $  40,988,124
Net operating income -
non-same properties                    3,736,374      1,902,275                  9,525,922       5,613,271
Construction, net and other              138,134        205,599                    177,543         321,972
General and administrative
expense                               (1,647,116 )   (1,401,475 )               (5,261,293 )    (4,661,059 )
Acquisition costs                       (108,169 )            ?                   (179,102 )       (49,968 )
Litigation charge                              ?              ?                 (1,289,446 )             ?
Depreciation expense                 (11,244,270 )   (8,283,440 )              (30,720,823 )   (26,328,902 )
Interest expense                      (6,481,825 )   (6,131,103 )              (19,164,454 )   (17,000,667 )
Discontinued operations                  228,240        568,823                  6,143,124       1,186,223
Net loss (income)
attributable to
noncontrolling interests                 312,208         57,931                 (1,513,591 )       410,968
Dividends on preferred shares         (2,114,063 )   (1,443,750 )               (5,805,939 )    (4,331,250 )
Net loss attributable to
common shareholders                $  (3,038,160 ) $   (643,584 )            $  (5,786,934 ) $  (3,851,288 )

1 Same Property analysis excludes Courthouse Shadows, Oleander Place, Four Corner Square, Rangeline Crossing, and Bolton Plaza as the Company pursues redevelopment of these properties.

2 Same Property net operating income is considered a non-GAAP measure because it excludes net gains from outlot sales, write offs of straight-line rent and lease intangibles, bad debt expense and related recoveries, the litigation charge, lease termination fees and significant prior year expense recoveries and adjustments, if any. Such items are included in net operating income - non-same properties.

Comparison of Operating Results for the Three Months Ended September 30, 2012 to the Three Months Ended September 30, 2011

The following table reflects our consolidated statements of operations for the three months ended September 30, 2012 and 2011 (unaudited):

                                                                                         Net change
                                                         2012             2011          2011 to 2012
Revenue:
  Rental income (including tenant reimbursements)    $ 24,519,495     $ 22,490,044     $    2,029,451
  Other property related revenue                          858,676          851,855              6,821
  Construction and service fee revenue                     52,531          180,299           (127,768 )
Total revenue                                          25,430,702       23,522,198          1,908,504
Expenses:
  Property operating                                    4,191,874        4,261,465            (69,591 )
  Real estate taxes                                     3,282,788        3,296,603            (13,815 )
  Cost of construction and services                        77,901          135,816            (57,915 )
  General, administrative, and other                    1,647,116        1,401,475            245,641
  Acquisition costs                                       108,169                -            108,169
  Depreciation and amortization                        11,244,270        8,283,440          2,960,830
Total Expenses                                         20,552,118       17,378,799          3,173,319
Operating income                                        4,878,584        6,143,399         (1,264,815 )
  Interest expense                                     (6,481,825 )     (6,131,103 )         (350,722 )
  Income tax benefit (expense) of taxable REIT
subsidiary                                                 13,385         (119,561 )          132,946
  Income from unconsolidated entities                     102,623          239,852           (137,229 )
  Other income                                             22,688           40,825            (18,137 )
(Loss) income from continuing operations               (1,464,545 )        173,412         (1,637,957 )
Discontinued operations:
  Discontinued operations                                 293,552          568,823           (275,271 )
  Loss on sale of operating property, net of tax
expense                                                   (65,312 )              -            (65,312 )
Income from discontinued operations                       228,240          568,823           (340,583 )
Consolidated net (loss) income                         (1,236,305 )        742,235         (1,978,540 )
  Net loss attributable to noncontrolling
interests                                                 312,208           57,931            254,277
Net (loss) income attributable to Kite Realty
Group
  Trust                                                  (924,097 )        800,166         (1,724,263 )
Dividends on preferred shares                          (2,114,063 )     (1,443,750 )         (670,313 )
Net loss attributable to common shareholders         $ (3,038,160 )   $   (643,584 )   $   (2,394,576 )

Rental income (including tenant reimbursements) increased $2.0 million, or 9.0%, due to the following:

                                                                          Net change
                                                                         2011 to 2012
Development properties that became operational or were
partially operational in 2011 and/or 2012                                $     677,849
Properties acquired subsequent to March 31, 2011                               818,820
Properties under redevelopment during 2011 and/or 2012                         383,120
Properties fully operational during 2011 and 2012 and other                    149,662
Total                                                                    $   2,029,451

Excluding the changes due to transitioned development properties, acquired properties and the properties under redevelopment, the net $0.1 million increase in rental income is primarily attributable to improvement in occupancy and recoveries from tenants. The leased percentage of the retail operating portfolio was 93.4% as of September 30, 2012, which was an increase from the leased percentage of 93.1% as of September 30, 2011. In addition as noted below, the increase in minimum rent was slightly offset by decreases in reimbursable expenses, which resulted in lower tenant reimbursement revenue. For the total portfolio and excluding the effect of parking operations, the overall recovery ratio for reimbursable expenses was 77.7% for the three months ended September 30, 2012 compared to 72.5% for the three months ended September 30, 2011.

Other property related revenue primarily consists of parking revenues, overage rent, lease settlement income and gains related to land sales. This revenue increased slightly by 1%, primarily as a result of higher lease termination fee revenue of $0.1 million and higher gains on land sales of $0.1 million offset by lower insurance recoveries of $0.2 million.

Property operating expenses decreased $0.1 million, or 1.6%, due to the following:

                                                                          Net change
                                                                         2011 to 2012
Development properties that became operational or were
partially operational in 2011 and/or 2012                                $     18,121
Properties acquired subsequent to March 31, 2011                              138,873
Properties under redevelopment during 2011 and/or 2012                         43,125
Properties fully operational during 2011 and 2012 and other                  (269,710 )
Total                                                                    $    (69,591 )

Excluding the changes due to transitioned development properties, acquired properties, and the properties under redevelopment, the net $0.3 million decrease in property operating expenses relates primarily to a decrease in bad debt expense, due to a general improvement in the condition of our receivables, the recovery of $0.1 million previously reserved accounts receivable, and lower landscaping costs at certain properties.

Real estate taxes decreased $14,000, or 0.4%, due to the following:

                                                                          Net change
                                                                         2011 to 2012
Development properties that became operational or were
partially operational in 2011 and/or 2012                                $     13,488
Properties acquired subsequent to March 31, 2011                               42,256
Properties under redevelopment during 2011 and/or 2012                         81,207
Properties fully operational during 2011 and 2012 and other                  (150,766 )
Total                                                                    $    (13,815 )

Excluding the changes due to transitioned development properties, acquired properties and the properties under redevelopment, the net $0.2 million decrease in real estate taxes was primarily due to lower assessments at one of our operating properties. The majority of changes in our real estate tax expense is recoverable from (or reimbursable to) tenants and, therefore, reflected in tenant reimbursement revenue.

General, administrative and other expenses increased $0.2 million, or 17.5%, due to an increase in certain public company and personnel costs.

Acquisition costs related to the acquisition of 12th Street Plaza in July 2012 were $0.1 million for the three months ended September 30, 2012. There was no comparable activity for the three months ended September 30, 2011.

Depreciation and amortization expense increased $3.0 million, or 35.7%, due to the following:

                                                                          Net change
                                                                         2011 to 2012
Development properties that became operational or were
partially operational in 2011 and/or 2012                                $     145,686
Properties acquired subsequent to March 31, 2011                               654,243
Properties under redevelopment during 2011 and/or 2012                       1,916,875
Properties fully operational during 2011 and 2012 and other                    244,026
Total                                                                    $   2,960,830
. . .