Edgar Filing: KITE REALTY GROUP TRUST

United State Securities and Exchange Commission Edgar Filing

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


(Mark One)

þ	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended December 31, 2008
o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from ___________to___________
	Commission File Number: 001-32268

Kite Realty Group Trust

(Exact name of registrant as specified in its charter)


State of Organization:	IRS Employer Identification Number:
Maryland	11-3715772

30 S. Meridian Street, Suite 1100
Indianapolis, Indiana 46204
Telephone: (317) 577-5600
(Address, including zip code and telephone number, including area code, of principal executive offices)


Title of each class		Name of each Exchange on which registered
Common Shares, $0.01 par value		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act. Yes o No þ

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act. Yes o No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

(do not check if a smaller reporting company)

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No þ

The aggregate market value of the voting shares held by non-affiliates of the Registrant as the last business day of the Registrant’s most recently completed second quarter was $345.6 million based upon the closing price of $12.50 per share on the New York Stock Exchange on such date.

The number of Common Shares outstanding as of March 6, 2009 was 34,187,241 ($.01 par value).

Documents Incorporated by Reference

Portions of the Proxy Statement relating to the Registrant’s Annual Meeting of Shareholders, scheduled to be held on May 5, 2009, to be filed with the Securities and Exchange Commission, are incorporated by reference into Part III, Items 10-14 of this Annual Report on Form 10-K as indicated herein.

KITE REALTY GROUP TRUST
Annual Report on Form 10-K
For the Fiscal Year Ended
December 31, 2008

TABLE OF CONTENTS

Page

P art I

Item 1. Business

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments

Item 2. Properties

Item 3. Legal Proceedings

Item 4. Submission of Matters to a Vote of Security Holders

Part II

Item 5. Market for Registrant’s Common Equity, Related Shareholder
Matters and Issuer Purchases of Equity Securities

Item 6. Selected Financial Data

Item 7. Management’s Discussion and Analysis of Financial Condition and
Results Of Operations

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Part III

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Shareholder Matters

Item 13. Certain Relationships and Related Transactions and Director Independence

Item 14. Principal Accountant Fees and Services

Part IV

Item 15. Exhibits, Financial Statement Schedule

Signatures

PART I

Forward-Looking Statements

This Annual Report on Form 10-K, together with other statements and information publicly disseminated by Kite Realty Group Trust (the “Company”), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations that may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial or otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to:

national and local economic, business, real estate and other market conditions, particularly in light of the current recession and governmental action and policies;

financing risks, including accessing capital on acceptable terms;

the level and volatility of interest rates;

the financial stability of tenants, including their ability to pay rent;

the competitive environment in which the Company operates;

acquisition, disposition, development and joint venture risks;

property ownership and management risks;

the Company’s ability to maintain its status as a real estate investment trust (“REIT”) for federal income tax purposes;

potential environmental and other liabilities;

other factors affecting the real estate industry generally; and

other risks identified in this Annual Report on Form 10-K and, from time to time, in other reports we file with the Securities and Exchange Commission (the “SEC”) or in other documents that we publicly disseminate.

The Company undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.

ITEM 1.

BUSINESS

Unless the context suggests otherwise, references to “we,” “us,” “our” or the “Company” refer to Kite Realty Group Trust and our business and operations conducted through our directly or indirectly owned subsidiaries, including Kite Realty Group, L.P., our operating partnership (the “Operating Partnership”). References to “Kite Property Group” or the “Predecessor” mean our predecessor businesses.

Overview

We are a full-service, vertically integrated real estate company 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 conduct all of our business through our Operating Partnership, of which we are the sole general partner. As of December 31, 2008, we held an approximate 81% interest in our Operating Partnership. Limited partners owned the remaining 19% of the interests in our Operating Partnership at December 31, 2008.

As of December 31, 2008, we owned interests in a portfolio of 52 retail operating properties totaling approximately 8.4 million square feet of gross leasable area (including approximately 3.4 million square feet of non-owned anchor space). Our retail operating portfolio was 91.2% leased as of December 31, 2008 to a diversified

retail tenant base, with no single retail tenant accounting for more than 3.6% of our total annualized base rent. See “Item 2. Properties” for a list of our top 25 tenants by annualized base rent.

As of December 31, 2008, we also had an interest in eight retail properties in our development and redevelopment pipelines. Upon completion, our development and redevelopment properties are anticipated to have approximately 1.2 million square feet of gross leasable area (including approximately 0.3 million square feet of non-owned anchor space). In addition to our current development and redevelopment pipelines, we have a “visible shadow” development pipeline which includes land parcels that are undergoing pre-development activities and are in various stages of preparation for construction to commence, including pre-leasing activity and negotiations for third party financings. As of December 31, 2008, this visible shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million square feet of total gross leasable area (including non-owned anchor space) upon completion.

We also own interests in three commercial operating properties totaling approximately 0.5 million square feet of net rentable area and an associated parking garage, all located in Indiana. Occupancy of our commercial operating portfolio was 96.5% as of December 31, 2008.

In addition, as of December 31, 2008, we owned interests in other land parcels comprising approximately 105 acres. These land parcels are classified as “Land held for development” in the accompanying consolidated balance sheet and may be used for future expansion of existing properties, development of new retail or commercial properties or sold to third parties.

Our operating portfolio, current development and redevelopment pipelines and land parcels are located in the states of Indiana, Florida, Texas, Illinois, New Jersey, Georgia, Washington, North Carolina, Ohio, and Oregon.

Current economic conditions are having a negative impact on consumer confidence and spending. This, in turn, is causing the retail industry to be negatively impacted as retailers struggle to sell goods and services. 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. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” within this Form 10-K for further discussion of the current economic conditions and the impact on us.

Significant 2008 Activities

2008 Finance and Capital Raising Activities. As discussed in more detail below in “Business Objectives and Strategies”, our primary business objectives are to generate increasing cash flow, achieve long-term growth and maximize shareholder value primarily through the operation, development, redevelopment and acquisition of well-located community and neighborhood shopping centers. However, as discussed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” current economic and financial market conditions have created a need for most REITs, including us, to place a significant amount of emphasis on our financing and capital preservation strategy. As such, our primary objective recently has been, and in the future will continue to be, the strengthening of our balance sheet, managing our debt maturities and conserving cash. We ended 2008 with approximately $87 million of cash and borrowing capacity. We will remain focused on 2009 and 2010 refinancing activity and will continue to aggressively manage our operating portfolio.

During 2008, we successfully completed various finance and capital-raising activities. As a result of the actions listed below, we reduced the amount outstanding under our unsecured revolving credit facility to $105 million (net of additional borrowings) at December 31, 2008 from $153 million at December 31, 2007. The significant financing and capital raising activities completed during 2008 included the following:

New Financings

In December 2008, we placed variable rate debt, secured by our Glendale Town Center property, with an interest rate of LIBOR + 2.75% and a maturity date of December 2011. This variable rate loan has a total commitment of $24.0 million and at December 31, 2008, approximately $21.8 million was outstanding. The proceeds from this loan were primarily used to repay the variable rate construction loans at three of our properties, as discussed below;

In December 2008, we closed on our Eddy Street Commons variable rate construction loan. This loan has a total commitment of $29.5 million, an interest rate of LIBOR + 2.30% and a maturity date of December 2011. As of December 31, 2008, there were no amounts outstanding under this loan; and

In July 2008, we entered into a $30 million unsecured term loan agreement (the “Term Loan”) and in August 2008, amended the original agreement and increased the amount of our borrowings under the Term Loan to $55 million. The Term Loan matures in July 2011 and bears interest at LIBOR + 2.65%. A significant portion of the $55 million proceeds from the Term Loan were used to pay down borrowings under our unsecured revolving credit facility.

Refinancings & Maturity Date Extensions

In December 2008, we extended the maturity date of our variable rate loan at our Bayport Commons property from December 2009 to December 2011. As of December 31, 2008, $20.5 million was outstanding under this loan. As discussed in the last bullet below, we had previously extended the maturity date of this debt in early 2008;

In December 2008, we extended the maturity date from January 2009 to July 2009 on our $9.4 million variable rate land loan at our Delray Marketplace property;

In October 2008, we extended the maturity dates from 2009 to 2010 on approximately $60.9 million of our variable rate debt at four properties (Estero Town Center, Tarpon Springs Plaza, Rivers Edge Shopping Center, and Bridgewater Marketplace);

In October 2008, we refinanced variable rate debt at our Gateway Shopping Center and extended the maturity date from August 2009 to October 2011. At the time of the loan’s original maturity, approximately $19.2 million was outstanding. As refinanced, at December 31, 2008, approximately $20.1 million was outstanding under the new loan, which has a $22.5 million total loan commitment. As discussed in the last bullet below, we had previously extended the maturity date of this debt in early 2008;

In February 2008, we refinanced approximately $4.0 million of fixed rate debt at our Indiana State Motor Pool commercial property, replacing the fixed rate with a variable rate at LIBOR + 1.35%. We also extended the maturity date from March 2008 to February 2011; and

In January and February 2008, we refinanced or extended the maturity date of approximately $56.7 million of variable rate debt at six of our consolidated properties (Fishers Station, Bayport Commons, Bridgewater Marketplace, Gateway Shopping Center, Red Bank Commons, and South Elgin Commons) and extended the maturity dates from 2008 to 2009. As discussed below, we repaid the outstanding indebtedness at Red Bank Commons in December 2008.

Repayment of Outstanding Indebtedness

In December 2008, we repaid the entire combined outstanding balance of $22.4 million on the variable rate construction loans at three of our operating properties (Naperville Marketplace, Trader’s Point II and Red Bank Commons) primarily using the proceeds from the debt placed on our Glendale Town Center property.

Equity Offering

In October 2008, we completed an equity offering of 4,750,000 common shares at an offering price of $10.55 per share for net offering proceeds of approximately $47.8 million, all of which was used to repay borrowings under our unsecured revolving credit facility.

2008 Development and Redevelopment Activities

During 2008, we completed the following development and redevelopment projects and transitioned them to our operating portfolio:

Bridgewater Marketplace, a 50,820 square foot neighborhood shopping center (including 24,800 square feet of non-owned anchor space) located in a suburb of Indianapolis, Indiana, was transitioned into our operating portfolio in the first quarter of 2008 and is anchored by a non-owned Walgreens;

Naperville Marketplace, a 169,600 square foot neighborhood shopping center (including 86,310 square feet of non-owned anchor space) located in Chicago, Illinois, was transitioned into our operating portfolio in the first quarter of 2008 and is anchored by T.J. Maxx and PetSmart, both of which are Company-owned;

54^th & College, a 20,100 square foot shopping center located in Indianapolis, Indiana, consists entirely of non-owned space. We ground lease the land underlying the shopping center to Fresh Market. This property was transitioned into our operating portfolio in the second quarter of 2008;

Glendale Town Center is a 685,827 square foot power center (including 282,500 square feet of non-owned anchor space) located in Indianapolis, Indiana that we recently redeveloped. This center’s primary non-owned anchor, a newly constructed 129,000 square foot Target, opened in July 2008. This center also includes Macy’s, Lowe’s Home Improvement (non-owned), Staples, Kerasotes Theatre, Panera Bread, Walgreens (non-owned), the Indianapolis-Marion County Public Library, a number of new small shops and professional office spaces and one additional outlot. The redevelopment of this center was substantially completed in the third quarter of 2008;

Bayport Commons, a 268,556 square foot neighborhood shopping center (including 173,800 square feet of non-owned anchor space, consisting of a non-owned Target) located in a suburb of Tampa, Florida, was transitioned into our operating portfolio in the third quarter of 2008 and is anchored by PetSmart, Best Buy, and Michaels;

Gateway Shopping Center, a 285,200 square foot neighborhood shopping center (including 184,251 square feet of non-owned anchor space, including non-owned Kohls and Winco Foods) located in Seattle, Washington, was transitioned into our operating portfolio in the third quarter of 2008 and is anchored by PetSmart, Ross Dress for Less, and Rite Aid, all of which are Company-owned; and

Sandifur Plaza, a 12,552 square foot shopping center located in Pasco, Washington which is comprised of three small shop buildings and a non-owned Walgreens, was transitioned into our operating portfolio in the fourth quarter of 2008.

Also during 2008, we added two projects to our development pipeline and reclassified four operating properties to our redevelopment pipeline:

Eddy Street Commons, Phase I, South Bend, Indiana. In March 2008, we added this property to our development pipeline. Once completed, we expect this phase of the development property to be an estimated 465,000 square feet of retail, office space, and multi-family components (including a 300,000 square foot non-owned multi-family component). Our share of the current estimated cost of this project is approximately $35 million;

South Elgin Commons, Phase I, Chicago, Illinois. In June 2008, we added this property to our development pipeline as a merchant building asset. Once completed, this phase of the development will consist of a 45,000 square foot single tenant building. Our estimated cost of this project is approximately $9.2 million. Upon completion, we will evaluate a potential sale of this asset;

Bolton Plaza, Jacksonville, Florida. In June 2008, we transferred this 172,938 square foot shopping center from our operating portfolio to our redevelopment pipeline. Upon the expiration of the former anchor tenant’s lease with us, it relocated to a supercenter in the same trade area. We are currently marketing this space to several potential anchor tenants. Our estimated cost of this redevelopment is approximately $2.0 million;

Rivers Edge Shopping Center, Indianapolis, Indiana. In February 2008, we purchased this 110,875 square foot neighborhood shopping center for approximately $18.3 million with the intent to redevelop it, and transferred the property into our redevelopment pipeline shortly thereafter. To fund our purchase of the property, we utilized approximately $2.7 million of proceeds we received from the November 2007 sale of our 176^th & Meridian property. The remaining purchase price was financed initially through a draw on our unsecured revolving credit facility and subsequently financed with a variable rate borrowing. The current anchor tenant’s lease at this property will expire in March 2010 and we are currently marketing the space to several potential anchor tenants for the center in the event the current anchor tenant does not renew its lease. Our estimated cost of this redevelopment is approximately $2.5 million;

Courthouse Shadows, Naples, Florida. In September 2008, we transferred this 134,867 square foot neighborhood shopping center from our operating portfolio to our redevelopment pipeline. We intend to modify the existing façade, pylon signage, and upgrade the landscaping and lighting. Publix recently purchased the lease of the former anchor tenant, performed certain improvements and intends to occupy the space in the first half of 2009. In addition to the existing center, we may construct an additional building to support approximately 6,000 square feet of small shop space. We currently anticipate our total investment in the redevelopment at Courthouse Shadows will be approximately $2.5 million; and

Four Corner Square, Seattle, Washington. In September 2008, we transferred this 29,177 square foot neighborhood shopping center from our operating portfolio to our redevelopment pipeline. In addition to the existing center, we also own approximately ten acres of land that is in our visible shadow pipeline that is adjacent to the center that may be used as part of the redevelopment. Our estimated cost of this redevelopment is approximately $0.5 million.

2008 Property Dispositions

During 2008, we sold the following properties:

Spring Mill Medical, Phase I. In December 2008, our 50% owned unconsolidated joint venture sold Spring Mill Medical, Phase I, a commercial operating property located in Indianapolis, Indiana. This property was sold for approximately $17.5 million, resulting in a gain on sale of approximately $3.5 million, our share of which was approximately $1.2 million, net of the write-off of our excess investment. Net proceeds of approximately $14.4 million from the sale of this property were utilized to defease the related mortgage loan. Our share of the remaining proceeds were primarily used to pay down borrowings under our unsecured revolving credit facility;

Spring Mill Medical, Phase II. Also in December 2008, our 50% owned consolidated joint venture sold Spring Mill Medical, Phase II, a build-to-suit commercial asset located in Indianapolis, Indiana that was owned in our taxable REIT subsidiary. The proceeds of this sale were approximately $10.6 million, and the associated construction costs were approximately $9.4 million, including a $0.9 million payment to our joint venture partner to acquire their partnership interest prior to the sale to a third party. Our share of net proceeds of approximately $1.2 million from this sale were primarily used to pay down borrowings under our unsecured revolving credit facility; and

Silver Glen Crossing. In December 2008, we sold our Silver Glen Crossing property located in a suburb of Chicago, Illinois for net proceeds of approximately $17.2 million and a recognized loss on sale, net of Limited Partners’ interests, of $2.1 million. The majority of the net proceeds from the sale of this property were used to pay down borrowings under our unsecured revolving credit facility.

2008 Property Acquisitions

In addition to the purchase of our Rivers Edge Shopping Center, as discussed above, we also made the following property acquisitions:

In July 2008, we purchased approximately 123 acres of development land in Holly Springs, North Carolina for $21.6 million, which was financed with borrowings from our unsecured revolving credit facility. In addition, on October 1, 2008, we purchased an additional 18 acres of land adjacent to this location for approximately $5.0 million, which was also financed with borrowings from our unsecured revolving credit facility. These land parcels may be used for future development purposes; and

In April 2008, one of our consolidated joint ventures, in which we own an 85% interest, purchased approximately four acres of land in Indianapolis, Indiana, commonly known as Pan Am Plaza. We funded the joint venture’s purchase with borrowings from our unsecured revolving credit facility. This land is situated across the street from the Indiana Convention Center and adjacent to the recently constructed Indianapolis Colts football stadium. The joint venture intends to develop restaurants and retail space on this property.

2008 Cash Distributions

In 2008, we declared four quarterly cash distributions of $0.205 per common share, or $0.82 per common share on an annual basis.

Business Objectives and Strategies

Our primary business objectives are to generate increasing cash flow, achieve sustainable long-term growth and maximize shareholder value primarily through the operation, development and acquisition of well-located community and neighborhood shopping centers. We seek to implement our business objectives by focusing on the following strategies, each of which are described in more detail below:

Operating Strategy: Maximizing the internal growth in revenue from our operating properties by leasing and re-leasing those properties to a diverse group of tenants at increasing rental rates, when possible, and redeveloping certain properties to make them more attractive to existing and prospective tenants or to permit additional or more productive uses of the properties;

Investment Strategy: Using debt and equity capital prudently to redevelop or renovate our existing properties and to selectively acquire and develop additional shopping centers on land parcels that we currently own where we project that investment returns would meet or exceed expectations; and

Finance and Capital Strategy: Financing our capital requirements with borrowings under our existing credit facility and newly issued secured debt, internally generated funds and proceeds from selling properties that no longer fit our strategy, and by accessing the public securities markets when market conditions permit.

Operating Strategy. Our primary operating strategy is to maximize rents and maintain occupancy levels by attracting and retaining a strong and diverse tenant base. Most of our properties are in neighborhood trade areas with attractive demographics, which has allowed us to maintain occupancy rates and, in some cases, increase rental rates. We seek to implement our operating strategy by, among other things:

maintaining an efficient property management and leasing strategy by emphasizing and maximizing rent growth and cost-effective facilities;

maintaining a diverse tenant mix in an effort to limit our exposure to the financial condition of any one tenant;

maintaining strong tenant and retailer relationships in order to avoid rent interruptions and reduce marketing, leasing and tenant improvement costs that result from re-tenanting space;

increasing rental rates upon the renewal of expiring leases or re-leasing of space to new tenants while minimizing vacancy to the extent possible;

evaluating redevelopment and renovation opportunities that we believe will make our properties more attractive for leasing or re-leasing to tenants; and

taking advantage of under-utilized land or existing square footage, or reconfiguring properties for better use.

We implemented our operating strategy in 2008 in a number of ways, including maintaining a diverse tenant mix with no tenant accounting for more than 3.6% of our annualized base rent. See Item 2 “Properties” for a list of our top 25 tenants by gross leasable area and annualized base rent.

As another example of our implementation of our operating strategy, in the third quarter of 2008, we successfully transitioned our Glendale Town Center property from our redevelopment portfolio to our operating portfolio, as the redevelopment work was substantially completed. As of December 31, 2008, this property was approximately 92% leased. Also, throughout 2008, we transferred four additional properties (Rivers Edge, Courthouse Shadows, Four Corner Square, and Bolton Plaza) into our redevelopment pipeline, as these properties are undergoing major redevelopment in an attempt to better meet our current and future tenants’ needs.

Investment Strategy. While we currently focus on conserving capital, our investment strategy also includes the selective deployment of resources to projects that are expected to generate investment returns that meet or exceed our expectations. We seek to implement our investment strategy in a number of ways, including:

successfully completing the construction and lease-up of our development portfolio;

maximizing the occupancy of our existing operating portfolio;

redeveloping, renovating, expanding and/or reconfiguring our existing operating properties;

disposing of certain assets that no longer meet our long-term investment criteria and recycling the capital; and

continuing to selectively pursue the purchase of retail properties or portfolios and/or land parcels in markets with attractive demographics that we believe can support retail development and therefore attract strong retail tenants.

In evaluating potential development, redevelopment, acquisition and disposition opportunities, we consider a number of factors, including:

the expected returns on investments relative to our combined cost of capital in making such investment, as well as the anticipated risks in achieving the expected return;

the configuration of the property, including ease of access, abundance of parking, maximum visibility, and the demographics of the surrounding area;

the current tenant mix at the property or the potential future tenant mix that the demographics of the property could support, including the presence of one or more additional anchors, for example, value retailers, grocers, soft goods stores, office supply stores, sporting goods retailers, as well as an overall diverse tenant mix that includes restaurants, shoe and clothing retailers, specialty shops and service retailers such as banks, dry cleaners and hair salons, some of which provide staple goods to the community and offer a high level of convenience;

the level of success of our existing investments, if any, in the same or nearby markets;

the current and projected cash flow and market value of the property, and the potential to increase cash flow and market value if the property were to be successfully redeveloped; and

the price being offered for the property, the current and projected operating performance of the property, the tax consequences of the sale and other factors.

We implemented our investing strategy in 2008 in a number of ways, including our recycling of capital during 2008 as evidenced by the December 2008 sale of two operating properties, Silver Glen Crossing, a wholly-owned community shopping center, and Spring Mill Medical, Phase I, an unconsolidated commercial property that was owned 50% through a joint venture with a third party. In addition, our 50% owned consolidated joint venture sold Spring Mill Medical, Phase II, a build-to-suit commercial asset located in Indianapolis, Indiana that was owned in our taxable REIT subsidiary. Utilizing the net proceeds of these sales, we were able to generate net cash of approximately $23.6 million, which was primarily used to pay down borrowings under our unsecured revolving credit facility.

In addition, in February 2008, we utilized the $2.7 million of net proceeds from the November 2007 sale of our 176^th & Meridian property to complete a like-kind transaction under Section 1031 of the Internal Revenue Code and purchased Rivers Edge Shopping Center, a neighborhood shopping center located in Indianapolis, Indiana, for $18.3 million. The remaining $15.6 million of the purchase price was financed initially through a draw on our unsecured credit facility and subsequently with a variable rate loan.

Finance and Capital Strategy. Our primary finance and capital strategy is to maintain a strong balance sheet with sufficient flexibility to fund our operating and investment activities in a cost-effective way. We consider a number of factors when evaluating our level of indebtedness and when making decisions regarding additional borrowings, including the purchase price of properties to be developed or acquired with debt financing, the estimated market value of our properties and our Company as a whole upon consummation of the refinancing and the ability of particular properties to generate cash flow to cover expected debt service. As discussed in more detail in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the current

market conditions has created a need for most REITs, including us, to place a significant emphasis on financing strategies and capital preservation. While these conditions continue, including the turmoil in the credit markets, our continuing efforts to strengthen our balance sheet are imperative to our business. We seek to implement our financing and capital strategies in a number of ways, including:

prudently managing our balance sheet, including reducing the aggregate amount of indebtedness outstanding under our unsecured credit facility so that we have additional capacity available to fund our development and redevelopment projects and pay down maturing debt if refinancing that debt is not feasible;

extending or refinancing our borrowings maturing in 2009 and 2010;

managing our exposure to variable-rate debt through interest rate hedging transactions;

entering into new project-specific construction loans, property loans, and other borrowings;

using joint venture arrangements to access less expensive capital and to mitigate risk; and

considering the raising of additional capital through the issuance of common shares, preferred shares or other securities.

We implemented our financing and capital strategy in 2008 in a number of ways, including completing an equity offering of 4,750,000 common shares at an offering price of $10.55 per common share for net offering proceeds of approximately $47.8 million, the majority of which were used to repay the borrowings under our unsecured revolving credit facility. In addition, as discussed above in “2008 Significant Activities”, we have engaged in a number of financing and refinancing activities in 2008. As a result of these activities, we were able to reduce the amount outstanding under our unsecured revolving credit facility to $105 million, net of additional borrowings, at December 31, 2008 from $153 million at December 31, 2007. In addition, we reduced our 2009 maturities to $87 million at December 31, 2008.

Business Segments

Our principal business is the development, construction, acquisition, ownership and operation of high-quality neighborhood and community shopping centers in selected markets in the United States. We have aligned our operations into two business segments: (1) real estate operation and development, and (2) construction and advisory services. See Note 15 “Segment Information” in our Notes to Consolidated Financial Statements, contained in this Form 10-K, for information on our two business segments and the reconciliation of total segment revenues to total revenues, total segment operating income to operating income, total segment net income to net income and total segment assets to total assets for the years ended December 31, 2008, 2007 and 2006.

Competition

We believe that competition for the development, acquisition and operation of neighborhood and community shopping centers is highly fragmented. We face competition from institutional investors, other REITs and owner-operators engaged in the development, acquisition, ownership and leasing of shopping centers as well as from numerous local, regional and national real estate developers and owners in each of our markets. We also face significant competition in leasing available space to prospective tenants at our development and operating properties. Recent economic conditions have caused a greater than normal amount of space to be available for lease generally and in the markets in which our properties are located. The actual competition for tenants varies depending upon the characteristics of each local market (including current economic conditions) in which we own and manage property. We believe that the principal competitive factors in attracting tenants in our market areas are location, demographics, price, the presence of anchor stores, and maintenance appearance of properties.

Government Regulation

Americans with Disabilities Act. Our properties must comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are public accommodations as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private

litigants. The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.

Environmental Regulations. Some properties in our portfolio contain, may have contained or are adjacent to or near other properties that have contained or currently contain underground storage tanks for the storage of petroleum products or other hazardous or toxic substances. These operations may have released, or have the potential to release, such substances into the environment. In addition, some of our properties have tenants which may use hazardous or toxic substances in the routine course of their businesses.

In general, these tenants have covenanted in their leases with us to use these substances, if any, in compliance with all environmental laws and have agreed to indemnify us for any damages we may suffer as a result of their use of such substances. However, these lease provisions may not fully protect us in the event that a tenant becomes insolvent. Finally, one of our properties has contained asbestos-containing building materials, or ACBM, and another property may have contained such materials based on the date of its construction. Environmental laws require that ACBM be properly managed and maintained, and fines and penalties may be imposed on building owners or operators for failure to comply with these requirements. The laws also may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers. We are not currently aware of any environmental issues that may materially affect the operation of any of our properties.

Insurance

We carry comprehensive liability, fire, extended coverage, and rental loss insurance that covers all properties in our portfolio. We believe the policy specifications and insured limits are appropriate and adequate given the relative risk of loss, the cost of the coverage, and industry practice. We do not carry insurance for generally uninsurable losses such as loss from riots, war or acts of God, and, in some cases, flooding. Some of our policies, such as those covering losses due to terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to cover losses.

Offices

Our principal executive office is located at 30 S. Meridian Street, Suite 1100, Indianapolis, IN 46204. Our telephone number is (317) 577-5600.

Employees

As of December 31, 2008, we had 107 full-time employees. Of these employees, 77 were “home office” executive and administrative personnel and 30 were on-site construction and maintenance personnel.

Available Information

Our Internet website address is www.kiterealty.com. You can obtain on our website, free of charge, a copy of our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such reports or amendments with, or furnish them to, the SEC. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10-K.

Also available on our website, free of charge, are copies of our Code of Business Conduct and Ethics, our Code of Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and the charters for each of the committees of our Board of Trustees—the Audit Committee, the Corporate Governance and Nominating Committee, and the Compensation Committee. Copies of our Code of Business Conduct and Ethics, our Code of Ethics for Principal Executive Officer and Senior Financial Officers, our Corporate Governance Guidelines, and our committee charters are also available from us in print and free of charge to any shareholder upon request. Any person wishing to obtain such copies in print should contact our Investor Relations department by mail at our principal executive office.

ITEM 1A.

RISK FACTORS

The following factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by our management from time to time. These factors, among others, may have a material adverse effect on our business, financial condition, operating results and cash flows, and you should carefully consider them. It is not possible to predict or identify all such factors. You should not consider this list to be a complete statement of all potential risks or uncertainties. Past performance should not be considered an indication of future performance.

We have separated the risks into three categories:

risks related to our operations;

risks related to our organization and structure; and

risks related to tax matters.

RISKS RELATED TO OUR OPERATIONS

Current challenging conditions in the United States and global economy, the challenges being faced by our retail tenants and non-owned anchor tenants and the decrease in demand for retail space may have a material adverse affect on our financial condition and results of operations.

We are susceptible to adverse economic developments in the United States. The United States is currently in a recession and this challenging economic environment may continue into the future. There can be no assurance that government responses to disruptions in the economy and in the financial markets will restore consumer confidence. General economic factors that are beyond our control, including, but not limited to, the current recession, decreases in consumer confidence, reductions in consumer credit availability, increasing consumer debt levels, rising energy costs, tax rates, increasing business layoffs, downsizing and industry slowdowns, and/or rising inflation, could have a negative impact on the business of our retail tenants. In turn, this could have a material adverse affect on our business because current or prospective tenants may, among other things (i) have difficulty paying us rent as they struggle to sell goods and services to consumers, (ii) be unwilling to enter into or renew leases with us on favorable terms or at all, (iii) seek to terminate their existing leases with us or seek downward rental adjustment to such leases, or (iv) be forced to curtail operations or declare bankruptcy. We are also susceptible to other developments that, while not directly tied to the economy, could have a material adverse effect on our business. These developments include relocations of businesses, changing demographics, increased Internet shopping, infrastructure quality, state budgetary constraints and priorities, increases in real estate and other taxes, costs of complying with government regulations or increased regulation, decreasing valuations of real estate, and other factors.

In addition, because our portfolio of properties consists primarily of community and neighborhood shopping centers, a decrease in the demand for retail space, due to the economic factors discussed above or otherwise, may have a greater adverse effect on our business and financial condition than if we owned a more diversified real estate portfolio. The market for retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large retailing companies, the ongoing consolidation in the retail sector, the excess amount of retail space in a number of markets, and increasing consumer purchases through catalogues or the Internet. To the extent that any of these conditions occur, they are likely to negatively affect market rents for retail space and could materially and adversely affect our financial condition, results of operations, cash flow, the trading price of our common shares and our ability to satisfy our debt service obligations and to pay distributions to our shareholders.

Because of our geographical concentration in Indiana, Florida and Texas, a prolonged economic downturn in these states could materially and adversely affect our financial condition and results of operations.

The United States economy is in a recession. Similarly, the specific markets in which we operate are currently facing very challenging economic conditions that will likely continue into the future. In particular, as of December 31, 2008, approximately 40% of our owned square footage and approximately 39% of our total annualized base rent is located in the State of Indiana, approximately 21% of our owned square footage and approximately 22% of our total annualized base rent is located in the State of Florida and approximately 21% of our owned square footage and approximately 19% of our total annualized base rent is located in the State of Texas. This level of concentration exposes us to greater economic risks than if we owned properties in numerous geographic regions. These states

are currently dealing with state fiscal budget shortfalls, rising unemployment rates, and home foreclosure rates that, in some cases, are above the national average. Continued adverse economic or real estate developments in Indiana, Florida, Texas, or the surrounding regions, or any continued decrease in demand for retail space resulting from the local regulatory environment, business climate or fiscal problems in these states, could materially and adversely affect our financial condition, results of operations, cash flow, the trading price of our common shares and our ability to satisfy our debt service obligations and to pay distributions to our shareholders.

Recent disruptions in the financial markets could affect our ability to obtain financing for development of our properties and other purposes on reasonable terms, or at all, and have other material adverse effects on our business.

The United States financial and credit markets have recently experienced significant price volatility, dislocations and liquidity disruptions, which have caused market prices of many financial instruments 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.

Continued uncertainty in the stock and credit markets may negatively impact our ability to access additional financing for development of our properties and other purposes at reasonable terms, or at all, which may materially adversely affect our business. A prolonged downturn in the financial markets may cause us to seek alternative sources of potentially less attractive financing, and may require us to adjust our business plan accordingly. If we are not successful in refinancing our outstanding debt when it becomes due, we may be forced to dispose of properties on disadvantageous terms, which might adversely affect our ability to service other debt and to meet our other obligations. In addition, we may be unable to obtain permanent financing on development projects we financed with construction loans or mezzanine debt. Our inability to obtain such permanent financing on favorable terms, if at all, could delay the completion of our development projects and/or cause us to incur additional capital costs in connection with completing such projects, either of which could have a material adverse affect on our business and our ability to execute our business strategy. These events also may make it more difficult or costly for us to raise capital through the issuance of our common stock or preferred stock. The disruptions in the financial markets may have a material adverse effect on the market value of our common stock and have other adverse effects on our business.

We had approximately $678 million of consolidated indebtedness outstanding as of December 31, 2008, which may have a material adverse effect on our results of operations and reduce our ability to incur additional indebtedness to fund our growth.

Required repayments of debt and related interest may materially adversely affect our operating performance. We had approximately $678 million of consolidated outstanding indebtedness as of December 31, 2008. At December 31, 2008, approximately $345 million of this debt bore interest at variable rates (approximately $147 million when reduced by our $198 million of interest rate swaps for fixed interest rates). Interest rates are currently low relative to historical levels and may increase significantly in the future. If our interest expense increased significantly, it could materially adversely affect our results of operations.

We use a combination of interest rate protection agreements, including interest rate swaps and locks, to manage risk associated with interest rate volatility. This may expose us to additional risks, including a risk that a counterparty to a hedging arrangement may fail to honor its obligations. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition.

We also intend to incur additional debt in connection with future developments and acquisitions of properties. Our organizational documents do not limit the amount of indebtedness that we may incur. We may borrow new funds to develop or acquire properties. In addition, we may incur or increase our mortgage debt by obtaining loans secured by some or all of the real estate properties we develop or acquire. We also may borrow funds if necessary to satisfy the requirement that we distribute to shareholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes or otherwise avoid paying taxes that can be eliminated through distributions to our shareholders.

Our substantial debt could materially and adversely affect our business and results of operations by, among other things:

requiring us to use a substantial portion of our funds from operations to pay interest, which reduces the amount available for distributions;

placing us at a competitive disadvantage compared to our competitors that have less debt;

making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions; and

limiting our ability to borrow more money for operating or capital needs or to finance acquisitions in the future.

Agreements with lenders supporting our revolving credit facility, unsecured term loan and various other loan agreements contain default provisions which, among other things, could result in the acceleration of principal and interest payments or the termination of the facilities.

Our revolving credit facility, unsecured term loan and various other debt agreements contain certain Events of Default which include, but are not limited to, failure to make principal or interest payments when due, failure to perform or observe any term, covenant or condition contained in the agreements, failure to maintain certain financial and operating ratios and other criteria, misrepresentations and bankruptcy proceedings. In the event of a default under any of these agreements, the lender would have various rights including, but not limited to, the ability to require the acceleration of the payment of all principal and interest due and/or to terminate the agreements, and foreclosure on the properties. The declaration of a default and/or the acceleration of the amount due under any such Company credit agreement could have a material adverse effect on the Company.

Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in a property or group of properties subject to mortgage debt.

As of December 31, 2008, a significant amount of our indebtedness was secured by our real estate assets. If a property or group of properties is mortgaged to secure payment of debt and we are unable to meet mortgage payments, the holder of the mortgage or lender could foreclose on the property, resulting in loss of our investment. Also, certain of these mortgages contain customary covenants which, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property, to enter into new leases or materially modify existing leases, and to discontinue insurance coverage.

Our performance and value are subject to risks associated with real estate assets and with the real estate industry.

Our ability to make expected distributions to our shareholders depends on our ability to generate substantial revenues from our properties. In periods of economic slowdown or recession, such as the current period, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. Such events would materially and adversely affect our financial condition, results of operations, cash flow, per share trading price of our common shares and ability to satisfy our debt service obligations and to make distributions to our shareholders.

In addition, other events and conditions generally applicable to owners and operators of real property that are beyond our control may decrease cash available for distribution and the value of our properties. These events include:

adverse changes in the national, regional and local economic climate, particularly in: Indiana, where approximately 40% of our owned square footage and 39% of our total annualized base rent is located; Florida, where approximately 21% of our owned square footage and 22% of our total annualized base rent is located; and Texas, where approximately 21% of our owned square footage and 19% of our total annualized base rent is located;

local oversupply, increased competition or reduction in demand for space;

inability to collect rent from tenants;

vacancies or our inability to rent space on favorable terms;

changes in market rental rates;

inability to finance property development, tenant improvements and acquisitions on favorable terms;

increased operating costs, including costs incurred for maintenance, insurance premiums, utilities and real estate taxes;

the need to periodically fund the costs to repair, renovate and re-let space;

decreased attractiveness of our properties to tenants;

weather conditions that may increase or decrease energy costs and other weather-related expenses;

costs of complying with changes in governmental regulations, including those governing usage, zoning, the environment and taxes;

civil unrest, acts of terrorism, earthquakes, hurricanes and other national disasters or acts of God that may result in underinsured or uninsured losses;

the relative illiquidity of real estate investments;

changing demographics; and

changing traffic patterns.

Failure by any major tenant with leases in multiple locations to make rental payments to us, because of a deterioration of its financial condition or otherwise, could have a material adverse effect on our results of operations.

We derive the majority of our revenue from tenants who lease space from us at our properties. Therefore, our ability to generate cash from operations is dependent on the rents that we are able to charge and collect from our tenants. Our leases generally do not contain provisions designed to ensure the creditworthiness of our tenants. At any time, our tenants may experience a downturn in their business that may significantly weaken their financial condition, particularly during periods of economic uncertainty such as what we are currently experiencing. As a result, our tenants may delay lease commencements, decline to extend or renew leases upon expiration, fail to make rental payments when due, close a number of stores or declare bankruptcy. Any of these actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the terminated leases. In addition, lease terminations by a major tenant or non-owned anchor or a failure by that major tenant or non-owned anchor to occupy the premises could result in lease terminations or reductions in rent by other tenants in the same shopping centers under the terms of some leases. In that event, we may be unable to re-lease the vacated space at attractive rents or at all. The occurrence of any of the situations described above, particularly if it involves a substantial tenant or a non-owned anchor with ground leases in multiple locations, could have a material adverse effect on our results of operations. As of December 31, 2008, the five largest tenants in our operating portfolio in terms of annualized base rent were Lowe’s Home Improvement, Publix, PetSmart, the State of Indiana, and Marsh Supermarkets, with annualized base rents for each representing 3.6%, 3.3%, 2.8%, 2.3%, and 2.3%, respectively, of our total annualized base rent.

We face potential material adverse effects from increasing numbers of tenant bankruptcies and we may be unable to collect balances due from any tenant bankruptcy.

Bankruptcy filings by our retail tenants occur from time to time. Such bankruptcies may increase in times of economic uncertainty such as what we are currently experiencing. The number of bankruptcies among U.S. companies has increased significantly in 2008 and current economic conditions suggest this trend could continue or worsen. Similar to U.S. businesses as a whole, bankruptcies of tenants renting space at properties in our portfolio increased sharply in 2008. We cannot make any assurance that any tenant that files for bankruptcy protection will continue to pay us rent. A bankruptcy filing by or relating to one of our tenants or a lease guarantor would bar all efforts by us to collect pre-bankruptcy debts from that tenant or the lease guarantor, or their property, unless we receive an order permitting us to do so from the bankruptcy court. A tenant or lease guarantor bankruptcy could delay our efforts to collect past due balances under the relevant leases, and could ultimately preclude collection of these sums. If a lease is assumed by the tenant in bankruptcy, all pre-bankruptcy balances due under the lease must be paid to us in full. However, if a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages. Any unsecured claim we hold may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims, and there are restrictions under

bankruptcy laws that limit the amount of the claim we can make if a lease is rejected. As a result, it is likely that we will recover substantially less than the full value of any unsecured claims we hold from a tenant in bankruptcy.

As an example of a recent bankruptcy by one of our significant tenants, in November 2008, Circuit City Stores, Inc. filed a petition for bankruptcy protection under Chapter 11 of the federal bankruptcy laws and, in January 2009, declared that it would be liquidating and closing all of its stores. As of December 31, 2008, Circuit City leased space at three of our properties and represented a total of approximately 2.2% of our total operating portfolio annualized base rent and approximately 1.7% of our total operating portfolio owned gross leasable area. At December 31, 2008, as a result of the liquidation, we wrote off all depreciable fixed assets and uncollected accounts and straight-line rent receivables from Circuit City, which reduced our net income by approximately $4.1 million on a quarter and year to date basis.

We are continually re-leasing vacant spaces resulting from tenant lease terminations. The bankruptcy of a tenant, particularly an anchor tenant, may make it more difficult to lease the remainder of the affected properties. Future tenant bankruptcies could materially adversely affect our properties or impact our ability to successfully execute our re-leasing strategy.

Our financial covenants may restrict our operating and acquisition activities.

Our unsecured revolving credit facility and unsecured term loan contain certain financial and operating covenants, including, among other things, certain coverage ratios, as well as limitations on our ability to incur debt, make dividend payments, sell all or substantially all of our assets and engage in mergers and consolidations and certain acquisitions. These covenants may restrict our ability to pursue certain business initiatives or certain acquisition transactions. In addition, failure to meet any of the financial covenants could cause an event of default under and/or accelerate some or all of our indebtedness, which could have a material adverse effect on us.

Our current and future joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners.

As of December 31, 2008, we owned eight of our operating properties through joint ventures, one of which was accounted for using the equity method as we do not exercise requisite control for consolidation treatment. For the twelve months ended December 31, 2008, the eight properties represented approximately 9.9% of our annualized base rent. In addition, one of the properties in our current development pipeline and two properties in our visible shadow pipeline are currently owned through joint ventures, one of which was accounted for under the equity method as of December 31, 2008 as we do not exercise requisite control for consolidation treatment. We have also entered into an agreement with Prudential Real Estate Investors to pursue joint venture opportunities for the development and selected acquisition of community shopping centers in the United States. These joint ventures involve risks not present with respect to our wholly owned properties, including the following:

we may share decision-making authority with our joint venture partners regarding major decisions affecting the ownership or operation of the joint venture and the joint venture property, such as the sale of the property or the making of additional capital contributions for the benefit of the property, which may prevent us from taking actions that are opposed by our joint venture partners;

prior consent of our joint venture partners may be required for a sale or transfer to a third party of our interests in the joint venture, which restricts our ability to dispose of our interest in the joint venture;

our joint venture partners might become bankrupt or fail to fund their share of required capital contributions, which may delay construction or development of a property or increase our financial commitment to the joint venture;

our joint venture partners may have business interests or goals with respect to the property that conflict with our business interests and goals, which could increase the likelihood of disputes regarding the ownership, management or disposition of the property;

disputes may develop with our joint venture partners over decisions affecting the property or the joint venture, which may result in litigation or arbitration that would increase our expenses and distract our officers and/or trustees from focusing their time and effort on our business, and possibly disrupt the day-to-day operations of the property such as by delaying the implementation of important decisions until the conflict or dispute is resolved; and

we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture investments and the activities of a joint venture could adversely affect our ability to qualify as a REIT, even though we may not control the joint venture.

In the future, we intend to co-invest with third parties through joint ventures that may involve similar or additional risks.

We face significant competition, which may impede our ability to renew leases or re-let space as leases expire, require us to undertake unbudgeted capital improvements, or impede our ability to make future developments or acquisitions or increase the cost of these developments or acquisitions.

We compete with numerous developers, owners and operators of retail shopping centers for tenants. These competitors include institutional investors, other REITs and other owner-operators of community and neighborhood shopping centers, some of which own or may in the future own properties similar to ours in the same submarkets in which our properties are located, but which have greater capital resources. If our competitors offer space at rental rates below current market rates, or below the rental rates we currently charge our tenants, we may lose potential tenants and we may be pressured to reduce our rental rates below those we currently charge in order to retain tenants when our tenants’ leases expire. As a result, our financial condition, results of operations, cash flow, trading price of our common shares and ability to satisfy our debt service obligations and to pay distributions to our shareholders may be materially adversely affected. As of December 31, 2008, leases were scheduled to expire on a total of approximately 4.8% of the space at our properties in 2009. In addition, increased competition for tenants may require us to make capital improvements to properties that we would not have otherwise planned to make. Any unbudgeted capital improvements we undertake may reduce cash available for distributions to shareholders.

Our future developments and acquisitions may not yield the returns we expect or may result in shareholder dilution.

We currently have three properties in our current development pipeline and six properties in our visible shadow pipeline. New developments and acquisitions are subject to a number of risks, including, but not limited to:

abandonment of development activities after expending resources to determine feasibility;

construction delays or cost overruns that may increase project costs;

our investigation of a property or building prior to our acquisition, and any representations we may receive from the seller, may fail to reveal various liabilities or defects or identify necessary repairs until after the property is acquired, which could reduce the cash flow from the property or increase our acquisition costs;

financing risks;

the failure to meet anticipated occupancy or rent levels;

failure to receive required zoning, occupancy, land use and other governmental permits and authorizations and changes in applicable zoning and land use laws; and

the consent of third parties such as tenants, mortgage lenders and joint venture partners may be required, and those consents may be difficult to obtain or be withheld.

In addition, if a project is delayed or if we are unable to lease designated space to anchor tenants, certain tenants may have the right to terminate their leases. If any of these situations occur, development costs for a project will increase, which will result in reduced returns, or even losses, from such investments. In deciding whether to acquire or develop a particular property, we make certain assumptions regarding the expected future performance of that property. If these new properties do not perform as expected, our financial performance may be materially and adversely affected. In addition, the issuance of equity securities as consideration for any acquisitions could be substantially dilutive to our shareholders.

We may not be successful in identifying suitable development projects or acquisitions that meet our investment criteria, which may impede our growth.

Part of our business strategy is expansion through development projects and acquisitions, which requires us to identify suitable development or acquisition candidates or investment opportunities that meet our criteria and are compatible with our growth strategy. We may not be successful in identifying suitable real estate properties or other assets that meet our development or acquisition criteria or in completing developments, acquisitions or investments on satisfactory terms. Failure to identify or complete developments or acquisitions could slow our growth, which could in turn materially adversely affect our operations.

Redevelopment activities may be delayed or otherwise may not perform as expected and, in the case of an unsuccessful redevelopment project, our entire investment could be at risk for loss.

We currently have five properties in our redevelopment pipeline. We expect to redevelop certain of our other properties in the future. In connection with any redevelopment of our properties, we will bear certain risks, including the risk of construction delays or cost overruns that may increase project costs and make a project uneconomical, the risk that occupancy or rental rates at a completed project will not be sufficient to enable us to pay operating expenses or earn the targeted rate of return on investment, and the risk of incurrence of predevelopment costs in connection with projects that are not pursued to completion. In addition, various tenants may have the right to withdraw from a property if a development and/or redevelopment project is not completed on time. In the case of a redevelopment project, consents may be required from various tenants in order to redevelop a center. In the case of an unsuccessful redevelopment project, our entire investment could be at risk for loss.

We may not be able to sell properties when appropriate and could, under certain circumstances, be required to pay certain tax indemnities related to the properties we sell.

Real estate property investments generally cannot be sold quickly. In connection with our formation at the time of our IPO, we entered into an agreement that restricts our ability, prior to December 31, 2016, to dispose of six of our properties in taxable transactions and limits the amount of gain we can trigger with respect to certain other properties without incurring reimbursement obligations owed to certain limited partners of our Operating Partnership. We have agreed that if we dispose of any interest in six specified properties in a taxable transaction before December 31, 2016, we will indemnify the contributors of those properties for their tax liabilities attributable to the built-in gain that exists with respect to such property interest as of the time of our IPO (and tax liabilities incurred as a result of the reimbursement payment). The six properties to which our tax indemnity obligations relate represented approximately 19% of our annualized base rent in the aggregate as of December 31, 2008. These six properties are International Speedway Square, Shops at Eagle Creek, Whitehall Pike, Ridge Plaza Shopping Center, Thirty South and Market Street Village. We also agreed to limit the aggregate gain certain limited partners of our Operating Partnership would recognize, with respect to certain other contributed properties through December 31, 2016, to not more than $48 million in total, with certain annual limits, unless we reimburse them for the taxes attributable to the excess gain (and any taxes imposed on the reimbursement payments), and to take certain other steps to help them avoid incurring taxes that were deferred in connection with the formation transactions.

The agreement described above is extremely complicated and imposes a number of procedural requirements on us, which makes it more difficult for us to ensure that we comply with all of the various terms of the agreement and therefore creates a greater risk that we may be required to make an indemnity payment. The complicated nature of this agreement also might adversely impact our ability to pursue other transactions, including certain kinds of strategic transactions and reorganizations.

Also, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interest. Therefore, we may be unable to adjust our portfolio mix promptly in response to market conditions, which may adversely affect our financial position. In addition, we will be subject to income taxes on gains from the sale of any properties owned by any taxable REIT subsidiary.

Potential losses may not be covered by insurance.

We do not carry insurance for generally uninsurable losses such as loss from riots, war or acts of God, and, in some cases, flooding. Some of our policies, such as those covering losses due to terrorism and floods, are insured subject to limitations involving large deductibles or co-payments and policy limits that may not be sufficient to

cover all losses. If we experience a loss that is uninsured or that exceeds policy limits, we could lose the capital invested in the damaged properties as well as the anticipated future cash flows from those properties. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it impractical or undesirable to use insurance proceeds to replace a property after it has been damaged or destroyed. In addition, if the damaged properties are subject to recourse indebtedness, we would continue to be liable for the indebtedness, even if these properties were irreparably damaged.

Insurance coverage on our properties may be expensive or difficult to obtain, exposing us to potential risk of loss.

In the future, we may be unable to renew or duplicate our current insurance coverage in adequate amounts or at reasonable prices. In addition, insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts, environmental liabilities, or other catastrophic events including hurricanes and floods, or, if offered, the expense of obtaining these types of insurance may not be justified. We therefore may cease to have insurance coverage against certain types of losses and/or there may be decreases in the limits of insurance available. If an uninsured loss or a loss in excess of our insured limits occurs, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property, but still remain obligated for any mortgage debt or other financial obligations related to the property. We cannot guarantee that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Events such as these could adversely affect our results of operations and our ability to meet our obligations.

Rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if such expenses are not off-set by corresponding revenues.

Our existing properties and any properties we develop or acquire in the future are and will be subject to operating risks common to real estate in general, any or all of which may negatively affect us. The expenses of owning and operating properties are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from the properties. As a result, if any property is not fully occupied or if rents are being paid in an amount that is insufficient to cover operating expenses, we could be required to expend funds for that property’s operating expenses. As of December 31, 2008, our retail operating portfolio was approximately 91% leased compared to approximately 95% as of December 31, 2007. Our properties continue to be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses, regardless of such properties’ occupancy rates. Therefore, rising operating expenses could reduce our cash flow and funds available for future distributions, particularly if such expenses are not off-set by corresponding revenues.

We could incur significant costs related to government regulation and environmental matters.

Under various federal, state and local laws, ordinances and regulations, an owner or operator of real estate may be required to investigate and clean up hazardous or toxic substances or petroleum product releases at a property and may be held liable to a governmental entity or to third parties for property damage and for investigation and clean up costs incurred by such parties in connection with contamination. The cost of investigation, remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to properly remediate such substances, may adversely affect the owner’s ability to sell or rent such property or to borrow using such property as collateral. In connection with the ownership, operation and management of real properties, we are potentially liable for removal or remediation costs, as well as certain other related costs, including governmental fines and injuries to persons and property. We may also be liable to third parties for damage and injuries resulting from environmental contamination emanating from the real estate.

Some of the properties in our portfolio contain, may have contained or are adjacent to or near other properties that have contained or currently contain underground storage tanks for the storage of petroleum products or other hazardous or toxic substances. These operations may have released, or have the potential to release, such substances into the environment. In addition, some of our properties have tenants that may use hazardous or toxic substances in the routine course of their businesses. In general, these tenants have covenanted in their leases with us to use these substances, if any, in compliance with all environmental laws and have agreed to indemnify us for any damages that we may suffer as a result of their use of such substances. However, these lease provisions may not fully protect us in the event that a tenant becomes insolvent. Finally, one of our properties has contained asbestos-containing building

materials, or ACBM, and another property may have contained such materials based on the date of its construction. Environmental laws require that ACBM be properly managed and maintained, and may impose fines and penalties on building owners or operators for failure to comply with these requirements. The laws also may allow third parties to seek recovery from owners or operators for personal injury associated with exposure to asbestos fibers.

Our properties must also comply with Title III of the Americans with Disabilities Act, or ADA, to the extent that such properties are public accommodations as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. Noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants.

Our efforts to identify environmental liabilities may not be successful.

We test our properties for compliance with applicable environmental laws on a limited basis. We cannot assure you that:

existing environmental studies with respect to our properties reveal all potential environmental liabilities;

any previous owner, occupant or tenant of one of our properties did not create any material environmental condition not known to us;

the current environmental condition of our properties will not be affected by tenants and occupants, by the condition of nearby properties, or by other unrelated third parties; or

future uses or conditions (including, without limitation, changes in applicable environmental laws and regulations or the interpretation thereof) will not result in environmental liabilities.

Inflation may adversely affect our financial condition and results of operations.

Most of our leases contain provisions requiring the tenant to pay its share of operating expenses, including common area maintenance, real estate taxes and insurance. However, increased inflation could have a more pronounced negative impact on our mortgage and debt interest and general and administrative expenses, as these costs could increase at a rate higher than our rents. Also, inflation may adversely affect tenant leases with stated rent increases or limits on such tenant’s obligation to pay its share of operating expenses, which could be lower than the increase in inflation at any given time. Inflation could also have an adverse effect on consumer spending, which could impact our tenants’ sales and, in turn, our average rents, and in some cases, our percentage rents, where applicable.

Our share price could be volatile and could decline, resulting in a substantial or complete loss on our shareholders’ investment.

The stock markets (including The New York Stock Exchange, or the “NYSE,” on which we list our common shares) have experienced significant price and volume fluctuations. The market price of our common shares could be similarly volatile, and investors in our common shares may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Among the market conditions that may affect the market price of our publicly traded securities are the following:

our financial condition and operating performance and the performance of other similar companies;

actual or anticipated differences in our quarterly operating results;

changes in our revenues or earnings estimates or recommendations by securities analysts;

publication by securities analysts of research reports about us or our industry;

additions and departures of key personnel;

strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy;

the reputation of REITs generally and the reputation of REITs with portfolios similar to ours;

the attractiveness of the securities of REITs in comparison to securities issued by other entities (including securities issued by other real estate companies);

an increase in market interest rates, which may lead prospective investors to demand a higher distribution rate in relation to the price paid for our shares;

the passage of legislation or other regulatory developments that adversely affect us or our industry;

speculation in the press or investment community;

actions by institutional shareholders or hedge funds;

changes in accounting principles;

terrorist acts; and

general market conditions, including factors unrelated to our performance.

In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources.

A substantial number of common shares eligible for future sale could cause our common share price to decline significantly.

If our shareholders sell, or the market perceives that our shareholders intend to sell, substantial amounts of our common shares in the public market, the market price of our common shares could decline significantly. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. As of December 31, 2008, we had outstanding 34,181,179 common shares. Of these shares, approximately 32,436,000 are freely tradable, and the remainder of which are mostly held by our “affiliates,” as that term is defined by Rule 144 under the Securities Act. In addition, approximately 8.1 million units of our Operating Partnership are owned by certain of our executive officers and other individuals, and are redeemable by the holder for cash or, at our election, common shares. Pursuant to registration rights of certain of our executive officers and other individuals, we filed a registration statement with the SEC in August 2005 to register 9,115,149 common shares issued (or issuable upon redemption of units in our Operating Partnership) in our formation transactions. As units are redeemed for common shares, the market price of our common shares could drop significantly if the holders of such shares sell them or are perceived by the market as intending to sell them.

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

Our organizational documents contain provisions that generally would prohibit any person (other than members of the Kite family who, as a group, are currently allowed to own up to 21.5% of our outstanding common shares) from beneficially owning more than 7% of our outstanding common shares (or up to 9.8% in the case of certain designated investment entities, as defined in our declaration of trust), which may discourage third parties from conducting a tender offer or seeking other change of control transactions that could involve a premium price for our shares or otherwise benefit our shareholders.

Our organizational documents contain provisions that may have an anti-takeover effect and inhibit a change in our management.

(1) There are ownership limits and restrictions on transferability in our declaration of trust. In order for us to qualify as a REIT, no more than 50% of the value of our outstanding shares may be owned, actually or constructively, by five or fewer individuals at any time during the last half of each taxable year. To make sure that we will not fail to satisfy this requirement and for anti-takeover reasons, our declaration of trust generally prohibits any shareholder (other than an excepted holder or certain designated investment entities, as defined in our declaration of trust) from owning (actually, constructively or by attribution), more than 7% of the value or number of our outstanding common shares. Our declaration of trust provides an excepted holder limit that allows members of the Kite family (Al Kite, John Kite and Paul Kite, their family members and certain entities controlled by one or more of the Kites), as a group, to own more than 7% of our outstanding common shares, so long as, under the applicable tax attribution rules, no one excepted holder treated as an individual would hold more than 21.5% of our common shares, no two excepted holders treated as individuals would own more than 28.5% of our common shares, no three excepted holders treated as individuals would own more than 35.5% of our common shares, no four

excepted holders treated as individuals would own more than 42.5% of our common shares, and no five excepted holders treated as individuals would own more than 49.5% of our common shares. Currently, one of the excepted holders would be attributed all of the common shares owned by each other excepted holder and, accordingly, the excepted holders as a group would not be allowed to own in excess of 21.5% of our common shares. If at a later time, there were not one excepted holder that would be attributed all of the shares owned by the excepted holders as a group, the excepted holder limit would not permit each excepted holder to own 21.5% of our common shares. Rather, the excepted holder limit would prevent two or more excepted holders who are treated as individuals under the applicable tax attribution rules from owning a higher percentage of our common shares than the maximum amount of common shares that could be owned by any one excepted holder (21.5%), plus the maximum amount of common shares that could be owned by any one or more other individual common shareholders who are not excepted holders (7%). Certain entities that are defined as designated investment entities in our declaration of trust, which generally includes pension funds, mutual funds, and certain investment management companies, are permitted to own up to 9.8% of our outstanding common shares, so long as each beneficial owner of the shares owned by such designated investment entity would satisfy the 7% ownership limit if those beneficial owners owned directly their proportionate share of the common shares owned by the designated investment entity. Our Board of Trustees may waive the 7% ownership limit or the 9.8% designated investment entity limit for a shareholder that is not an individual if such shareholder provides information and makes representations to the board that are satisfactory to the board, in its reasonable discretion, to establish that such person’s ownership in excess of the 7% limit or the 9.8% limit, as applicable, would not jeopardize our qualification as a REIT. In addition, our declaration of trust contains certain other ownership restrictions intended to prevent us from earning income from related parties if such income would cause us to fail to comply with the REIT gross income requirements. The various ownership restrictions may:

discourage a tender offer or other transactions or a change in management or control that might involve a premium price for our shares or otherwise be in the best interests of our shareholders; or

compel a shareholder who has acquired our shares in excess of these ownership limitations to dispose of the additional shares and, as a result, to forfeit the benefits of owning the additional shares. Any acquisition of our common shares in violation of these ownership restrictions will be void ab initio and will result in automatic transfers of our common shares to a charitable trust, which will be responsible for selling the common shares to permitted transferees and distributing at least a portion of the proceeds to the prohibited transferees.

(2) Our declaration of trust permits our Board of Trustees to issue preferred shares with terms that may discourage a third party from acquiring us. Our declaration of trust permits our Board of Trustees to issue up to 40,000,000 preferred shares, having those preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications, or terms or conditions of redemption as determined by our Board. Thus, our Board could authorize the issuance of preferred shares with terms and conditions that could have the effect of discouraging a takeover or other transaction in which holders of some or a majority of our shares might receive a premium for their shares over the then-prevailing market price of our shares. In addition, any preferred shares that we issue likely would rank senior to our common shares with respect to payment of distributions, in which case we could not pay any distributions on our common shares until full distributions were paid with respect to such preferred shares.

(3) Our declaration of trust and bylaws contain other possible anti-takeover provisions. Our declaration of trust and bylaws contain other provisions that may have the effect of delaying, deferring or preventing a change in control of our company or the removal of existing management and, as a result, could prevent our shareholders from being paid a premium for their common shares over the then-prevailing market prices. These provisions include advance notice requirements for shareholder proposals and our Board of Trustees’ power to reclassify shares and issue additional common shares or preferred shares and the absence of cumulative voting rights.

Certain provisions of Maryland law could inhibit changes in control.

Certain provisions of Maryland law may have the effect of inhibiting a third party from making a proposal to acquire us or of impeding a change of control under circumstances that otherwise could provide the holders of our common shares with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

“business combination moratorium/fair price” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate thereof) for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes stringent fair price and super-majority shareholder voting requirements on these combinations; and

“control share” provisions that provide that “control shares” of our company (defined as shares which, when aggregated with other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of “control shares” from a party other than the issuer) have no voting rights except to the extent approved by our shareholders by the affirmative vote of at least two thirds of all the votes entitled to be cast on the matter, excluding all interested shares, and are subject to redemption in certain circumstances.

We have opted out of these provisions of Maryland law. However, our Board of Trustees may opt to make these provisions applicable to us at any time.

Certain officers and trustees may have interests that conflict with the interests of shareholders.

Certain of our officers and members of our Board of Trustees own limited partner units in our Operating Partnership. These individuals may have personal interests that conflict with the interests of our shareholders with respect to business decisions affecting us and our Operating Partnership, such as interests in the timing and pricing of property sales or refinancings in order to obtain favorable tax treatment. As a result, the effect of certain transactions on these unit holders may influence our decisions affecting these properties.

Certain members of our executive management team have outside business interests that could require time and attention.

Certain members of our executive management team own interests in properties that are not part of our Company. These properties include a 243-room Indianapolis hotel and condominium development that opened in 2006 and various outlots and land parcels that are held for sale. In some cases, one or more of these individuals or their affiliates will have certain management and fiduciary obligations that may conflict with such person’s responsibilities as an officer or trustee of our company and may adversely affect our operations.

Departure or loss of our key officers could have an adverse effect on us.

Our future success depends, to a significant extent, upon the continued services of our existing executive officers. Our executive officers’ experience in real estate acquisition, development and finance are critical elements of our future success. We have employment agreements with each of our executive officers that provided for a term that ended in December 2008, with automatic one-year renewals unless either we or the officer elects not to renew the agreement. These agreements were automatically renewed for our three remaining executive officers through December 31, 2009. If one or more of our key executives were to die, become disabled or otherwise leave the company's employ, we may not be able to replace this person with an executive officer of equal skill, ability, and industry expertise. Until suitable replacements personnel could be identified and hired, if at all, our operations and financial condition could be impaired.

We depend on external capital to fund our capital needs.

To qualify as a REIT, we will be required to distribute to our shareholders each year at least 90% of our net taxable income excluding net capital gains. In order to eliminate federal income tax, we will be required to distribute annually 100% of our net taxable income, including capital gains. Partly because of these distribution requirements, we will not be able to fund all future capital needs, including capital for property development and acquisitions, with

income from operations. We therefore will have to rely on third-party sources of capital, which may or may not be available on favorable terms, if at all. Our access to third-party sources of capital depends on a number of things, including the market’s perception of our growth potential and our current and potential future earnings and our ability to qualify as a REIT for federal income tax purposes.

Our rights and the rights of our shareholders to take action against our trustees and officers are limited.

Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests that an ordinarily prudent person in a like position would use under similar circumstances. Our declaration of trust and bylaws require us to indemnify our trustees and officers for actions taken by them in those capacities to the extent permitted by Maryland law. As a result, we and our shareholders may have more limited rights against our trustees and officers than might otherwise exist under common law. Accordingly, in the event that actions taken in good faith by any of our trustees or officers impede the performance of our company, our shareholders’ ability to recover damages from such trustee or officer will be limited.

Our shareholders have limited ability to prevent us from making any changes to our policies that they believe could harm our business, prospects, operating results or share price.

Our Board of Trustees has adopted policies with respect to certain activities. These policies may be amended or revised from time to time at the discretion of our Board of Trustees without a vote of our shareholders. This means that our shareholders will have limited control over changes in our policies. Such changes in our policies intended to improve, expand or diversify our business may not have the anticipated effects and consequently may adversely affect our business and prospects, results of operations and share price.

TAX RISKS

Failure of our company to qualify as a REIT would have serious adverse consequences to us and our shareholders.

We believe that we have qualified for taxation as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2004. We intend to continue to meet the requirements for qualification and taxation as a REIT, but we cannot assure shareholders that we will qualify as a REIT. We have not requested and do not plan to request a ruling from the IRS that we qualify as a REIT, and the statements in this Annual Report on Form 10-K are not binding on the IRS or any court. As a REIT, we generally will not be subject to federal income tax on our income that we distribute currently to our shareholders. Many of the REIT requirements, however, are highly technical and complex. The determination that we are a REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, such as rent, that are itemized in the REIT tax laws. In addition, to qualify as a REIT, we cannot own specified amounts of debt and equity securities of some issuers. We also are required to distribute to our shareholders with respect to each year at least 90% of our REIT taxable income (excluding capital gains). The fact that we hold substantially all of our assets through our Operating Partnership and its subsidiaries and joint ventures further complicates the application of the REIT requirements for us. Even a technical or inadvertent mistake could jeopardize our REIT status and, given the highly complex nature of the rules governing REITs and the ongoing importance of factual determinations, we cannot provide any assurance that we will continue to qualify as a REIT. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult, or impossible, for us to remain qualified as a REIT.

If we fail to qualify as a REIT for federal income tax purposes, and are unable to avail ourselves of certain savings provisions set forth in the Internal Revenue Code, we would be subject to federal income tax at regular corporate rates. As a taxable corporation, we would not be allowed to take a deduction for distributions to shareholders in computing our taxable income or pass through long term capital gains to individual shareholders at favorable rates. We also could be subject to the federal alternative minimum tax and possibly increased state and local taxes. We would not be able to elect to be taxed as a REIT for four years following the year we first failed to qualify unless the IRS were to grant us relief under certain statutory provisions. If we failed to qualify as a REIT, we would have to pay significant income taxes, which would reduce our net earnings available for investment or distribution to our shareholders. If we fail to qualify as a REIT, such failure would cause an event of default under our credit facility and may adversely affect our ability to raise capital and to service our debt. This likely would

have a significant adverse effect on our earnings and the value of our securities. In addition, we would no longer be required to pay any distributions to shareholders. If we fail to qualify as a REIT for federal income tax purposes and are able to avail ourselves of one or more of the statutory savings provisions in order to maintain our REIT status, we would nevertheless be required to pay penalty taxes of $50,000 or more for each such failure.

We will pay some taxes even if we qualify as a REIT.

Even if we qualify as a REIT for federal income tax purposes, we will be required to pay certain federal, state and local taxes on our income and property. For example, we will be subject to income tax to the extent we distribute less than 100% of our REIT taxable income (including capital gains). Additionally, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. Moreover, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we will undertake sales of assets if those assets become inconsistent with our long-term strategic or return objectives, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise. The need to avoid prohibited transactions could cause us to forego or defer sales of properties that our predecessors otherwise would have sold or that it might otherwise be in our best interest to sell.

In addition, any net taxable income earned directly by our taxable REIT subsidiaries, or through entities that are disregarded for federal income tax purposes as entities separate from our taxable REIT subsidiaries, will be subject to federal and possibly state corporate income tax. We have elected to treat Kite Realty Holdings, LLC as a taxable REIT subsidiary, and we may elect to treat other subsidiaries as taxable REIT subsidiaries in the future. In this regard, several provisions of the laws applicable to REITs and their subsidiaries ensure that a taxable REIT subsidiary will be subject to an appropriate level of federal income taxation. For example, a taxable REIT subsidiary is limited in its ability to deduct interest payments made to an affiliated REIT. In addition, the REIT has to pay a 100% penalty tax on some payments that it receives or on some deductions taken by the taxable REIT subsidiaries if the economic arrangements between the REIT, the REIT’s tenants, and the taxable REIT subsidiary are not comparable to similar arrangements between unrelated parties. Finally, some state and local jurisdictions may tax some of our income even though as a REIT we are not subject to federal income tax on that income because not all states and localities treat REITs the same as they are treated for federal income tax purposes. To the extent that we and our affiliates are required to pay federal, state and local taxes, we will have less cash available for distributions to our shareholders.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

Retail Operating Properties

As of December 31, 2008, we owned interests in a portfolio of 52 retail operating properties totaling approximately 8.4 million square feet of gross leasable area (“GLA”) (including non-owned anchor space). The following tables set forth more specific information with respect to the Company’s retail operating properties as of December 31, 2008:

OPERATING RETAIL PROPERTIES - TABLE I


Property^1,2	State	MSA	Year Built/ Renovated	Year Added to Operating Portfolio	Acquired, Redeveloped, or Developed	Total GLA²		Owned GLA²	Percentage of Owned GLA Leased³
Bayport Commons	FL	Tampa	2008	2008	Developed	268,556		94,756	90.8%
Circuit City Plaza⁴	FL	Ft. Lauderdale	2004	2004	Developed	405,906		45,906	81.9%
Eagle Creek Lowe's	FL	Naples	2006	2006	Developed	165,000		—	*
Estero Town Commons⁵	FL	Naples	2006	2007	Developed	206,600		25,600	75.8%
Indian River Square	FL	Vero Beach	1997/2004	2005	Acquired	379,246		144,246	97.6%
International Speedway Square⁴	FL	Daytona	1999	1999	Developed	233,901		220,901	96.6%
Kings Lake Square	FL	Naples	1986	2003	Acquired	85,497		85,497	96.2%
Pine Ridge Crossing	FL	Naples	1993	2006	Acquired	258,874		105,515	96.4%
Riverchase Plaza	FL	Naples	1991/2001	2006	Acquired	78,340		78,340	98.0%
Tarpon Springs Plaza	FL	Naples	2007	2007	Developed	276,346		82,546	98.5%
Wal-Mart Plaza	FL	Gainesville	1970	2004	Acquired	177,826		177,826	98.0%
Waterford Lakes Village	FL	Orlando	1997	2004	Acquired	77,948		77,948	92.6%
Kedron Village	GA	Atlanta	2006	2006	Developed	282,125		157,408	88.6%
Publix at Acworth	GA	Atlanta	1996	2004	Acquired	69,628		69,628	98.0%
Publix Centre at Panola	GA	Atlanta	2001	2004	Acquired	73,079		73,079	100.0%
Fox Lake Crossing	IL	Chicago	2002	2005	Acquired	99,072		99,072	84.7%
Naperville Marketplace	IL	Chicago	2008	2008	Developed	169,600		83,290	87.3%
50 South Morton	IN	Indianapolis	1999	1999	Developed	2,000		2,000	100.0%
54^th & College	IN	Indianapolis	2008	2008	Developed	20,100		—	*
Beacon Hill⁵	IN	Crown Point	2006	2007	Developed	127,821		57,321	60.4%
Boulevard Crossing	IN	Kokomo	2004	2004	Developed	213,696		123,696	96.3%
Bridgewater Marketplace	IN	Indianapolis	2008	2008	Developed	50,820		26,000	17.3%
Cool Creek Commons	IN	Indianapolis	2005	2005	Developed	137,107		124,578	95.6%
Fishers Station⁶	IN	Indianapolis	1989	2004	Acquired	114,457		114,457	79.5%
Geist Pavilion	IN	Indianapolis	2006	2006	Developed	64,114		64,114	83.6%
Glendale Town Center	IN	Indianapolis	1958/2008	2008	Redeveloped	685,827		403,327	92.4%
Greyhound Commons	IN	Indianapolis	2005	2005	Developed	153,187		—	*
Hamilton Crossing Centre	IN	Indianapolis	1999	2004	Acquired	87,424		82,424	98.4%
Martinsville Shops	IN	Martinsville	2005	2005	Developed	10,986		10,986	100.0%
Red Bank Commons	IN	Evansville	2005	2006	Developed	324,308		34,308	69.8%
Stoney Creek Commons	IN	Indianapolis	2000	2000	Developed	189,527		49,330	100.0%
The Centre⁷	IN	Indianapolis	1986	1986	Developed	80,689		80,689	96.5%
The Corner Shops	IN	Indianapolis	1984/2003	1984	Developed		42,545	42,545	96.4%
Traders Point	IN	Indianapolis	2005	2005	Developed		348,835	279,558	98.2%
Traders Point II	IN	Indianapolis	2005	2005	Developed		46,600	46,600	61.4%
Whitehall Pike	IN	Bloomington	1999	1999	Developed		128,997	128,997	100.0%
Zionsville Place	IN	Indianapolis	2006	2006	Developed		12,400	12,400	90.3%
Ridge Plaza	NJ	Oak Ridge	2002	2003	Acquired		115,088	115,088	89.7%
Eastgate Pavilion	OH	Cincinnati	1995	2004	Acquired		236,230	236,230	100.0%
Cornelius Gateway Build-to-Suit⁵	OR	Portland	2006	2007	Developed		35,800	21,000	53.7%
Shops at Otty⁸	OR	Portland	2004	2004	Developed		154,845	9,845	89.6%
Burlington Coat Factory⁹	TX	San Antonio	1992/2000	2000	Redeveloped		107,400	107,400	100.0%
Cedar Hill Village	TX	Dallas	2002	2004	Acquired		139,092	44,262	94.2%
Galleria Plaza¹⁰	TX	Dallas	2002	2004	Acquired		44,306	44,306	14.9%
Market Street Village⁴	TX	Ft. Worth	1970/2004	2005	Acquired		163,625	156,625	99.2%
Plaza at Cedar Hill	TX	Dallas	2000	2004	Acquired		299,847	299,847	86.5%
Plaza Volente	TX	Austin	2004	2005	Acquired		160,333	156,333	93.4%
Preston Commons	TX	Dallas	2002	2002	Developed		142,539	27,539	92.5%
Sunland Towne Centre	TX	El Paso	1996	2004	Acquired		312,450	307,474	89.0%
50^th & 12^th	WA	Seattle	2004	2004	Developed		14,500	14,500	100.0%
Gateway Shopping Center⁵	WA	Seattle	2008	2008	Developed		285,200	100,949	76.2%
Sandifur Plaza⁵	WA	Pasco	2008	2008	Developed		12,552	12,552	82.5%
TOTAL							8,372,791	4,958,838	91.2%

OPERATING RETAIL PROPERTIES - TABLE I (continued)

———————

Property consists of ground leases only and, therefore, no Owned GLA. As of December 31, 2008, the following were leased: Eagle Creek Lowe’s and 54^th & College – single ground lease property; Greyhound Commons – two of four outlots leased.

All properties are wholly owned, except as indicated. Unless otherwise noted, each property is owned in fee simple by the Company.

Owned GLA represents gross leasable area that we own. Total GLA includes Owned GLA, square footage attributable to non-owned anchor space, and non-owned structures on ground leases.

Percentage of Owned GLA Leased reflects Owned GLA/NRA leased as of December 31, 2008, except for Greyhound Commons, 54^th & College, and Eagle Creek Lowe’s (see * ).

In November 2008, Circuit City, a tenant at this property, filed a petition for Chapter 11 bankruptcy protection. In January 2009, it announced that it was liquidating operations. The tenant continues to occupy the space at three of our retail centers until it rejects our leases.

We own and manage the following properties through joint ventures with third parties: Estero Town Commons (40%); Beacon Hill (50%); Cornelius Gateway (80%); Gateway Shopping Center (50%); and Sandifur Plaza (95%).

This property is divided into two parcels: a grocery store and small shops. We own a 25% interest in the small shops parcel through a joint venture and a 100% interest in the grocery store. The joint venture partner is entitled to an annual preferred payment of $96,000. All remaining cash flow is distributed to us.

We own a 60% interest in this property through a joint venture with a third party that manages the property.

We do not own the land at this property. We have leased the land pursuant to two ground leases that expire in 2017. We have six five-year options to renew this lease.

We do not own the land at this property. We have leased the land pursuant to a ground lease that expires in 2012. We have six five-year renewal options and a right of first refusal to purchase the land.

We do not own the land at this property. We have leased the land pursuant to a ground lease that expires in 2027. We have five five-year renewal options.

OPERATING RETAIL PROPERTIES – TABLE II


Property	State	MSA	Encumbrances		Annualized Base Rent Revenue¹		Annualized Ground Lease Revenue		Annualized Total Retail Revenue		Percentage of Annualized Total Retail Revenue	Base Rent Per Leased Owned GLA²		Major Tenants and Non-Owned Anchors³
Bayport Commons	FL	Tampa	$	20,329,896	$	1,563,448	$	—	$	1,563,448	2.52%	$	18.18	PetSmart, Best Buy, Michaels
Circuit City Plaza	FL	Ft. Lauderdale	—		713,202		—		713,202		1.15%	18.97		Circuit City, Lowe's Home Improvement (non-owned), Wal-Mart (non-owned)
Eagle Creek Lowe's	FL	Naples	—		—		800,000		800,000		1.29%	—		Lowe's Home Improvement
Estero Town Commons⁴	FL	Naples	15,438,740		549,685		871,000		1,420,685		2.29%	28.32		Lowe's Home Improvement, Ruby Tuesday, Mattress Giant
Indian River Square	FL	Vero Beach	13,300,000		1,436,956		—		1,436,956		2.32%	10.21		Bealls, Target (non-owned), Lowe’s Home Improvement (non-owned), Office Depot
International Speedway Square	FL	Daytona	18,902,633		2,377,788		362,900		2,740,688		4.42%	11.14		Bed Bath & Beyond, Circuit City, Stein Mart, Old Navy, Staples, Michaels
Kings Lake Square	FL	Naples	—		1,126,931		—		1,126,931		1.82%	13.71		Publix, Retro Fitness
Pine Ridge Crossing	FL	Naples	17,500,000		1,556,141		—		1,556,141		2.51%	15.29		Publix, Target (non-owned), Bealls (non-owned)
Riverchase Plaza	FL	Naples	10,500,000		1,136,969		—		1,136,969		1.83%	14.41		Publix
Tarpon Springs Plaza	FL	Naples	17,937,448		1,825,917		128,820		1,954,737		3.15%	22.45		Cost Plus, A.C. Moore, Staples
Wal-Mart Plaza	FL	Gainesville	—		934,273		—		934,273		1.51%	5.36		Books-A-Million, Save-A-Lot, Wal-Mart
Waterford Lakes Village	FL	Orlando	—		835,113		—		835,113		1.35%	11.53		Winn-Dixie
Kedron Village	GA	Atlanta	29,700,000		2,461,682		—		2,461,682		3.97%	17.66		Target (non-owned), Bed Bath & Beyond, Ross Dress for Less, PETCO
Publix at Acworth	GA	Atlanta	—		809,765		—		809,765		1.31%	11.87		Publix
Publix Centre at Panola	GA	Atlanta	3,838,820		880,338		—		880,338		1.42%	12.05		Publix
Fox Lake Crossing	IL	Chicago	11,514,970		1,175,099		—		1,175,099		1.90%	14.01		Dominick's
Naperville Marketplace	IL	Chicago	—		921,210		—		921,210		1.49%	12.67		T.J. Maxx, PetSmart
50 South Morton	IN	Indianapolis	—		114,000		—		114,000		0.18%	57.00		N/A
54th & College	IN	Indianapolis	—		—		260,000		260,000		0.42%	—		The Fresh Market (non-owned)
Beacon Hill	IN	Crown Point	11,895,707		614,579		60,000		674,579		1.09%	17.75		Strack & VanTil (non-owned)
Boulevard Crossing	IN	Kokomo	11,908,446		1,603,704		—		1,603,704		2.59%	13.46		PETCO, T.J. Maxx, Kohl's (non-owned)
Bridgewater Marketplace	IN	Indianapolis	8,520,137		91,989		—		91,989		0.15%	20.40
Cool Creek Commons	IN	Indianapolis	18,000,000		1,984,074		—		1,984,074		3.20%	16.66		The Fresh Market, Stein Mart, Cardinal Fitness
Fishers Station	IN	Indianapolis	4,239,798		1,100,316		—		1,100,316		1.78%	12.10		Marsh Supermarkets
Geist Pavilion	IN	Indianapolis	11,125,000		896,539		—		896,539		1.45%	16.73		Party Tree, Ace Hardware
Glendale Town Center	IN	Indianapolis	21,750,000		2,104,079		168,996		2,273,075		3.67%	5.65		Federated Department Stores, Inc., Kerasotes Theatres, Staples, Indianapolis Library, Lowe's Home Improvement (non-owned), Target (non-owned)
Greyhound Commons	IN	Indianapolis	—		—		202,500		202,500		0.33%	—		Lowe's Home Improvement (non-owned)
Hamilton Crossing Centre	IN	Indianapolis	—		1,424,298		71,500		1,495,798		2.41%	17.55		Office Depot
Martinsville Shops	IN	Martinsville	—		160,818		—		160,818		0.26%	14.64		Walgreens (non-owned)
Red Bank Commons	IN	Evansville	—		358,792		—		358,792		0.58%	14.98		Wal-Mart (non-owned), Home Depot (non-owned)
Stoney Creek Commons	IN	Indianapolis	—		464,755		—		464,755		0.75%	9.42		Lowe's Home Improvement (non-owned), HH Gregg, Office Depot
The Centre^4,5	IN	Indianapolis	—		1,059,381		—		1,059,381		1.71%	13.60		Osco Drug
The Corner Shops	IN	Indianapolis	1,655,882		611,143		—		611,143		0.99%	14.90		Hancock Fabrics
Traders Point	IN	Indianapolis	48,000,000		3,957,335		435,000		4,392,335		7.09%	14.41		Dick's Sporting Goods, Kerasotes Theatres, Marsh Supermarkets, Bed Bath & Beyond, Michaels, Old Navy, PetSmart
Traders Point II	IN	Indianapolis	—		762,418		—		762,418		1.23%	26.65		N/A

OPERATING RETAIL PROPERTIES – TABLE II (continued)


Property	State	MSA	Encumbrances		Annualized Base Rent Revenue¹		Annualized Ground Lease Revenue		Annualized Total Retail Revenue		Percentage of Annualized Total Retail Revenue	Base Rent Per Leased Owned GLA²		Major Tenants and Non-Owned Anchors³
Whitehall Pike	IN	Bloomington	$	8,767,254	$	1,014,000	$	—	$	1,014,000	1.64%	$	7.86	Lowe's Home Improvement
Zionsville Place	IN	Indianapolis		—		234,020		—		234,020	0.38%		20.89	N/A
Ridge Plaza	NJ	Oak Ridge		15,952,261		1,665,073		—		1,665,073	2.69%		16.12	A&P Grocery, CVS
Eastgate Pavilion	OH	Cincinnati		—		2,366,522		—		2,366,522	3.82%		10.02	Best Buy, Dick's Sporting Goods, Value City Furniture
Cornelius Gateway	OR	Portland		—		216,550		—		216,550	0.35%		19.21	FedEx/Kinkos
Shops at Otty	OR	Portland		—		249,665		136,300		385,965	0.62%		28.29	Wal-Mart (non-owned)
Burlington Coat Factory	TX	San Antonio		—		510,150		—		510,150	0.82%		4.75	Burlington Coat Factory
Cedar Hill Village	TX	Dallas		—		686,247		—		686,247	1.11%		16.45	24 Hour Fitness, JC Penney (non-owned)
Galleria Plaza	TX	Dallas		—		177,876		—		177,876	0.29%		27.00	N/A
Market Street Village	TX	Ft. Worth		—		2,008,858		115,700		2,124,558	3.43%		12.92	Circuit City, Jo-Ann Fabric, Ross Dress For Less
Plaza at Cedar Hill	TX	Dallas		25,987,249		3,299,215		—		3,299,215	5.32%		12.71	Hobby Lobby, Office Max, Ross Dress For Less, Old Navy, Marshalls, Sprouts Farmers Market
Plaza Volente	TX	Austin		28,680,000		2,229,470		100,000		2,329,470	3.76%		15.27	H-E-B Grocery
Preston Commons	TX	Dallas		4,383,934		640,708		—		640,708	1.03%		25.15	Lowe's Home Improvement (non-owned)
Sunland Towne Centre	TX	El Paso		25,000,000		2,629,500		104,809		2,734,309	4.41%		9.61	HMY RoomStore, Kmart, Bed Bath & Beyond
50th & 12th	WA	Seattle		4,442,876		475,000		—		475,000	0.77%		32.76	Walgreens
Gateway Shopping Center	WA	Seattle		20,131,508		1,728,968		229,500		1,958,468	3.16%		22.47	PetSmart, Ross Dress for Less, Rite Aid
Sandifur Plaza	WA	Pasco		—		196,320		—		196,320	0.32%		18.96	Walgreens (non-owned)
TOTAL			$	429,402,559	$	57,940,879	$	4,047,025	$	61,987,904	100%	$	12.81

———————

Annualized Base Rent represents the contractual rent for December 2008 for each applicable property, multiplied by 12. This table does not include Annualized Base Rent from development property tenants open for business as of December 31, 2008.

Owned GLA represents gross leasable area that we own. Total GLA includes Owned GLA, square footage attributable to non-owned anchor space and non-owned structures on ground leases.

Represents the three largest tenants that occupy at least 10,000 square feet of GLA at the property, including non-owned anchors.

A third party manages this property.

We own a 60% interest in this property through a joint venture. Our portion of debt encumbering this property at December 31, 2008 was $2,132,729.

Commercial Properties

As of December 31, 2008, we owned interests in three operating commercial properties totaling approximately 0.5 million square feet of net rentable area (“NRA”) and an associated parking garage. The following sets forth more specific information with respect to the Company’s commercial properties as of December 31, 2008:

OPERATING COMMERCIAL PROPERTIES


Property	MSA	Year Built/ Renovated	Acquired, Redeveloped or Developed	Encumbrances		Owned NRA	Percentage Of Owned NRA Leased	Annualized Base Rent¹		Percentage of Annualized Commercial Base Rent	Base Rent Per Leased Sq. Ft.		Major Tenant
Indiana
30 South²	Indianapolis	1905/2002	Redeveloped	$	22,039,196	298,346	94.2%	$	4,963,090	77.1%	$	16.64	Indiana Supreme Court, City Securities, Kite Realty Group
Pen Products	Indianapolis	2003	Acquired		—	85,875	100.0%		834,705	13.0%		9.72	Indiana Dept. of Administration
Union Station Parking Garage³	Indianapolis	1986	Acquired		—	N/A	N/A		N/A	N/A		N/A	Denison Parking Management Agreement
Indiana State Motorpool	Indianapolis	2004	Developed		3,828,492	115,000	100.0%		639,400	9.9%		5.56	Indiana Dept. of Administration
TOTAL				$	25,867,688	499,221	96.5%	$	6,437,195	100.0%	$	12.89

———————

Annualized Base Rent represents the monthly contractual rent for December 2008 for each applicable property, multiplied by 12.

Annualized Base Rent includes $890,942 from the Company and subsidiaries as of December 31, 2008.

The garage is managed by a third party.

Retail Development Properties

In addition to our operating retail properties, as of December 31, 2008, we owned three retail development properties that are expected to contain approximately 0.7 million square feet of gross leasable area (including non-owned anchor space) upon completion. The following sets forth more specific information with respect to the Company’s retail development properties as of December 31, 2008:


Current Development Projects	Company Ownership %	MSA	Encumbrances			Actual/ Projected Opening Date¹	Projected Owned GLA²	Projected Total GLA³	Percent of Owned GLA Occupied⁴	Percent of Owned GLA Pre-Leased/ Committed⁵	Total Estimated Project Cost⁶		Cost Incurred as of Dec. 31, 2008⁶		Major Tenants and Non-owned Anchors
Cobblestone Plaza, FL⁷	50%	Ft. Lauderdale	$		30,466,817	Q2 2009	157,957	163,600	0.0%	80.3%	$	47,000	$	37,317	Whole Foods Market, Staples, Party City
South Elgin Commons, IL – I	100%	Chicago	6,150,774			Q2 2009	45,000	45,000	0.0%	100.0%		9,200		4,697	LA Fitness
Eddy Street Commons, IN – I⁸	100%	South Bend	—			Q4 2009	165,000	465,000	0.0%	58.4%		35,000		6,409	Follett Bookstore, Other Retail, Office
TOTAL			$	36,617,591			367,957	673,600	0.0%	72.9%	$	91,200	$	48,423

———————

Opening Date is defined as the first date a tenant is open for business or a ground lease payment is made. Stabilization (i.e., 85% occupied) typically occurs within six to twelve months after the opening date.

Projected Owned GLA represents gross leasable area we project we will own. It excludes square footage that we project will be attributable to non-owned outlot structures on land owned by us and expected to be ground leased to tenants. It also excludes non-owned anchor space.

Projected Total GLA includes Projected Owned GLA, projected square footage attributable to non-owned outlot structures on land that we own, and non-owned anchor space that currently exists or is under construction.

Includes tenants that have taken possession of their space or have begun paying rent.

Excludes outlot land parcels owned by the Company and ground leased to tenants. Includes leases under negotiation for approximately 10,932 square feet for which the Company has signed non-binding letters of intent.

Dollars in thousands. Reflects both the Company’s and partners’ share of costs, except Eddy Street Commons (see Note 8).

The Company owns Cobblestone Plaza through a joint venture.

The Company is the master developer for this project. The total estimated cost of Phase I is approximately $70 million; however, the Company’s share of Phase I estimated project cost is approximately $35 million and 165,000 square feet. The remaining approximately $35 million of the project cost is attributable to the apartments which will be funded by a third party.

Redevelopment Properties

In addition to our current development pipeline, as displayed in the table above, as of December 31, 2008, we owned five retail redevelopment properties that contain approximately 0.5 million square feet of gross leasable area. The following sets forth more specific information with respect to the Company’s retail redevelopment properties as of December 31, 2008:


Redevelopment Projects¹	Company Ownership %	MSA	Encumbrances²		Existing Owned GLA	Projected Owned GLA³	Projected Total GLA⁴	Total Estimated Project Cost²		Cost Incurred as of Dec. 31, 2008²		Major Tenants and Non-owned Anchors
Shops at Eagle Creek, FL⁵	100%	Naples	$	—	72,271	72,271	72,271	$	3,500	$	3,342	Staples
Rivers Edge, IN	100%	Indianapolis	14,940		110,875	110,875	110,875		2,500	39		Pending
Bolton Plaza, FL	100%	Jacksonville	—		172,938	172,938	172,938		2,000	225		Pending
Courthouse Shadows, FL	100%	Naples	—		134,867	134,867	134,867		2,500	268		Publix, Office Max
Four Corner Square, WA	100%	Seattle	—		29,177	29,177	29,177		500	25		Johnson Hardware Store
TOTAL			$	14,940	520,128	520,128	520,128	$	11,000	$	3,899

———————

Redevelopment properties have been removed from the operating portfolio statistics.

Dollars in thousands. Reflects both the Company’s and partners’ share of costs.

The Company is in the process of re-tenanting the anchor space at this property. The Company has an executed lease with Staples for approximately one-half of the former grocery space.

Other Development Activity

In addition to our current retail development and redevelopment pipeline, as displayed in the tables above, we have a “visible shadow” development pipeline, which includes land parcels that are in various stages of preparation for construction to commence, including pre-leasing activity and negotiations for third party financings. As of December 31, 2008, this visible shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million square feet at a total estimated project cost of approximately $382.6 million, our share of which is expected to be approximately $243.8 million, including our share of the unconsolidated project.


Project	MSA	KRG Ownership %	Encumbrances			Estimated Start Date	Estimated Total GLA¹	Total Estimated Project Cost^1,2,3		Cost Incurred as of Dec. 31, 2008³		Potential Tenancy
Unconsolidated Projects –
Parkside Town Commons, NC⁴	Raleigh	40%	$	55,000,000		TBD	1,500,000	$	148,000	$	57,375	Frank Theatres, Discount Department Store, Jr. Boxes, Restaurants
KRG Current Share of Unconsolidated Project Cost			$		22,000,000			$	59,200	$	22,950

Consolidated Projects –
Delray Marketplace, FL⁵	Delray Beach	50%	9,425,000			TBD	318,000		100,000		39,512	Publix, Frank Theatres, Jr. Boxes, Shops, Restaurants
Maple Valley, WA²	Seattle	100%	—			TBD	126,823		32,000		9,403	Hardware Store, Shops, Drug Store
Broadstone Station, NC	Raleigh	100%	—			TBD	345,000		25,600		16,113	Super Wal-Mart (non-owned), Shops, Pad Sales, Jr. Boxes
South Elgin Commons, IL - II	Chicago	100%	—			TBD	263,000		17,000		9,671	Jr. Boxes, Super Target (non-owned)
New Hill Place, NC – I⁶	Raleigh	100%	—			TBD	364,000		60,000		15,233	Target, Frank Theatres
TOTAL			$	9,425,000			1,416,823		234,600		89,932
KRG Current Share of Consolidated Project Cost								$	184,600	$	70,176

———————

Total Estimated Project Cost and Estimated Total GLA based on preliminary site plans and includes non-owned anchor space that exists or is currently under construction.

“Total Estimated Project Cost” includes a portion of the acquisition cost of the Four Corner Square shopping center which is a component of the Maple Valley redevelopment.

Dollars in thousands. Reflects both the Company’s and partners’ share of costs.

Parkside Town Commons is owned through a joint venture with Prudential Real Estate Investors. The Company’s interest in this joint venture is 40% as of December 31, 2008 and will be reduced to 20% upon the commencement of construction.

The Company owns Delray Marketplace through a joint venture.

The Company also owns an additional approximately 77 acres of land that it intends to develop as part of a second phase.

Land Held for Future Development

As of December 31, 2008, we owned interests in land parcels comprising approximately 105 acres that may be used for future expansion of existing properties, development of new retail or commercial properties or sold to third parties.

Tenant Diversification

No individual retail or commercial tenant accounted for more than 3.6% of the portfolio’s annualized base rent for the year ended December 31, 2008. The following table sets forth certain information for the largest 10 tenants and non-owned anchor tenants (based on total GLA) open for business or for which ground lease payments are being made at the Company’s retail properties based on minimum rents in place as of December 31, 2008:

TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA


Tenant	Number of Locations	Total GLA	Number of Leases	Company Owned GLA¹	Number of Anchor Owned Locations	Anchor Owned GLA²
Lowe's Home Improvement³	9	1,247,630	3	128,997	6	1,118,633
Target	6	665,732	0	0	6	665,732
Wal-Mart	4	618,161	1	103,161	3	515,000
Federated Department Stores	1	237,455	1	237,455	0	0
Publix	6	289,779	6	289,779	0	0
PetSmart	6	147,069	6	147,069	0	0
Home Depot	1	140,000	0	0	1	140,000
Bed Bath & Beyond	5	134,298	5	134,298	0	0
Office Depot	5	129,099	5	129,099	0	0
Dick's Sporting Goods	2	126,672	2	126,672	0	0
	45	3,735,895	29	1,296,530	16	2,439,365

———————

Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.

Includes the estimated size of the structures located on land owned by the Company and ground leased to tenants.

The Company has entered into two ground leases with Lowe’s Home Improvement for a total of 328,000 square feet, which is included in Anchor Owned GLA.

The following table sets forth certain information for the largest 25 tenants open for business at the Company’s retail and commercial properties based on minimum rents in place as of December 31, 2008:

TOP 25 TENANTS BY ANNUALIZED BASE RENT


Tenant	Type of Property	Number of Locations	Leased GLA/NRA¹	% of Owned GLA/NRA of the Portfolio	Annualized Base Rent^2,3		Annualized Base Rent per Sq. Ft.		% of Total Portfolio Annualized Base Rent
Lowe's Home Improvement⁴	Retail	3	128,997	2.2%	$	2,564,000	$	5.61	3.6%
Publix	Retail	6	289,779	5.0%		2,366,871		8.17	3.3%
PetSmart	Retail	6	147,069	2.6%		2,045,138		13.91	2.8%
State of Indiana	Commercial	3	210,393	3.7%		1,635,911		7.78	2.3%
Marsh Supermarkets	Retail	2	124,902	2.2%		1,633,958		13.08	2.3%
Bed Bath & Beyond	Retail	5	134,298	2.3%		1,581,884		11.78	2.2%
Circuit City⁵	Retail	3	99,352	1.7%		1,566,365		15.77	2.2%
Office Depot	Retail	5	129,099	2.2%		1,353,866		10.49	1.9%
Indiana Supreme Court	Commercial	1	75,488	1.3%		1,339,164		17.74	1.9%
Staples	Retail	4	89,797	1.6%		1,220,849		13.60	1.7%
Dick's Sporting Goods	Retail	2	126,672	2.2%		1,220,004		9.63	1.7%
Ross Stores	Retail	4	117,761	2.0%		1,210,784		10.28	1.7%
HEB Grocery Company	Retail	1	105,000	1.8%		1,155,000		11.00	1.6%
Best Buy	Retail	2	75,045	1.3%		934,493		12.45	1.3%
Kmart	Retail	1	110,875	1.9%		850,379		7.67	1.2%
Michaels	Retail	3	68,989	1.2%		823,544		11.94	1.1%
TJX Companies	Retail	3	88,550	1.5%		805,312		9.09	1.1%
Kerasotes Theaters⁴	Retail	2	43,050	0.7%		776,496		8.92	1.1%
Dominick's	Retail	1	65,977	1.1%		775,230		11.75	1.1%
City Securities Corporation	Commercial	1	38,810	0.8%		771,155		19.87	1.1%
The Great Atlantic & Pacific Tea Co.	Retail	1	58,732	1.1%		763,516		13.00	1.1%
Old Navy	Retail	3	64,868	1.2%		748,693		11.54	1.0%
Petco	Retail	3	40,778	0.8%		595,945		14.61	0.8%
Beall's	Retail	2	79,611	1.5%		576,000		7.24	0.8%
Burlington Coat Factory	Retail	1	107,400	1.7%		510,151		4.75	0.5%
TOTAL			2,621,292	45.6%	$	29,824,708	$	9.96	41.4%

———————

Excludes the estimated size of the structures located on land owned by the Company and ground leased to tenants.

Annualized base rent represents the monthly contractual rent for December 2008 for each applicable tenant multiplied by 12.

Excludes tenants at development properties that are designated as build-to-suits for sale.

Annualized Base Rent per Sq. Ft. is adjusted to account for the estimated square footage attributed to structures on land owned by the Company and ground leased to tenants.

In November 2008, Circuit City filed a petition for Chapter 11 bankruptcy protection. In January 2009, it announced that it was liquidating its operations. The tenant continues to occupy the space at three of our retail centers until it rejects our leases.

Geographic Information

The Company owns 52 operating retail properties, totaling approximately 5.0 million of owned square feet in nine states. As of December 31, 2008, the Company owned interests in three operating commercial properties, totaling approximately 0.5 million square feet of net rentable area, and an associated parking garage. All of these commercial properties are located in the state of Indiana. The following table summarizes the Company’s operating properties by state as of December 31, 2008:


	Number of Operating Properties¹	Owned GLA/NRA²	Percent of Owned GLA/NRA	Total Number of Leases	Annualized Base Rent³		Percent of Annualized Base Rent	Annualized Base Rent per Leased Sq. Ft.
Indiana	24	2,182,551	40.0%	228	$	24,993,435	38.8%	$	12.43
· Retail	20	1,683,330	30.8%	214		18,556,240	28.8%		12.14
· Commercial	4	499,221	9.2%	14		6,437,195	10.0%		13.36
Florida	12	1,139,081	20.9%	151		14,056,424	21.8%		12.95
Texas	8	1,143,786	21.0%	82		12,182,024	18.9%		11.89
Georgia	3	300,115	5.5%	59		4,151,786	6.5%		14.79
Washington	3	128,001	2.4%	17		2,400,288	3.7%		22.92
Ohio	1	236,230	4.3%	7		2,366,522	3.7%		10.02
Illinois	2	182,362	3.3%	17		2,096,309	3.3%		13.39
New Jersey	1	115,088	2.1%	15		1,665,073	2.6%		16.12
Oregon	2	30,845	0.5%	11		466,215	0.7%		23.19
	56	5,458,059	100.0%	587	$	64,378,076	100.0%	$	12.82

———————

This table includes operating retail properties, operating commercial properties, and ground lease tenants who commenced paying rent as of December 31, 2008. This table excludes properties in our current development and redevelopment pipelines.

Owned GLA/NRA represents gross leasable area or net leasable area owned by the Company. It does not include 23 parcels or outlots owned by the Company and ground leased to tenants, which contain 23 non-owned structures totaling approximately 484,441 square feet. It also excludes the square footage of Union Station Parking Garage.

Annualized Base Rent excludes $4,047,025 in annualized ground lease revenue attributable to parcels and outlots owned by the Company and ground leased to tenants.

Lease Expirations

Approximately 5.9% of total annualized base rent and approximately 4.8% of total GLA/NRA expire in 2009. The following tables show scheduled lease expirations for retail and commercial tenants and development and redevelopment property tenants open for business as of December 31, 2008, assuming none of the tenants exercise renewal options. The tables include tenants open for business at operating retail and commercial properties as of December 31, 2008.

LEASE EXPIRATION TABLE – OPERATING PORTFOLIO¹


	Number of Expiring Leases^1,2	Expiring GLA/NRA³	% of Total GLA/NRA Expiring	Expiring Annualized Base Rent⁴		% of Total Annualized Base Rent	Expiring Annualized Base Rent per Sq. Ft.		Expiring Ground Lease Revenue
2009	82	258,003	4.8%	$	4,061,397	5.9%	$	15.74	$	800,000
2010	89	515,253	9.7%		6,621,828	9.6%		12.85		0
2011	98	657,932	12.3%		6,606,147	9.6%		10.04		0
2012	104	445,984	8.4%		7,269,398	10.6%		16.30		0
2013	70	498,339	9.3%		5,993,659	8.7%		12.03		0
2014	51	515,773	9.7%		6,225,323	9.0%		12.07		0
2015	38	503,637	9.4%		6,164,687	8.9%		12.24		427,900
2016	26	234,371	4.4%		2,992,020	4.3%		12.77		181,504
2017	26	396,288	7.4%		5,725,960	8.3%		14.45		0
2018	24	371,968	7.0%		4,850,662	7.0%		13.04		435,296
Beyond	29	933,305	17.6%		12,425,003	18.1%		13.31		2,202,325
	637	5,330,853	100.0%	$	68,936,084	100.0%	$	12.93	$	4,047,025

LEASE EXPIRATION TABLE – OPERATING PORTFOLIO¹ (continued)

———————

Excludes tenants at development properties that are designated as build-to-suits for sale.

Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include 17 month-to-month tenants. This column also excludes ground leases.

Expiring GLA excludes estimated square footage attributable to non-owned structures on land owned by the Company and ground leased to tenants.

Annualized base rent represents the monthly contractual rent for December 2008 for each applicable tenant multiplied by 12. Excludes ground lease revenue.

LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS


	Number of Expiring Leases^1,2	Expiring GLA/NRA³	% of Total GLA/NRA Expiring	Expiring Annualized Base Rent⁴		% of Total Annualized Base Rent	Expiring Annualized Base Rent per Sq. Ft.		Expiring Ground Lease Revenue
2009	3	67,022	1.3%	$	567,270	0.8%	$	8.46	$	800,000
2010	14	332,886	6.2%		3,185,500	4.6%		9.57		0
2011	7	433,404	8.1%		2,182,015	3.2%		5.03		0
2012	8	179,471	3.4%		1,678,862	2.4%		9.35		0
2013	3	222,521	4.2%		993,053	1.4%		4.46		0
2014	10	247,834	4.7%		2,440,651	3.5%		9.85		0
2015	11	377,371	7.1%		3,585,414	5.2%		9.50		0
2016	5	153,782	2.9%		1,318,562	1.9%		8.57		0
2017	11	277,102	5.2%		3,383,722	4.9%		12.21		0
2018	10	335,578	6.3%		3,925,642	5.7%		11.70		0
Beyond	22	900,031	16.8%		11,629,852	17.0%		12.92		990,000
	104	3,527,002	66.2%	$	34,890,543	50.6%	$	9.89	$	1,790,000

———————

Retail anchor tenants are defined as tenants that occupy 10,000 square feet or more. Excludes tenants at development properties that are designated as build-to-suits for sale.

Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include one month-to-month tenant. This column also excludes ground leases.

Expiring GLA excludes square footage for non-owned ground lease structures on land we own and ground leased to tenants.

Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12. Excludes ground lease revenue.

LEASE EXPIRATION TABLE – RETAIL SHOPS


	Number of Expiring Leases¹	Expiring GLA/NRA^1,2	% of Total GLA/NRA Expiring	Expiring Annualized Base Rent³		% of Total Annualized Base Rent	Expiring Annualized Base Rent per Sq. Ft.		Expiring Ground Lease Revenue
2009	78	180,949	3.4%	$	3,384,134	4.9%	$	18.70	$	0
2010	73	173,269	3.3%		3,254,448	4.7%		18.78		0
2011	90	207,490	3.9%		4,134,475	6.0%		19.93		0
2012	94	229,461	4.3%		4,995,069	7.3%		21.77		0
2013	63	147,464	2.8%		3,381,067	4.9%		22.93		0
2014	39	114,129	2.1%		2,374,117	3.4%		20.80		427,900
2015	26	75,300	1.4%		1,688,332	2.5%		22.42		181,504
2016	21	80,589	1.5%		1,673,458	2.4%		20.77		0
2017	14	43,698	0.8%		1,003,074	1.5%		22.95		435,296
2018	14	36,390	0.7%		925,020	1.3%		25.42		128,820
Beyond	7	33,274	0.6%		795,151	1.2%		23.90		1,083,505
	519	1,322,013	24.8%	$	27,608,345	40.1%	$	20.88	$	2,257,025

———————

Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods; 2008 expirations include 16 month-to-month tenants. This column also excludes ground leases.

Expiring GLA excludes estimated square footage to non-owned structures on land we own and ground leased to tenants.

Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12. Excludes ground lease revenue.

LEASE EXPIRATION TABLE – COMMERCIAL TENANTS


	Number of Expiring Leases¹	Expiring NLA¹	% of Total NRA Expiring	Expiring Annualized Base Rent²		% of Total Annualized Base Rent	Expiring Annualized Base Rent per Sq. Ft.
2009	1	10,032	0.2%	$	109,992	0.2%	$	10.96
2010	2	9,098	0.2%		181,880	0.3%		19.99
2011	1	17,038	0.3%		289,656	0.4%		17.00
2012	2	37,052	0.7%		595,467	0.9%		16.07
2013	4	128,354	2.4%		1,619,540	2.4%		12.62
2014	2	153,810	2.9%		1,410,555	2.1%		9.17
2015	1	50,966	1.0%		890,942	1.3%		17.48
2016	0	0	0.0%		0	0.0%		0.00
2017	1	75,488	1.3%		1,339,164	1.7%		17.74
2018	0	0	0.0%		0	0.0%		0.00
Beyond	0	0	0.0%		0	0.0%		0.00
	14	481,838	9.0%	$	6,437,196	9.3%	$	13.36

———————

Lease expiration table reflects rents in place as of December 31, 2008, and does not include option periods. This column also excludes ground leases.

Annualized base rent represents the monthly contractual rent for December 2008 for each applicable property multiplied by 12.

ITEM 3.

LEGAL PROCEEDINGS

We are a party to various legal proceedings, which arise in the ordinary course of business. We are not currently involved in any litigation nor, to our knowledge, is any litigation threatened against us the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our consolidated financial position or consolidated results of operations.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the fourth quarter of 2008.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common shares are currently listed and traded on the New York Stock Exchange (“NYSE”) under the symbol “KRG”. On March 6, 2009, the last reported sales price of our common shares on the NYSE was $2.93.

The following table sets forth, for the periods indicated, the high and low sales prices and the closing prices for the Company’s common shares:


	High		Low		Closing
Quarter Ended March 31, 2007	$	21.14	$	18.24	$	19.95
Quarter Ended June 30, 2007	$	21.80	$	18.05	$	19.02
Quarter Ended September 30, 2007	$	19.49	$	15.02	$	18.80
Quarter Ended December 31, 2007	$	20.60	$	13.95	$	15.27
Quarter Ended March 31, 2008	$	15.65	$	11.50	$	14.00
Quarter Ended June 30, 2008	$	15.52	$	12.49	$	12.50
Quarter Ended September 30, 2008	$	13.44	$	9.78	$	11.00
Quarter Ended December 31, 2008	$	11.67	$	1.94	$	5.56

Holders

The number of registered holders of record of our common shares was 133 as of March 6, 2009. This total excludes beneficial or non-registered holders that held their shares through various brokerage firms.

Distributions

Our Board of Trustees declared the following cash distributions per share to our common shareholders for the periods indicated:


Quarter	Record Date		Distribution Per Share		Payment Date
1^st 2007		April 5, 2007	$	0.1950		April 17, 2007
2^nd 2007		July 6, 2007	$	0.1950		July 18, 2007
3^rd 2007		October 4, 2007	$	0.2050		October 16, 2007
4^th 2007		January 7, 2008	$	0.2050		January 15, 2008
1^st 2008		April 4, 2008	$	0.2050		April 17, 2008
2^nd 2008		July 7, 2008	$	0.2050		July 17, 2008
3^rd 2008		October 7, 2008	$	0.2050		October 17, 1008
4^th 2008		January 7, 2009	$	0.2050		January 16, 2009

In February 2009, our Board of Trustees declared a quarterly cash distribution of $0.1525 per common share for the quarter ending March 31, 2009 to shareholders of record as of April 7, 2009. This distribution will be paid on or about April 17, 2009.

Our executive management and Board of Trustees will continue to evaluate the Company’s distribution policy on a quarterly basis as they monitor the capital markets and the impact of the economy on the Company’s operations. In February 2009, our Board of Trustees declared a quarterly cash distribution of $0.1525 per common share for the quarter ending March 31, 2009. This distribution represents a reduction from the amount paid in the prior quarter thereby allowing the Company to conserve additional liquidity. Future distributions will be declared and paid at the discretion of our Board of Trustees, and will depend upon a number of factors, including cash generated by operating activities, our financial condition, capital requirements, annual distribution requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as our Board of Trustees deem relevant.

Distributions by us to the extent of our current and accumulated earnings and profits for federal income tax purposes will be taxable to shareholders as either ordinary dividend income or capital gain income if so declared by us. Distributions in excess of earnings and profits generally will be treated as a non-taxable return of capital. These

distributions have the effect of deferring taxation until the sale of a shareholder’s common shares. In order to maintain our qualification as a REIT, we must make annual distributions to shareholders of at least 90% of our taxable income. Under certain circumstances, we could be required to make distributions in excess of cash available for distributions in order to meet such requirements. For the taxable year ended December 31, 2008, approximately 76% of our distributions to shareholders constituted a return of capital, approximately 13% constituted taxable ordinary income dividends and approximately 11% constituted taxable capital gains.

Under our revolving credit facility, we are permitted to make distributions to our shareholders that do not exceed 95% of our Funds From Operations (“FFO”) provided that no event of default exists. See page 65 for a discussion of FFO. If an event of default exists, we may only make distributions sufficient to maintain our REIT status. However, we may not make any distributions if any event of default resulting from nonpayment or bankruptcy exists, or if our obligations under the credit facility are accelerated.

The Company did not repurchase any of its common shares or sell any unregistered securities during the period covered by this report.

Performance Graph

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate Securities and Exchange Commission filings, in whole or in part, the following performance graph will not be incorporated by reference into any such filings.

The following graph compares the cumulative total shareholder return of our common shares for the period from August 11, 2004, the date that our common shares began trading on NYSE, to December 31, 2008, to the S&P 500 Index and to the published NAREIT All Equity REIT Index over the same period. The graph assumes that the value of the investment in our common shares and each index was $100 at August 11, 2004 and that all cash distributions were reinvested. The shareholder return shown on the graph below is not indicative of future performance.

[kite10k002.gif]


Index	8/11/04	12/04	6/05	12/05	6/06	12/06	6/07	12/07	6/08	12/08
Kite Realty Group Trust	100.00	117.54	120.69	126.04	119.92	143.23	146.31	117.46	96.15	42.77
S & P 500	100.00	110.86	109.96	116.30	119.45	134.68	144.05	142.08	125.15	89.51
NAREIT All Equity REIT Index	100.00	124.30	132.23	139.42	157.42	188.30	177.21	158.75	135.04	98.86

ITEM 6.

SELECTED FINANCIAL DATA

The following tables set forth, on a historical basis, selected financial and operating information. The financial information has been derived from the consolidated balance sheets and statements of operations of the Company and the combined statements of operations of our Predecessor. This information should be read in conjunction with the audited consolidated financial statements of the Company and Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing elsewhere in this Annual Report on Form 10-K.


	The Company																	The Predecessor

	Year Ended December 31, 2008¹			Year Ended December 31, 2007				Year Ended December 31, 2006			Year Ended December 31, 2005			Period August 16, 2004 through December 31, 2004			Period January 1, 2004 through August 15, 2004
	*($ in thousands, except share and per share data)*
Operating Data:
Revenues:
Rental related revenue	$	103,597			$	101,494		$	89,703		$	72,296		$	19,618		$		12,824
Construction and service fee revenue		39,103				37,260			41,447			26,420			9,334				5,257
Total revenue		142,700				138,754			131,150			98,716			28,952				18,081
Expenses:
Property operating		17,108				15,121			13,580			12,337			3,667				4,033
Real estate taxes		11,977				11,917			11,260			7,456			1,927				1,409
Cost of construction and services		33,788				32,077			35,901			21,823			8,787				4,405
General, administrative, and other		5,884				6,299			5,323			5,328			1,781				1,477
Depreciation and amortization		35,447				31,851			29,579			21,696			7,629				3,270
Total expenses		104,204				97,265			95,643			68,640			23,791				14,594
Operating income		38,496				41,489			35,507			30,076			5,161				3,487
Interest expense		(29,372	)			(25,965	)		(21,222	)		(17,836	)		(4,377	)			(4,557	)
Loss on sale of asset		—				—			(764	)		—			—				—
Loan prepayment penalties and expenses		—				—			—			—			(1,671	)			—
Income tax expense of taxable REIT subsidiary		(1,928	)			(762	)		(966	)		(1,041	)		—				—
Other income, net		158				779			345			215			30				111
Minority interest income of consolidated subsidiaries		(62	)			(587	)		(117	)		(1,267	)		(126	)			215
Income from unconsolidated entities		843				291			286			253			134				164
Gain on sale of unconsolidated property		1,233				—			—			—			—				—
Limited Partners’ interests in the continuing operations of the Operating Partnership		(2,014	)			(3,400	)		(2,966	)		(3,309	)		258				—
Income (loss) from continuing operations		7,354				11,845			10,103			7,091			(591	)			(580	)
Discontinued operations:
Operating income from discontinued operations, net of Limited Partners’ interests		851				96			77			820			259				388
(Loss) gain on sale of operating property, net of Limited Partners’ interests		(2,112	)			1,582			—			5,525			—				—
(Loss) income from discontinued operations		(1,261	)			1,678			77			6,345			259				388
Net income (loss)	$	6,093			$	13,523		$	10,180		$	13,436		$	(332	)	$		(192	)
Income (loss) per common share – basic:
Continuing operations	$	0.24			$	0.41		$	0.35		$	0.33		$	(0.03	)			N/A
Discontinued operations		(0.04	)			0.06			—			0.30			0.01				N/A
	$	0.20			$	0.47		$	0.35		$	0.63		$	(0.02	)			N/A
Income (loss) per common share – diluted:
Continuing operations	$	0.24			$	0.40		$	0.35		$	0.33		$	(0.03	)			N/A
Discontinued operations		(0.04	)			0.06			—			0.29			0.01				N/A
	$	0.20			$	0.46		$	0.35		$	0.62		$	(0.02	)			N/A
Weighted average Common Shares outstanding – basic		30,328,408				28,908,274			28,733,228			21,406,980			18,727,977				N/A
Weighted average Common Shares outstanding – diluted		30,340,449				29,180,987			28,903,114			21,520,061			18,727,977				N/A
Distributions declared per Common Share	$	0.820			$	0.800		$	0.765		$	0.750		$	0.281				N/A

———————

In December 2008, we sold our Silver Glen Crossing property located in Chicago, Illinois for net proceeds of approximately $17.2 million and recognized a loss on the sale of $2.1 million, net of Limited Partners’ interests. The loss on sale and operating results for this property have been reflected as discontinued operations for fiscal year ended December 31, 2008. Amounts were not reclassified for fiscal years 2007 or prior as they were not considered material to the financial statements.


	The Company Year Ended December 31
	2008		2007		2006		2005		2004
	*($ in thousands)*
Balance Sheet Data:
Investment properties, net	$	1,035,454	$	965,583	$	892,625	$	738,734	$	521,078
Cash and cash equivalents	$	9,918	$	19,002	$	23,953	$	15,209	$	10,103
Total assets	$	1,112,052	$	1,048,235	$	983,161	$	799,230	$	563,544
Mortgage and other indebtedness	$	677,661	$	646,834	$	566,976	$	375,246	$	283,479
Total liabilities	$	759,817	$	714,100	$	634,435	$	436,106	$	336,922
Limited partners’ interests in the operating partnership	$	67,277	$	74,512	$	78,812	$	84,245	$	68,423
Shareholders’ equity	$	284,958	$	259,623	$	269,914	$	278,879	$	158,199
Total liabilities and shareholders’ equity	$	1,112,052	$	1,048,235	$	983,161	$	799,230	$	563,544

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the accompanying historical financial statements and related notes thereto and the “Risk Factors” appearing elsewhere in this Annual Report on Form 10-K. In this discussion, unless the context suggests otherwise, references to the “Company,” “we,” “us” and “our” mean Kite Realty Group Trust and its subsidiaries.

Overview

In the following overview, we discuss the status of our business and properties, the effect that current U.S. economic conditions is having on our retail tenants and us, and the current state of the financial markets as pertaining to our debt maturities and our ability to secure financing.

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 December 31, 2008, we owned interests in a portfolio of 52 operating retail properties totaling approximately 8.4 million square feet of gross leasable area (including non-owned anchor space) and also owned interests in three operating commercial properties totaling approximately 0.5 million square feet of net rentable area and an associated parking garage. Also, as of December 31, 2008, we had an interest in eight properties in our development and redevelopment pipelines. Upon completion, we anticipate our development and redevelopment properties to have approximately 1.2 million square of total gross leasable area.

In addition to our current development and redevelopment pipelines, we have a “visible 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 December 31, 2008, this visible shadow pipeline consisted of six projects that are expected to contain approximately 2.9 million square feet of total gross leasable area upon completion.

Finally, as of December 31, 2008, we also owned interests in other land parcels comprising approximately 105 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 sheet.

Current Economic Conditions and Impact on Our Retail Tenants

2008 was a very difficult year for the U.S. economy, businesses and consumers. Initial weakness in the housing market in 2007 escalated into a credit crisis whereby businesses and consumers had difficulty obtaining financing on favorable terms, if at all. These conditions accelerated the deterioration of the U.S. economy, and in late 2008 the National Bureau of Economic Research, a group of economists that characterize American business cycles, declared that a recession began in the U.S. in December 2007. Throughout 2008 and into the first quarter of 2009, the U.S. economy continued to struggle with difficult market conditions, including a shortage of financing, decreased home values and increased home foreclosures, rising unemployment rates, personal and business bankruptcies, and sharp declines in consumer confidence. The U.S. Congress, the new Presidential Administration, which took office in January 2009, and the Federal Reserve Bank have taken various steps in an effort to curtail the recession and promote stability in the U.S. economy as a whole. It is not yet known what effect, if any, these stimulus packages and other governmental and monetary packages will have on financial institutions and markets or the economy.

These difficult economic conditions had a negative impact on consumer spending during 2008, and we expect these conditions to continue into 2009 and possibly beyond. Factors contributing to consumers spending less at stores owned and/or operated by our retail tenants include, among others:

Shortage or Unavailability of Financing: Lending institutions have substantially tightened 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.

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, is expected to continue into the foreseeable future.

Rising Unemployment Rates: The U.S. unemployment rate continues to rise dramatically. According to the Bureau of Labor Statistics, in 2008, approximately 2.6 million Americans became unemployed, the highest level in more than six decades. A total of approximately 1.9 million of these jobs were lost in the last four months of 2008, with over half a million lost in December 2008 alone. This trend continued through January and February 2009, with unemployment rising to approximately 4.4 million Americans, or 8.1%, the highest level in 25 years. Rising unemployment rates could cause further decreases in consumer spending, thereby negatively affecting the businesses of our retail tenants.

Deceasing Consumer Confidence: Consumer confidence is at its lowest level in decades, leading to consumers spending less money on discretionary purchases. The significant increase during 2008 in both 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.

During 2008, decreasing consumer spending had a negative impact on the businesses of our retail tenants. For example, same-store sales for many retailers declined in late 2008, particularly in November and December. As discussed below, these conditions in turn had 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 flow 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. This is particularly true in the states of Indiana, Florida and Texas, where the majority of our properties are located, and in North Carolina, where a significant portion of our development projects and land parcels held for development are located. As discussed above, due to the challenges facing U.S. consumers, the operations of many 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. The number of tenants requesting decreases or deferrals in their rent obligations increased in 2008. If granted, such decreases or deferrals negatively affect our cash flows.

Termination of Leases. If our tenants continue to struggle to meet their rental obligations, they may be forced to terminate their leases with us. During 2008, several tenants terminated their leases with us and in some cases we were able to negotiate lease termination fees from these tenants but in other cases we were not.

Tenant Bankruptcies. The number of bankruptcies by U.S. businesses surged in the third and fourth quarter of 2008. This trend continued through January and February 2009 and may continue into the foreseeable future. Likewise, bankruptcies of our retail tenants also increased sharply in 2008 and into 2009. For example, in November 2008, Circuit City Stores, Inc. filed a petition for bankruptcy protection under Chapter 11 of the federal bankruptcy laws and, in January 2009, declared that it would be liquidating and closing all of its stores. As of December 31, 2008, Circuit City leased space at three of our properties and represented a total of approximately 2.2% of our total operating portfolio annualized base rent and approximately 1.7% of our total operating portfolio owned gross leasable area. As a result of the liquidation, we wrote off all assets and uncollected amounts from Circuit City in December 2008, which reduced our net income by approximately $4.1 million.

Decrease in Demand for Retail Space. Reflecting the extremely difficult current market conditions, demand for retail space at our shopping centers has decreased while availability has increased due to tenant terminations and bankruptcies. As a result, the overall tenancy at our shopping centers declined over the last 12 months and may continue to decline in the future until financial markets, consumer confidence, and the economy stabilize. As of December 31, 2008, our retail operating portfolio was approximately 91% leased compared to approximately 95% leased as of December 31, 2007. In addition, these conditions have made it significantly 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.

The factors discussed above, among others, had a negative impact on our business during 2008. We expect that these conditions may continue well into the foreseeable future.

Financing Strategy and 2009 Maturities

Our ability to obtain financing on satisfactory terms and to refinance borrowings as they mature has also been affected by the condition of the economy in general and by the current instability of the financial markets in particular. As of December 31, 2008, approximately $84 million of our consolidated indebtedness was scheduled to mature in 2009 (approximately $108 million including our share of unconsolidated debt), excluding scheduled monthly principal payments for 2009. We believe we have good relationships with a number of banks and other financial institutions that will allow us to refinance these borrowings with the existing lenders or replacement lender. However, in this current challenging environment, it is imperative that we identify alternative sources of financing and other capital in the event we are not able to refinance these loans on satisfactory terms, or at all. It is also important for us to obtain financing in order to complete our development and redevelopment projects.

To strengthen our balance sheet, we engaged in certain financing transactions in 2008. Specifically, we have raised a combined $102.8 million in proceeds from a new term loan that matures in July 2011 and from an offering of 4,750,000 of our common shares. These funds were primarily used to pay down borrowings under our unsecured revolving credit facility, which created additional availability under this facility to pay down borrowings as they mature, if necessary. As of December 31, 2008, approximately $77 million was available to be drawn under this facility and we had an additional approximately $10 million of cash and cash equivalents on hand.

In addition to raising new capital, we have also been successful in obtaining extensions for loans originally maturing in 2008. As part of our financing strategy, we will continue to seek to refinance and/or extend our debt that is maturing in 2009 and 2010. For example, in October, we negotiated the extension of the maturity dates from 2009 to 2010 on our debt at four of our consolidated properties (Estero Town Center, Tarpon Springs Plaza, Rivers Edge Shopping Center, and Bridgewater Marketplace). In addition, in October and December 2008, we refinanced debt at our Gateway Shopping Center and Bayport Commons properties, respectively, and extended the maturity dates from

2009 to 2011. As a result of these actions, we extended the maturity dates to 2010 or later on approximately $100.6 million of indebtedness originally due in 2009. While we can give no assurance, due to these efforts and the current status of negotiations with existing and alternative lenders for our near-term maturing indebtedness, we currently believe we will have the ability to extend, refinance, or repay all of our debt that is maturing through at least 2009, including, to the extent necessary, utilizing the availability on our unsecured credit facility.

Obtaining new financing also is 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 December 31, 2008, our unfunded share of the total estimated cost of the properties in our current development and redevelopment pipelines was approximately $45 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, has $77 million of availability as of December 31, 2008), a prolonged credit crisis will make it more costly and difficult to raise additional capital, if necessary.

Summary of Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial statements. As disclosed in Note 2, the preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the compilation of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.

Purchase Accounting

The purchase price of operating properties is allocated to tangible assets and identified intangibles acquired based on their fair values in accordance with the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”). In making estimates of fair values for the purpose of allocating purchase price, a number of sources are utilized. We also consider information about each property obtained as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of tangible assets and intangibles acquired.

A portion of the purchase price is allocated to tangible assets and intangibles, including:

the fair value of the building on an as-if-vacant basis and to land determined by real estate tax assessments, independent appraisals, or other relevant data;

above-market and below-market in-place lease values for acquired properties are based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over the remaining non-cancelable term of the leases. The capitalized above-market and below-market lease values are amortized as a reduction of or addition to rental income over the remaining non-cancelable terms of the respective leases. Should a tenant terminate its lease, the unamortized portion of the lease intangibles would be charged or credited to income; and

the value of leases acquired. We utilize independent sources for our estimates to determine the respective in-place lease values. Our estimates of value are made using methods similar to those used by independent appraisers. Factors we consider in our analysis include an estimate of costs to execute similar leases including tenant improvements, leasing commissions and foregone costs and rent received during the estimated lease-up period as if the space was vacant. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

We also consider whether a portion of the purchase price should be allocated to in-place leases that have a related customer relationship intangible value. Characteristics we consider in allocating these values include the nature and extent of existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality, and expectations of lease renewals, among other factors. To date, a tenant relationship has not been developed that is considered to have a current intangible value.

Beginning fiscal year 2009, we will apply the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 141(R) “Business Combinations – Revised” to all assets acquired and liabilities assumed in a business combination. SFAS No. 141(R) will require us to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, measured at their fair values as of that date, with goodwill being the excess value over the net identifiable assets acquired. SFAS No. 141(R) will modify SFAS No. 141’s cost-allocation process, which currently requires the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. SFAS No. 141(R) requires the costs of an acquisition to be recognized in the period incurred. We do not believe the adoption of SFAS No. 141(R) will have a material impact on our financial position or results of operations.

Capitalization of Certain Pre-Development and Development Costs

We incur costs prior to land acquisition and for certain land held for development, including acquisition contract deposits as well as legal, engineering and other external professional fees related to evaluating the feasibility of developing a shopping center. These pre-development costs are capitalized and included in construction in progress in the accompanying consolidated balance sheets. If we determine that the completion of a development project is no longer probable, all previously incurred pre-development costs are immediately expensed.

We also capitalize costs such as construction, interest, real estate taxes, and salaries and related costs of personnel directly involved with the development of our properties. As a portion of the development property becomes operational, we expense appropriate costs on a pro rata basis.

Impairment of Investment Properties

In accordance with SFAS No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of” (“SFAS No. 144”), management reviews investment properties for impairment on a property-by-property basis whenever events or changes in circumstances indicate that the carrying value of investment properties may not be recoverable. Impairment analysis requires management to make certain assumptions and requires significant judgment. Management does not believe any investment properties were impaired at December 31, 2008.

Impairment losses for investment properties are recorded when the undiscounted cash flows estimated to be generated by the investment properties during the expected holding period are less than the carrying amounts of those assets. Impairment losses are measured as the difference between the carrying value and the fair value of the asset.

In accordance with SFAS No. 144, operating properties held for sale include only those properties available for immediate sale in their present condition and for which management believes it is probable that a sale of the property will be completed within one year. Operating properties are carried at the lower of cost or fair value less costs to sell. Depreciation and amortization are suspended during the held-for-sale period.

Our properties have operations and cash flows that can be clearly distinguished from the rest of our activities. In accordance with SFAS No. 144, the operations reported in discontinued operations include those operating properties that were sold or were considered held-for-sale and for which operations and cash flows can be clearly distinguished. The operations from these properties are eliminated from ongoing operations, and we will not have a continuing involvement after disposition. When material, prior periods are reclassified to reflect the operations of these properties as discontinued operations.

Revenue Recognition

As lessor, we retain substantially all of the risks and benefits of ownership of the investment properties and account for our leases as operating leases.

Contractual minimum rents are recognized on a straight-line basis over the terms of the related leases. A small number of our lease agreements contain provisions that grant additional rents based on a tenant’s sales volume (contingent percentage rent). Percentage rent is recognized when tenants achieve the specified sales targets as defined in their lease agreements. Percentage rent is included in other property related revenue in the accompanying statements of operations.

Reimbursements from tenants for real estate taxes and other operating expenses are recognized as revenue in the period the applicable expense is incurred.

Gains and losses on sales of real estate are recognized in accordance with SFAS No. 66, “Accounting for Sale of Real Estate.” In summary, gains and losses from sales are not recognized unless a sale has been consummated, the buyer’s initial and continuing investment is adequate to demonstrate a commitment to pay for the property, we have transferred to the buyer the usual risks and rewards of ownership, we do not have a substantial continuing financial involvement in the property and the collectability of any receivable from the sale is reasonably assured.

Revenues from construction contracts are recognized on the percentage-of-completion method, measured by the percentage of cost incurred to date to the estimated total cost for each contract. Project costs include all direct labor, subcontract, and material costs and those indirect costs related to contract performance costs incurred to date. Project costs do not include uninstalled materials. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability may result in revisions to costs and income, which are recognized in the period in which the revisions are determined.

Development fees and fees from advisory services are recognized as revenue in the period in which the services are rendered. Performance-based incentive fees are recorded when the fees are earned.

Fair Value Measurements

On January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements; accordingly, the standard does not require any new fair value measurements of reported balances. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, SFAS No. 157 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

As further discussed in Note 12 of the accompanying consolidated financial statements, the only assets or liabilities that we record at fair value on a recurring basis are interest rate hedge agreements. To comply with the provisions of SFAS No. 157, we incorporate credit valuation adjustments to appropriately reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of our derivative contracts for the effect of nonperformance risk, we have considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although we have determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by ourselves and our counterparties. However, as of December 31, 2008, we have assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and have determined that the credit valuation adjustments are not significant to the overall valuation of our derivatives. As a result, we have determined that our derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Income Taxes and REIT Compliance

We are considered a corporation for federal income tax purposes and qualify as a REIT. As such, we generally will not be subject to federal income tax to the extent we distribute our REIT taxable income to our shareholders. REITs are subject to a number of organizational and operational requirements. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates. We may also be subject to certain federal, state and local taxes on its income and property and to federal income and excise taxes on our undistributed income even if we do qualify as a REIT. For example, we will be subject to income tax to the extent we distribute less than 90% of our REIT taxable income (including capital gains).

Results of Operations

At December 31, 2008, we owned interests in 56 operating properties (consisting of 52 retail properties, three operating commercial properties and an associated parking garage) and eight entities that held development or redevelopment properties in which we have an interest. These redevelopment properties include 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 we intend to redevelop. Of the 64 total properties held at December 31, 2008, one operating property and one parcel of pre-development land were owned through joint ventures and accounted for under the equity method.

At December 31, 2007, we owned interests in 55 operating properties (consisting of 50 retail properties, four commercial operating properties and an associated parking garage) and had interests in 11 entities that held development or redevelopment properties. These redevelopment properties included our Glendale Town Center and Shops at Eagle Creek properties, which were both undergoing major redevelopment. Of the 66 total properties held at December 31, 2007, two operating properties were owned through joint ventures that were accounted for under the equity method.

At December 31, 2006, we owned interests in 54 operating properties (consisting of 49 retail properties, four commercial operating properties and an associated parking garage) and had 11 properties under development. Of the 65 total properties held at December 31, 2006, two operating properties were owned through joint ventures that were 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 2006, 2007 and 2008. Therefore, we believe it is most useful to review the comparisons of our 2006, 2007 and 2008 results of operations (as set forth below under “Comparison of Operating Results for the Years Ended December 31, 2008 and 2007” and “Comparison of Operating Results for the Years Ended December 31, 2007 and 2006”) in conjunction with the discussion of our significant development, redevelopment, and operating property acquisition and disposition activities during those periods, which such discussion is set forth directly below.

Development Activities

During the years ended December 31, 2008, 2007 and 2006, the following development properties became operational or partially operational:


Property Name	MSA	Economic Occupancy Date¹	Owned GLA
54^th & College	Indianapolis, IN	June 2008	N/A	²
Beacon Hill Phase II	Crown Point, IN	December 2007	19,160
Bayport Commons	Tampa, FL	September 2007	94,756
Cornelius Gateway	Portland, OR	September 2007	21,000
Tarpon Springs Plaza	Naples, FL	July 2007	82,546
Gateway Shopping Center	Marysville, WA	April 2007	100,949
Bridgewater Marketplace	Indianapolis, IN	January 2007	26,000
Sandifur Plaza	Tri-Cities, WA	January 2007	12,552
Naperville Marketplace	Chicago, IL	August 2006	83,290
Zionsville Place	Zionsville, IN	August 2006	12,400
Stoney Creek Commons Phase II	Indianapolis, IN	July 2006	49,330
Beacon Hill Phase I	Crown Point, IN	June 2006	38,161
Estero Town Commons	Naples, FL	April 2006	25,600
Eagle Creek Lowe’s	Naples, FL	February 2006	N/A	²

———————

Represents the date in 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 sooner.

Property is ground leased to a single tenant.

Property Acquisition Activities

During the years ended December 31, 2008 and 2006, we acquired the following properties:


Property Name	MSA	Acquisition Date		Acquisition Cost (Millions)	Financing Method	Owned GLA
Rivers Edge Shopping Center¹	Indianapolis, Indiana	February 2008	$	18.3	Primarily Debt²	110,875
Courthouse Shadows	Naples, Florida	July 2006		19.8	Debt	134,8667
Pine Ridge Crossing	Naples, Florida	July 2006		22.6	Debt	105,515
Riverchase	Naples, Florida	July 2006		15.5	Debt	78,340
Kedron Village	Peachtree, Georgia	April 2006 ³		34.9 ⁴	Debt	157,408

———————

This property was purchased with the intent to redevelop; therefore, it is included in our redevelopment pipeline, as discussed below. However, for purposes of the comparison of operating results, this property is classified as property acquired during 2008 in the comparison of operating results tables below.

To fund the purchase price, we utilized approximately $2.7 million of proceeds from the November 2007 sale of our 176th & Meridian property, as discussed below. 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 originally maturing on February 3, 2009. In October 2008, we extended the maturity date on this loan one additional year.

When purchased, Kedron Village was under construction and not an operating property. The property became partially operational in the third quarter of 2006 and became fully operational during the fourth quarter of 2006.

Total purchase price of approximately $34.9 million is net of purchase price adjustments, including tenant improvement and leasing commission credits, of $2.0 million.

No operating properties were acquired by us in fiscal year 2007.

Operating Property Disposition Activities

During the years ended December 31, 2008 and 2007, we sold the following operating properties:


Property Name	MSA	Disposition Date	Owned GLA
Spring Mill Medical, Phase I¹	Indianapolis, Indiana	December 2008	63,431
Silver Glen Crossing²	Chicago, Illinois	December 2008	132,716
176^th & Meridian³	Seattle, Washington	November 2007	14,560

———————

We hold a 50% interest in this joint venture. In December 2008, the joint venture sold this property for $17.5 million, resulting in a total gain on sale of approximately $3.5 million. Net proceeds of approximately $14.4 million from the sale of this property were utilized to defease the related mortgage loan. Our share of the gain on sale, was approximately $1.2 million, net of our excess investment. We used the majority of our share of the net proceeds to pay down borrowings under our unsecured revolving credit facility. Prior to the sale of this property, the joint venture sold a parcel of land for net proceeds of approximately $1.1 million, of which our share was $0.6 million.

We realized net proceeds of approximately $17.2 million from the sale of this property and recognized a loss on the sale of $2.1 million, net of Limited Partners’ interests. The majority of the net proceeds from the sale of this property were used to pay down borrowings under our unsecured revolving credit facility. The sale of this property and its operating results have been reflected as discontinued operations for fiscal year ended December 31, 2008. Amounts were not reclassified for fiscal years 2007 and 2006 as they were not considered material to the financial statements.

This property was sold for net proceeds of $7.0 million and a gain, net of Limited Partners’ interests, of $1.6 million. We utilized the proceeds from the sale with the intention to execute a like-kind exchange under Section 1031 of the Internal Revenue Code and, in February 2008 we did so by purchasing Rivers Edge Shopping Center, as discussed above. The sale of this property and its operating results have been reflected as discontinued operations for fiscal years ended December 31, 2007 and 2006.

No operating properties were sold by us in fiscal year 2006.

Redevelopment Activities

During the years ended December 31, 2008, 2007 and 2006, we transitioned the following properties from our operating portfolio to our redevelopment pipeline:


Property Name	MSA	Transition Date¹	Owned GLA
Courthouse Shadows²	Naples, Florida	September 2008	134,867
Four Corner Square³	Maple Valley, Washington	September 2008	73,099
Bolton Plaza⁴	Jacksonville, Florida	June 2008	172,938
Rivers Edge⁵	Indianapolis, Indiana	June 2008	110,875
Glendale Town Center⁶	Indianapolis, Indiana	March 2007	685,000
Shops at Eagle Creek⁷	Naples, Florida	December 2006	75,944

———————

Transition date represents the date the property was transitioned from our operating portfolio to our redevelopment pipeline.

In addition to the existing center, we may construct an additional building to support approximately 6,000 square feet of small shop space. We anticipate our total investment in the redevelopment at this property will be approximately $2.5 million.

In addition to the existing center, we also own approximately ten acres of land adjacent to the center which may be utilized in the redevelopment. We anticipate the majority of the existing center will remain open during the redevelopment. We anticipate our total investment in the redevelopment at this property will be approximately $0.5 million.

The former anchor tenant’s lease at the shopping center expired in May 2008 and was not renewed. We anticipate our total investment in the redevelopment at this property will be approximately $2.0 million.

We purchased this property in February 2008 with the intent to redevelop. The existing anchor tenant’s lease at this property will expire in March 2010 and we are currently marketing the space in the event the current anchor tenant does not renew its lease. We anticipate our total investment in the redevelopment at this property will be approximately $2.5 million.

Property was transitioned to the operating portfolio in the third quarter of 2008 as redevelopment was substantially completed. However, because the property was under redevelopment during 2007 and the majority of 2008, it is classified as such in the comparison of operating results tables below.

We are currently redeveloping the space formerly occupied by Winn-Dixie at this property into two smaller spaces. Staples 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 and have also completed a number of additional renovations at the property during 2008. We anticipate our total investment in the redevelopment at Shops at Eagle Creek will be approximately $3.5 million.

Comparison of Operating Results for the Years Ended December 31, 2008 and 2007

The following table reflects income statement line items from our consolidated statements of operations for the years ended December 31, 2008 and 2007:


	Year Ended December 31					Increase (Decrease) 2008 to 2007
	2008			2007		Increase (Decrease) 2008 to 2007
Revenue:
Rental income (including tenant reimbursements)	$	89,598,507		$	90,484,289	$	(885,782	)
Other property related revenue		13,998,650			11,010,553		2,988,097
Construction and service fee revenue		39,103,151			37,259,934		1,843,217
Expenses:
Property operating expense		17,108,464			15,121,325		1,987,139
Real estate taxes		11,977,099			11,917,299		59,800
Cost of construction and services		33,788,008			32,077,014		1,710,994
General, administrative, and other		5,884,152			6,298,901		(414,749	)
Depreciation and amortization		35,446,575			31,850,770		3,595,805
Operating income		38,496,010			41,489,467		(2,993,457	)
Add:
Income from unconsolidated entities		842,425			290,710		551,715
Gain on sale of unconsolidated property		1,233,338			—		1,233,338
Other income, net		158,024			778,552		(620,528	)
Deduct:
Interest expense		29,372,181			25,965,141		3,407,040
Income tax expense of taxable REIT subsidiary		1,927,830			761,628		1,166,202
Minority interest in income of consolidated subsidiaries		61,707			587,413		(525,706	)
Limited Partners’ interests in the continuing operations of the Operating Partnership		2,014,136			3,399,534		(1,385,398	)
Income from continuing operations		7,353,943			11,845,013		(4,491,070	)
Operating income from discontinued operations, net of Limited Partners’ interests		850,745			95,551		755,194
(Loss) gain on sale of operating property, net of Limited Partners’ interests		(2,111,562	)		1,582,119		(3,693,681	)
Net income	$	6,093,126		$	13,522,683	$	(7,429,557	)

Rental income (including tenant reimbursements) decreased approximately $0.9 million, or 1%, due to the following:


	Increase (Decrease) 2008 to 2007
Development properties that became operational or partially operational in 2007 or 2008	$	5,863,617
Property acquired during 2008		1,780,008
Properties under redevelopment during 2007 and 2008		322,346
Property sold in 2008		(3,389,804	)
Properties fully operational during 2007 and 2008 & other		(5,461,949	)
Total	$	(885,782	)

Excluding the changes due to the acquisition of properties, transitioned development properties, properties under redevelopment, and the property that was sold, the net $5.5 million decrease in rental income was primarily related to the following:

$2.5 million net decrease at a number of our properties primarily due to the termination of leases with tenants in 2007 and 2008, which includes the loss of rent as well as the write-off to income of intangible lease related amounts;

$1.5 million net decrease in real estate tax recoveries from tenants primarily due to real estate tax refunds at a number of our operating properties in 2008 due to decreased assessments, most of which was reimbursed to our tenants;

$0.9 million net write-off of rental income amounts in connection with the bankruptcy and liquidation of Circuit City stores at three of our properties;

$0.3 million decrease 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

$0.3 million decrease in common area maintenance and property insurance recoveries at a number of our operating properties due to a decrease in the related costs.

Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and gains from land sales. This revenue increased approximately $3.0 million, or 27%, primarily as a result of the following:

$3.2 million increased gains on land sales in 2008 compared to 2007; and

$1.1 million net increase 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 the following:

$0.9 million decrease in lease settlement income we received from tenants in connection with the termination of leases in 2008 compared to 2007; and

$0.3 million decrease in percentage rent from our retail operating tenants in 2008 compared to 2007.

Construction revenue and service fees increased approximately $1.8 million, or 5%. This increase is primarily due to the net increase in proceeds from build-to-suit assets, partially offset by the level and timing of third party construction contracts during 2008 compared to 2007. In 2008, we realized proceeds of $10.6 million from the sale of our Spring Mill Medical, Phase II build-to-suit commercial development asset and in 2007, we realized proceeds of $6.1 million from the sale of a build-to-suit asset at Sandifur Plaza.

Property operating expenses increased approximately $2.0 million, or 13%, due to the following:


	Increase (Decrease) 2008 to 2007
Development properties that became operational or partially operational in 2007 or 2008	$	1,257,519
Property acquired during 2008		314,322
Properties under redevelopment during 2007 and 2008		227,433
Property sold in 2008		(331,760	)
Properties fully operational during 2007 and 2008 & other		519,625
Total	$	1,987,139

$0.6 million net increase in bad debt expense at a number of our operating properties; and

$0.5 million increase in expenses 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.

This increase in operating expenses was partially offset by a net decrease of $0.5 million in insurance and landscaping expenses at a number of our properties.

Real estate taxes increased approximately $0.1 million, or 1%, due to the following:


	Increase (Decrease) 2008 to 2007
Development properties that became operational or partially operational in 2007 or 2008	$	702,283
Property acquired during 2008		197,623
Properties under redevelopment during 2007 and 2008		140,173
Property sold in 2008		(502,642	)
Properties fully operational during 2007 and 2008 & other		(477,637	)
Total	$	59,800

Excluding the changes due to the acquisition of properties, transitioned development properties, properties under redevelopment, and the property sold, the net $0.5 million decrease in real estate taxes was primarily due to a decrease of approximately $0.7 million due to real estate tax refunds received in 2008, net of related professional fees, at our Market Street Village, Galleria Plaza, and Cedar Hill Plaza properties, most of which was reimbursed to tenants. This decrease was partially offset by a $0.2 million net increase in real estate tax assessments at a number of our operating properties.

Cost of construction and services increased approximately $1.7 million, or 5%. This increase was primarily due to the increased costs associated with the sale of build-to-suit assets, partially offset by the level and timing of third party construction contracts during 2008 compared to 2007. In 2008, we had costs associated with the sale of our Spring Mill Medical, Phase II, build-to-suit commercial development asset of $9.4 million, while in 2007, we had costs associated with the sale of a build-to-suit asset at Sandifur Plaza of $4.1 million.

General, administrative and other expenses decreased approximately $0.4 million, or 7%. In 2008, general, administrative and other expenses were 4.1% of total revenue and in 2007, general, administrative and other expenses were 4.5% of total revenue. This decrease in general, administrative and other expenses was primarily due to decreased salary, benefits and incentive compensation expense as a result of a decrease in overall headcount.

Depreciation and amortization expense increased approximately $3.6 million, or 11%, due to the following:


	Increase (Decrease) 2008 to 2007
Development properties that became operational or partially operational in 2007 or 2008	$	3,137,576
Property acquired during 2008		910,235
Properties under redevelopment during 2007 and 2008		(1,894,435	)
Property sold in 2008		(1,558,814	)
Properties fully operational during 2007 and 2008 & other		3,001,243
Total	$	3,595,805

Excluding the changes due to the acquisition of properties, transitioned development properties, properties under redevelopment, and the property sold, the net $3.0 million increase in depreciation and amortization expense was primarily attributable to the acceleration of depreciable assets, including intangible lease assets, related to the termination of tenants, including the termination of leases with Circuit City stores at three of our properties that was recognized in 2008 in connection with Circuit City’s bankruptcy and liquidation.

Income from unconsolidated entities increased $0.6 million, or 190%. During 2008, one of our unconsolidated joint ventures (Spring Mill Medical, Phase I) sold a parcel of land for a net gain of approximately $1.1 million, of which our share was $0.6 million.

Gain on sale of unconsolidated property was $1.2 million in 2008. In December 2008, we sold our interest in Spring Mill Medical, Phase I, one of our unconsolidated commercial operating properties. This property is located in Indianapolis, Indiana and was owned 50% through a joint venture. The joint venture sold the property for approximately $17.5 million, resulting in a gain on the sale of approximately $3.5 million. Net proceeds of approximately $14.4 million from the sale of this property were utilized to defease the related mortgage loan. Our share of the gain on the sale of Spring Mill Medical, Phase I, was approximately $1.2 million, net of our excess investment. We used the majority of our share of the net proceeds to pay down borrowings under our unsecured revolving credit facility.

Other income, net decreased approximately $0.6 million, or 80%, primarily as a result of a $0.5 million payment received from a lender in consideration for our agreement to terminate a loan commitment in 2007.

Interest expense increased approximately $3.4 million, or 13%, due to the following:


	Increase (Decrease) 2008 to 2007
Development properties that became operational or partially operational in 2007 or 2008	$	2,609,255
Property acquired during 2008		593,808
Properties under redevelopment during 2007 and 2008		(112,367	)
Properties fully operational during 2007 and 2008 & other		316,344
Total	$	3,407,040

Excluding the changes due to the acquisition of properties and transitioned development properties, the net $0.3 million increase in interest expense was primarily due to increased interest expense related to the $55 million outstanding on our term loan, which was entered into in July 2008. This was partially offset by lower LIBOR rates on our variable rate debt, including the line of credit, during fiscal year 2008 compared to 2007.

Income tax expense of our taxable REIT subsidiary increased $1.2 million, or 153%, primarily due to the income taxes incurred by our taxable REIT subsidiary associated with the gain on the sale of land in the first quarter of 2008 as well as the sale of Spring Mill Medical, Phase II, a consolidated joint venture property. This build-to-suit commercial asset that we sold was adjacent to Spring Mill Medical I and was owned in our taxable REIT subsidiary through a 50% owned joint venture with a third party. Our proceeds of this sale were approximately $10.6 million, and our associated construction costs were approximately $9.4 million, including a $0.9 million payment to our joint venture partner to acquire their partnership interest prior to the sale to a third party. Our share of net proceeds of approximately $1.2 million from this sale were primarily used to pay down borrowings under our unsecured revolving credit facility.

Minority interest in income of consolidated subsidiaries decreased approximately $0.5 million, or 89%. This decrease was primarily due to the following:

$0.3 million decrease as a result of the minority partners’ share of income related to the sale of a merchant building at our Sandifur Plaza property in 2007; and

$0.2 million decrease as a result of the minority partners’ share of income related to the sale of an outlot at our Beacon Hill property in 2007.

Operating income from discontinued operations, net of Limited Partners’ interests, increased $0.8 million and loss (gain) on sale of operating property, net of Limited Partners’ interests, decreased $3.7 million, for a net decrease of $2.9 million, or 175%. In December 2008, we sold our Silver Glen Crossings property, located in Chicago, Illinois, for net proceeds of $17.2 million and a loss on sale of $2.1 million, net of Limited Partners’ interests. In November 2007, we sold our 176^th & Meridian property, located in Seattle, Washington, for net proceeds of $7.0 million and a gain of $1.6 million, net of Limited Partners’ interests.

Comparison of Operating Results for the Years Ended December 31, 2007 and 2006

The following table reflects income statement line items from our consolidated statements of operations for the years ended December 31, 2007 and 2006:


	Year Ended December 31				Increase (Decrease) 2007 to 2006
	2007		2006		Increase (Decrease) 2007 to 2006
Revenue:
Rental income (including tenant reimbursements)	$	90,484,289	$	83,344,870	$	7,139,419
Other property related revenue		11,010,553		6,358,086		4,652,467
Construction and service fee revenue		37,259,934		41,447,364		(4,187,430	)
Expenses:
Property operating expense		15,121,325		13,580,369		1,540,956
Real estate taxes		11,917,299		11,259,794		657,505
Cost of construction and services		32,077,014		35,901,364		(3,824,350	)
General, administrative, and other		6,298,901		5,322,594		976,307
Depreciation and amortization		31,850,770		29,579,123		2,271,647
Operating income		41,489,467		35,507,076		5,982,391
Add:
Income from unconsolidated entities		290,710		286,452		4,258
Other income, net		778,552		344,537		434,015
Deduct:
Interest expense		25,965,141		21,221,758		4,743,383
Loss on sale of asset		—		764,008		(764,008	)
Income tax expense of taxable REIT subsidiary		761,628		965,532		(203,904	)
Minority interest in income of consolidated subsidiaries		587,413		117,469		469,944
Limited Partners’ interests in the continuing operations of the Operating Partnership		3,399,534		2,966,730		432,804
Income from continuing operations		11,845,013		10,102,568		1,742,445
Operating income from discontinued operations, net of Limited Partners’ interests		95,551		77,082		18,469
Gain on sale of operating property, net of Limited Partners’ interests		1,582,119		—		1,582,119
Net income	$	13,522,683	$	10,179,650	$	3,343,033

Rental income (including tenant reimbursements) increased approximately $7.1 million, or 9%, due to the following:


	Increase (Decrease) 2007 to 2006
Properties acquired during 2006	$	5,168,027
Development properties that became operational or partially operational in 2006 or 2007		3,151,994
Properties under redevelopment during 2007		(1,839,652	)
Properties fully operational during 2006 and 2007 & other		659,050
Total	$	7,139,419

Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties under redevelopment, the net $0.7 million increase in rental income was primarily related to the following:

$0.8 million increase due to the write off of intangible lease obligations in connection with the termination of a lease at our Silver Glen Crossings property;

$0.5 million net increase in real estate tax recoveries from tenants due to increased assessments at a number of our properties;

$0.3 million of increased rental income at one of our properties due to two new tenants that began paying rent in the second half of 2006;

$0.3 million of increased common area maintenance and property insurance recoveries from tenants at a number of our properties due to higher related expenses; and

$0.2 million of increased rental income at one of our properties due to a new anchor tenants that began paying rent in the second half 2007.

These increases in rental income were partially offset by the following:

$0.8 million decrease reflecting the termination of our lease with Marsh Supermarkets at Naperville Marketplace and the subsequent sale of the facility in the second quarter of 2006; and

$0.7 million decrease due to the termination of a lease at our Thirty South property in the fourth quarter of 2006.

Other property related revenue primarily consists of parking revenues, percentage rent, lease settlement income and gains on land sales. This revenue increased approximately $4.7 million, or 73%, primarily as a result of $4.0 million increased gains on land sales and an increase of $0.9 million in lease settlement income. This revenue increase was partially offset by a decrease of approximately $0.3 million in specialty leasing income as a result of the redevelopment of Glendale Town Center.

Construction revenue and service fees decreased approximately $4.2 million, or 10%. This decrease is primarily due to the level and timing of third party construction contracts during 2007 compared to 2006, partially offset by the net increase in proceeds from build-to-suit assets. In 2007, we had proceeds from the sale of a build-to-suit asset at Sandifur Plaza of $6.1 million while, in 2006, we had proceeds from the sale of a build-to-suit asset at Bridgewater Marketplace of $5.3 million.

Property operating expenses increased approximately $1.5 million, or 11%, due to the following:


	Increase (Decrease) 2007 to 2006
Properties acquired during 2006	$	958,716
Development properties that became operational or partially operational in 2006 or 2007		681,211
Properties under redevelopment during 2007		(714,967	)
Properties fully operational during 2006 and 2007 & other		615,996
Total	$	1,540,956

Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties under redevelopment, the net $0.6 million increase in property operating expenses was primarily due to the following:

$0.4 million increase in snow removal expense primarily at our Indiana and Illinois properties, the majority of which is recoverable from tenants;

$0.2 million increase in landscaping and parking expense at a number of our operating properties, the majority of which is recoverable from tenants; and

$0.2 million net increase in repair and maintenance expense at a number of our operating properties, some of which is recoverable from tenants.

These increases in property operating expenses were partially offset by the following:

$0.1 million net decrease in bad debt expense at a number of our operating properties; and

$0.1 million net decrease in non-recoverable legal expenses at one of our operating properties.

Real estate taxes increased approximately $0.7 million, or 6%, due to the following:


	Increase (Decrease) 2007 to 2006
Properties acquired during 2006	$	537,220
Development properties that became operational or partially operational in 2006 or 2007		364,184
Properties under redevelopment during 2007		(282,416	)
Properties fully operational during 2006 and 2007 & other		38,517
Total	$	657,505

Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties under redevelopment, the net $38,517 increase in real estate taxes represented a net increase of

approximately $0.5 million in real estate tax assessments at a number of our properties, the most significant increases at properties located in Texas and Illinois. This increase in real estate taxes was partially offset by a real estate tax refund, net of related professional fees, of approximately $0.5 million for fiscal years 2002 through 2004 at our Thirty South property, which was received in 2007.

Cost of construction and services decreased approximately $3.8 million, or 11%. This decrease is primarily due to the level and timing of third party construction contracts during 2007 compared to 2006, partially offset by the net increase in costs associated with the sale of build-to-suit assets. In 2007, we had costs associated with the sale of a build-to-suit asset at Sandifur Plaza of $4.1 million and in 2006 we had $3.5 million of costs associated with the sale of a build-to-suit asset at Bridgewater Marketplace.

General, administrative and other expenses increased approximately $1.0 million, or 18%. In 2007, general, administrative and other expenses were 4.5% of total revenue and in 2006, general, administrative and other expenses were 4.1% of total revenue. This increase in general, administrative and other expenses was primarily due to higher share-based incentive compensation costs and increased staffing attributable to our growth. The costs of operating as a public company remained relatively flat between years.

Depreciation and amortization expense increased approximately $2.3 million, or 8%, due to the following:


	Increase (Decrease) 2007 to 2006
Properties acquired during 2006	$	1,998,616
Development properties that became operational or partially operational in 2006 or 2007		802,052
Properties under redevelopment during 2007		(713,325	)
Properties fully operational during 2006 and 2007 & other		184,304
Total	$	2,271,647

Excluding the changes due to the acquisition of properties, transitioned development properties, and the properties under redevelopment, the net $0.2 million increase in depreciation and amortization expense was primarily due to the following:

$0.9 million net increase in the acceleration of depreciation of vacated tenant costs at our fully operational properties during 2007 compared to 2006; and

$0.8 million increase due to the write off of intangible lease assets in connection with the termination of a lease at our Silver Glen Crossings property in 2007.

These increases in depreciation and amortization expenses were partially offset by the following:

$0.9 million decrease reflecting the termination of our lease with Marsh Supermarkets at Naperville Marketplace and the subsequent sale of the facility in the second quarter of 2006; and

$0.6 million of intangible lease obligations written down related to our lease with Winn-Dixie at our Shops at Eagle Creek property, which was terminated in 2006.

Other income, net increased approximately $0.4 million, or 126%, primarily as a result of a $0.5 million payment received from a lender in consideration for our agreement to terminate a loan commitment in 2007.

Interest expense increased approximately $4.7 million, or 22%, due to the following:


	Increase 2007 to 2006
Properties acquired during 2006	$	1,201,928
Development properties that became operational or partially operational in 2006 or 2007		1,690,255
Properties fully operational during 2006 and 2007 & other		1,851,200
Total	$