Edgar Filing: KITE REALTY GROUP TRUST

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

FORM 10-K


(Mark One)

x	Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the fiscal year ended December 31, 2006 or
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 x

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 x

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 x 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 or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.


	Large accelerated filer	o	Accelerated filer	x	Non-accelerated filer	o

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

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 $430.6 million based upon the closing price of $15.59 per share on the New York Stock Exchange on such date.

The number of Common Shares outstanding as of March 9, 2007 was 28,882,323 ($.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 7, 2007, 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, 2006

TABLE OF CONTENTS


			Page

Item No.

Part I

	1.	Business	4
	1A.	Risk Factors	10
	1B.	Unresolved Staff Comments	24
	2.	Properties	25
	3.	Legal Proceedings	37
	4.	Submission of Matters to a Vote of Security Holders	37

Part II

	5.	Market for the Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	37
	6.	Selected Financial Data	40
	7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
	7A.	Quantitative and Qualitative Disclosures about Market Risk	61
	8.	Financial Statements and Supplementary Data	61
	9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	61
	9A.	Controls and Procedures	61
	9B.	Other Information	64

Part III

	10.	Directors, Executive Officers and Corporate Governance	64
	11.	Executive Compensation	64
	12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	64
	13.	Certain Relationships and Related Transactions, and Director Independence	64
	14.	Principal Accounting Fees and Services	64

Part IV

	15.	Exhibits, Financial Statement Schedule	65

Signatures			66

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;

	•	the ability of tenants to pay rent;

	•	the competitive environment in which the Company operates;

	•	financing risks;

	•	property ownership and management risks;

	•	the level and volatility of interest rates;

	•	the financial stability of tenants;

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

	•	acquisition, disposition, development and joint venture risks;

	•	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 growth markets in the United States. We also provide real estate facility management, construction, development and other advisory services to third parties.

As of December 31, 2006, we owned interests in a portfolio of 49 retail operating properties totaling approximately 7.6 million square feet of gross leasable area (including approximately 2.3 million square feet of non-owned anchor space) and 11 retail development properties that are expected to contain approximately 1.7 million square feet of total gross leasable area (including non-owned anchor space). Our retail operating portfolio was 93.4% leased as of December 31, 2006 to a diversified tenant base, with no single retail tenant accounting for more than 3.7% of our total annualized base rent. We also own interests in four commercial operating properties totaling approximately 563,000 square feet of net rentable area and an associated parking garage. Occupancy of our commercial operating portfolio was 91.7% as of December 31, 2006, with no single commercial tenant accounting for more than 2.4% of our annualized base rent. See “Item 2. Properties” for a list of our top 25 tenants by annualized base rent. In addition, we own interests in land parcels comprising approximately 115 acres that may be used for future development of retail or commercial properties or for expansion of existing properties. Our operating portfolio and land parcels are located in Indiana, Florida, Texas, Illinois, New Jersey, Georgia, Washington, Ohio, and Oregon.

We were formed in March 2004 and organized as a Maryland real estate investment trust. From inception until August 16, 2004, neither we, our Operating Partnership, nor our other subsidiaries had any operations. We commenced operations on August 16, 2004 after completing our initial public offering (“IPO”), concurrently with the consummation of various formation transactions that consolidated into our Operating Partnership the ownership of a portfolio of properties and property interests, and certain commercial real estate businesses of our predecessor, the Kite Property Group, a nationally recognized real estate owner and developer. Kite, Inc., a former affiliate of Kite Property Group, was founded in 1960 by our Chairman, Al Kite, and grew from an interior construction company to a full-service, vertically integrated real estate development, construction and management company. We conduct all of our business through our Operating Partnership, of which we are the sole general partner. As of December 31, 2006, we held an approximate 77% interest in our Operating Partnership.

2006 Activities

Formation of Joint Venture with Prudential Real Estate Investors. In September 2006, we announced an agreement (the “Venture”) with Prudential Real Estate Investors (“PREI”) to pursue joint venture opportunities for the development and selected acquisition of community shopping centers in the United States. The Venture intends to develop or acquire up to $1.25 billion of well-positioned community shopping centers in strategic markets in the United States. Under the terms of the agreement, we have agreed to present to PREI opportunities to develop or acquire community shopping centers, each with estimated project costs in excess of $50 million. We have the option to present to PREI additional opportunities with estimated project costs under $50 million. It is expected that equity capital contributions of up to $500 million will be made to the Venture for qualifying projects. We expect contributions to be made on a project-by-project basis, with PREI contributing 80% and us contributing the remaining 20% of the equity required. The parties anticipate equity contributions will be required near the time of development stabilization or at the time a property acquisition is identified in the future. We expect to generate fee income from managing any shopping center properties developed or acquired under this arrangement and will receive additional fees for development, leasing and construction management services. We also expect to have the opportunity to earn performance-based incentives.

In December 2006, we contributed 100 acres of development land located in Cary, North Carolina to the Venture at a cost of $38.5 million. Our contribution includes the Venture’s assumption of $35.6 million of variable rate debt. This project, which will be named Parkside Town Commons, is located in the “Triangle” of Raleigh, Durham, and Chapel Hill

and is adjacent to Research Triangle Park. The site is zoned to support up to 750,000 square feet of retail space, in addition to office space and either residential units or a hotel. As of December 31, 2006, we owned a 40% interest in the Venture, which will be reduced to 20% upon the commencement of construction under the terms of the agreement with PREI.

2006 Acquisition Activities. During 2006, we completed the acquisition of three operating properties and one property that was purchased under construction and subsequently became operational. These four properties have a total of approximately 0.8 million square feet of gross leasable area (including non-owned anchor space) and were acquired for a total cost of $92.8 million (including assumed debt), as described below:


•	Kedron Village. On April 3, 2006 we purchased Kedron Village, a 282,124 square foot neighborhood shopping center under construction in Peachtree City, Georgia (a suburb of Atlanta), for a total purchase price of approximately $34.9 million, net of purchase price adjustments, including tenant improvement and leasing commission credits of $2.0 million, which was financed through variable rate debt and draws against our revolving credit facility. Kedron Village partially opened in the third quarter of 2006 and became fully operational during the fourth quarter.

•	Naples, Florida Acquisitions. On July 6, 2006, we acquired the following three 100 percent-leased shopping center properties in Naples, Florida for a total purchase price of approximately $57.9 million:

	•	Pine Ridge Crossing, a 258,882 square foot neighborhood shopping center, for a total purchase price of approximately $22.6 million;

	•	Riverchase, a 78,340 square foot neighborhood shopping center, for a total purchase price of approximately $15.5 million; and

	•	Courthouse Shadows, a 134,867 square foot neighborhood shopping center, for a total purchase price of approximately $19.8 million.

	To finance the purchase price for these properties, we incurred variable rate indebtedness of $57.9 million.

2006 Development Activities. During 2006, we added three land parcels to our development pipeline:

•	Bayport Commons, Oldsmar, Florida (a suburb of Tampa). We expect this development to be an estimated 281,100 square foot neighborhood shopping center (including 174,000 square feet of non-owned space to be occupied by Target) on approximately 29 acres. We expect Michaels and PetSmart to be additional anchor tenants. The project has a total estimated cost of approximately $25 million and an anticipated opening date in the second half of 2007;

•	Cobblestone Plaza, Pembroke Pines, Florida (a suburb of Fort Lauderdale). We expect this development to be an estimated 157,800 square foot neighborhood shopping center anchored by Whole Foods and Staples. The project has a total estimated cost of approximately $45 million and an anticipated opening date in late 2007 or early 2008; and

•	54^th & College, Indianapolis, Indiana. We expect this development to be an estimated 20,100 square foot Fresh Market grocery store. We own this land and have signed a ground lease with the tenant. The project has a total estimated cost of approximately $2.5 million and has an anticipated opening date in the fourth quarter of 2007.


	Also during 2006, we completed the following development properties and added them to our operating portfolio:

	•	Eagle Creek Lowe’s, a property adjacent to our Shops at Eagle Creek property and ground leased to Lowe’s Home Improvement;

	•	Zionsville Place, a 12,400 square foot neighborhood shopping center located in Zionsville, Indiana (a suburb of Indianapolis, Indiana);


	•	Geist Pavilion, a 64,114 square foot neighborhood shopping center located in Fishers, Indiana (a suburb of Indianapolis, Indiana) and anchored by Ace Hardware and Party Tree, a locally owned party supply store;

	•	Traders Point II, a 46,600 square foot community shopping center in Indianapolis, Indiana, located adjacent to our Traders Point property; and

	•	Red Bank Commons, a 324,308 square foot neighborhood shopping center (including 212,000 square feet of non-owned anchor space) located in Evansville, Indiana, and shadow anchored by Wal-Mart and Home Depot.

	In addition, two of our retail development properties became partially operational during 2006:

	•	Beacon Hill Shopping Center, a 162,700 square foot neighborhood shopping center (including 105,500 square feet of non-owned anchor space) located in Crown Point, Indiana, shadow anchored by Strack & Van Til’s, became partially operational in June 2006; and

	•	Naperville Marketplace, a 169,600 square foot neighborhood shopping center (including 70,000 square feet of non-owned anchor space) located in Naperville, Illinois (a suburb of Chicago, Illinois), anchored by TJ Maxx, shadow anchored by Caputo’s Fresh Market, became partially operational in August 2006.

Distributions. In 2006, we declared two quarterly cash distributions of $0.1875 per common share and two quarterly cash distributions of $0.195 per common share (which is equivalent to an annual distribution of $0.765 per common share).

Business Strategy

Our primary business objectives are to generate increasing cash flow, achieve sustainable long-term growth and maximize shareholder value primarily through the development, acquisition and operation of well-located community and neighborhood shopping centers. We seek to implement our business objectives by:


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

	•	continuing to pursue land parcels in attractive markets that can support retail development;

	•	acquiring well-located, high-quality retail properties or portfolios through our investment and market selection process;

	•	maintaining a focused property management and leasing strategy;

	•	selling certain assets and recycling capital; and

	•	leveraging our construction and advisory services businesses.

Development Activities. We serve as an in-house and third-party developer for national retailers and other clients, providing a broad range of services that include site selection, development incentives procurement, design, leasing, construction and property management. As a vertically integrated real estate company, we control all aspects of the development process from design to operation, which improves our ability to deliver a quality product to our tenants on budget and on time. We have in-house capabilities and expertise in project design, development, leasing, construction and property management. Our construction expertise enables us to better identify and complete redevelopment and value-enhancing acquisition opportunities. We believe that our vertically integrated platform allows us to achieve attractive risk-adjusted returns on our development projects while substantially mitigating the risks associated with ground-up development.

We have an extensive current development pipeline that includes projects for which construction has commenced. We expect our current development pipeline to be a significant source of growth for us over the next several years. As of December 31, 2006, we had 11 retail properties in the development pipeline that are expected to contain approximately 1.7 million square feet, of which approximately 0.7 million square feet will be owned by us and, in some cases, through joint ventures with the remainder to be owned by anchor stores upon completion of the development. The total estimated cost for these properties, including our share and our joint venture partners’ share, is approximately $201.1 million, of which

approximately $119.1 million had been incurred as of December 31, 2006. Our share of the total estimated cost is approximately $134.0 million, of which we had incurred approximately $81.9 million as of December 31, 2006.

In addition to our current development pipeline, we have a significant “visible shadow” development pipeline which includes land parcels that are in the final stages of preparation for construction to commence. As of December 31, 2006, this visible shadow pipeline consisted of three projects that are expected to contain approximately 1.2 million square feet, at a total estimated project cost of approximately $244 million. Finally, as of December 31, 2006, we also owned interests in undeveloped land parcels comprising approximately 115 acres that represent future retail and commercial development opportunities, either in the form of expansion of existing properties or development of new retail properties. We believe our extensive development pipeline creates substantial opportunities to increase cash flow and create long-term shareholder value.

Property Acquisitions and our Investment and Market Selection Process. We seek to develop and acquire primarily neighborhood and community shopping centers in neighborhood trade areas with attractive demographics. When specific markets are selected, we seek a convenient and easily accessible location, preferably occupying a dominant corner that has abundant parking facilities, is close to residential communities, and has excellent visibility for our tenants and easy access for neighborhood shoppers. Our selection process emphasizes the following factors:


	Market and Trade Area: In order to take advantage of our current resources and create economies of scale, our development and acquisition activities are focused primarily in or near the markets in which we currently operate or in which we have had previous experience. By having a presence in a market and developing relationships in that market, we have a greater awareness of market trends and opportunities.

	We evaluate each market based on appropriate criteria and prospective use, including:


	•	historical and projected population growth;

	•	average household income and density of population within a one-, three- or five-mile radius of the center, depending on the characteristics of the property;

	•	transportation patterns and infrastructure;

	•	barriers to the development of competing centers; and

	•	diverse employment base.


	We also consider opportunities to expand into other geographic markets if we believe those markets have favorable long-term growth prospects.

	Property Characteristics: We focus on neighborhood and community shopping centers anchored by market-leading retailers or smaller operators with dominant niche positions. In addition, we focus on the presence of one or more additional anchors for these centers, including off-price retailers, office superstores, grocers and fabric and clothing retailers, all of which we believe increase traffic at the centers and are generally beneficial to the value of the center. We also seek properties with a diverse tenant mix that includes service retailers, such as banks, florists, video stores, restaurants, and apparel and specialty shops. We target dominant shopping centers that generate a steady, repetitive flow of traffic by providing staple goods to the community and offering a high level of convenience with ease of access and abundant parking.

We plan to focus our new investments in the shopping center sector, but also may selectively pursue commercial development opportunities in markets where we currently operate and where we believe we can leverage our existing infrastructure and relationships to generate attractive risk adjusted returns. In evaluating future investments in properties other than neighborhood and community shopping centers, we seek properties or transactions that have unique characteristics that present a compelling case for investment. Examples might include properties having high entry yields, properties that are outside of our target markets but are being sold as part of a portfolio package, properties that are debt-free, a transaction in which we might issue units in our Operating Partnership or properties that provide substantial growth potential through redevelopment.


	Retailer Relationships: We seek to partner with key tenants and retailers, such as Lowe’s, Walgreens, Old Navy, Bed Bath & Beyond, Staples, Publix, Kohl’s, Target and Wal-Mart, to identify attractive investments in new and existing markets. We seek to maintain 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.

	We believe we will continue to source a significant volume of growth opportunities through the extensive network of tenant, corporate and institutional relationships we have established through our Predecessor over the past four decades. Additionally, we believe our status as a publicly traded umbrella partnership REIT will enhance our ability to acquire properties from tax-motivated sellers through the use of Operating Partnership units as consideration, thereby providing sellers with liquidity and diversification while providing the opportunity for substantial deferral of income taxes that otherwise would be due as a result of a cash sale.

Property Management and Leasing Strategy. We believe that focused property management, leasing and tenant retention are essential to maximizing the cash flow and value of our properties. While our property management and leasing functions are supervised and administered by personnel at our principal executive office, we do at times engage third party companies for property management functions at our properties.

Our primary goal in property management is to maintain an attractive shopping environment on a cost effective basis for our tenants. Our property managers maintain regular contact with our tenants and frequently visit each asset to supervise the local personnel and to ensure the proper implementation and execution of our policies and directives. As part of our ongoing property management, we conduct regular physical property reviews to improve our properties, react to changing market conditions and ensure proper maintenance. In addition, we have a competitive bid process for the majority of our service contracts. In the future, we may establish regional offices in certain markets such as Florida, where we plan to expand our current operations through additional acquisitions and development.

Our relationships with several national retailers that currently occupy space at our properties are the cornerstone of our overall leasing strategy. These nationally recognized anchors enhance the stability and attractiveness of our properties by driving customer traffic, thereby enhancing the performance of our non-anchor tenants and small shops. Due to the importance of these anchors to our business, our leasing and development teams work closely with each retailer on site selection and expansion opportunities within our current and future portfolio. This focused coverage allows us to anticipate space needs, fill vacant space in our existing portfolio, and identify opportunities to enter into new markets.

Our leasing representatives have become experts in the markets in which we operate by familiarizing themselves with current tenants as well as potential local, regional and national tenants that would complement our current tenant base. In addition, we utilize a network of brokers to source a variety of tenants for our properties. We also study demographics, tenant sales and merchandising mix to optimize the sales performance of our centers and thereby increase rents. We believe this hands-on approach maximizes the value of our shopping centers.

Disposition Strategy. We review each of our assets on a regular basis to determine the appropriate capital strategy for the asset. This review involves weighing the asset’s future potential growth against its current market value. Subject to REIT qualification rules, avoidance of the 100% “prohibited transactions tax” applicable to REITs and tax protection obligations that we undertook in connection with our formation transactions, we will consider disposing of properties if we determine that a sale of a property would be in our best interests based on the price being offered for the property, the operating performance of the property, the tax consequences of the sale and other factors and circumstances surrounding the proposed sale. Property dispositions that would give rise to an indemnification obligation under the tax protection obligations we undertook in connection with our formation transactions are subject to approval by a majority of our independent trustees.

Construction and Advisory Services Operations. We provide general construction, construction management, design/build and complete site development services and have experience in corporate, institutional, hotel, medical and retail construction. KMI Realty Advisors (“KMI”), one of our subsidiaries, is a registered real estate advisor, providing strategic property services to both the public and private sectors. KMI provides a full range of real estate consulting services including portfolio management, due diligence, acquisition, development, financial, program management, facility management and disposition services. KMI utilizes resources from our development and construction operations to customize a real estate strategy to achieve specific client goals. In addition to being a continuing source of advisory income, we believe KMI will help facilitate future access to capital and avenues for growth.

Financing Strategy

We consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the additional borrowings, including the purchase price of properties to be developed or acquired with debt financing, the estimated market value of our properties upon refinancing and the ability of particular properties, as well as our Company as a whole, to generate cash flow to cover expected debt service.

Generally speaking, although we may incur any of the forms of indebtedness described below, we intend to focus primarily on financing future growth through the incurrence of secured debt on an individual property or a portfolio of properties. We may incur debt in the form of purchase money obligations to the sellers of properties, or in the form of publicly or privately placed debt instruments, financing from other banks, institutional investors, or other lenders, any of which may be unsecured or may be secured by mortgages or other interests in our properties. This indebtedness may be recourse, non-recourse or cross-collateralized and, if recourse, that recourse may include our general assets and, if non-recourse, may be limited to the particular property to which the indebtedness relates. In addition, we may invest in properties subject to existing loans secured by mortgages or similar liens on the properties, or may refinance properties acquired on a leveraged basis. We may use the proceeds from any borrowings for working capital, to purchase additional interests in partnerships or joint ventures in which we participate, to refinance existing indebtedness or to finance acquisitions, expansion, redevelopment of existing properties or development of new properties. We also may incur indebtedness for other purposes when, in the opinion of our board or management, it is advisable to do so. In addition, we may need to borrow to make distributions (including distributions that may be required under the Internal Revenue Code) if we do not have sufficient cash available to make those distributions.

Business Segments

Our principal business is the development, construction, acquisition, ownership and operation of high-quality neighborhood and community shopping centers in selected growth 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 14 Segment Information in our Notes to Consolidated and Combined 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 (loss) to net income (loss) and total segment assets to total assets for the years ended December 31, 2006, 2005 and 2004.

Competition

We encounter competition for development and acquisitions of existing income-producing properties. 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 competition in leasing available space at our properties to prospective tenants. The actual competition for tenants varies depending upon the characteristics of each local market in which we own and manage property. We believe that the principal competitive factors in attracting tenants in our market areas are location, price, the presence of anchor stores, and maintenance 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 achievable 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.

As a general rule, these tenants have covenanted 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 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

We have 109 full-time employees. Of these employees, 82 are “home office” executive and administrative personnel and 27 are on-site management and administrative 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 in print and free of charge to any shareholder upon request. You can also obtain such copies in print by contacting 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

	•	tax risks.

RISKS RELATED TO OUR OPERATIONS

We expect to continue to experience rapid growth and may not be able to adapt our management and operational systems to respond to the integration of additional properties without significant disruption or expense.

We have rapidly expanded our business in recent years. Our portfolio includes 30 operating properties that we have acquired since 1999, including 17 since our IPO, which contain approximately 2.4 million square feet of owned gross leasable area. Since our IPO, we have delivered 14 properties from our development pipeline into our operating portfolio, and we currently have under construction 11 additional retail properties projected to total approximately 1.7 million square feet of gross leasable area (including non-owned anchor space). In addition to this active current development pipeline, we have additional land parcels that are in the final stages of preparation for the commencement of construction (our visible shadow pipeline). These parcels are expected to contain approximately 1.2 million square feet of gross leasable area. We also expect to continue to pursue additional acquisition and development opportunities.

As a result of the rapid growth of our portfolio, we cannot assure you that we will be able to adapt our management, administrative, accounting and operational systems or hire and retain sufficient operational staff to integrate these properties into our portfolio and manage any future acquisitions of additional properties without operating disruptions or unanticipated costs. As we develop or acquire additional properties, we will be subject to risks associated with managing new properties, including tenant retention and mortgage default. In addition, acquisitions or developments may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants, retailers and employees. In addition, our profitability may suffer because of acquisition-related costs or amortization costs for acquired intangible assets. Our failure to successfully integrate any future properties into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to make distributions to our shareholders.

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

We expect to develop and/or acquire a number of real estate properties in the near future. Shareholders ultimately may not like the location, lease terms or other relevant economic and financial data of any real properties, other assets or other companies we may develop or acquire in the future. New developments 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, 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 will be adversely affected. In addition, the issuance of equity securities for any acquisitions could be substantially dilutive to our shareholders.

Our results of operations will be significantly influenced by the economies of the markets in which we operate, and the market for retail space generally.

We are susceptible to adverse developments in the markets in which we operate, such as business layoffs or downsizing, industry slowdowns, 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 and other factors. In addition, as of December 31, 2006, approximately 40% of our owned square footage and approximately 38% of our total annualized base rent is located in the State of Indiana, approximately 23% of our owned square footage and approximately 21% of our total annualized base rent is located in the State of Florida and approximately 20% of our owned square footage and approximately 21% of our total annualized base rent is located in the State of Texas, which exposes us to greater economic risks than if we owned properties in numerous geographic regions. Any adverse economic or real estate developments in Indiana, Florida, Texas, or the surrounding region, or any of the markets in which we operate, or any decrease in demand for retail space resulting from the local regulatory environment, business climate or fiscal problems, could 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.

Moreover, because our portfolio of properties consists primarily of community and neighborhood shopping centers, a decrease in the demand for retail space 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 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 affect market rents for retail space and could harm our business.

We had approximately $567 million of consolidated indebtedness outstanding as of December 31, 2006, which may impede our operating performance and reduce our ability to incur additional indebtedness to fund our growth.

Required repayments of debt and related interest can adversely affect our operating performance. We had approximately $567 million of consolidated outstanding indebtedness as of December 31, 2006. Approximately $170.7 million of this debt (as reduced by $50 million of interest rate swaps) was at variable 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 would adversely affect our results of operations.

We use a combination of interest rate protection agreements, including interest rate swaps, 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 may harm our business and operating results by:


	•	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.

In addition to the risks discussed above and those normally associated with debt financing, including the risk that our cash flow will be insufficient to meet required payments of principal and interest, we also are subject to the risk that we will not be able to refinance the existing indebtedness on our properties (which, in most cases, will not have been amortized fully at maturity) or obtain permanent financing on development projects we financed with construction loans or mezzanine debt, and that the terms of any refinancing we could obtain would not be as favorable as the terms of our existing indebtedness. If we are not successful in refinancing this 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.

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, 2006, all 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 negative 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 financial covenants may restrict our operating and acquisition activities.

Our revolving credit facility contains 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.

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 seriously harm our performance.

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. 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 seriously harm our performance. As of December 31, 2006, the five largest tenants in our operating

portfolio in terms of annualized base rent were Lowe’s Home Improvement, Circuit City, Publix, the State of Indiana, and Marsh Supermarkets, with scheduled annualized base rents for each representing 3.7%, 2.8%, 2.7%, 2.4%, and 2.4%, respectively, of our total annualized base rent.

We may be unable to collect balances due from any tenants in bankruptcy.

We cannot assure you 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.

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, 2006, we owned four of our operating properties through joint ventures, two of which were accounted for using the equity method as we do not exercise requisite control for consolidation treatment. For the twelve months ended December 31, 2006, the four properties represented approximately 7% of our annualized base rent. In addition, seven of the properties in our development pipeline are currently owned through joint ventures. We also owned a non-controlling interest in one parcel of land that was accounted for under the equity method as of December 31, 2006 as we do not exercise requisite control for consolidation treatment. We have also entered into an agreement with PREI 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.

Adverse market conditions may impede our ability to renew leases or re-let space as leases expire and require us to undertake unbudgeted capital improvements, which could harm our business.

The economic performance and value of our real estate assets are subject to all of the risks associated with owning and operating real estate, including risks related to adverse changes in national, regional and local economic and market conditions. Our operating and development properties currently are located in nine states, with approximately 40% of our owned square footage and approximately 38% of our total annualized base rent located in the State of Indiana, approximately 23% of our owned square footage and approximately 21% of our total annualized base rent located in the State of Florida, and approximately 20% of our owned square footage and approximately 21% of our total annualized base rent located in the State of Texas. The economic condition of each of our markets may be dependent on one or more industries. An economic downturn in one of these industry sectors may result in an increase in tenant bankruptcies, which may harm our performance in the affected market. Economic and market conditions also may affect the ability of our tenants to make lease payments. If our properties do not generate sufficient income to meet our operating expenses, our income and results of operations will be significantly harmed.

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 adversely affected. As of December 31, 2006, leases were scheduled to expire on a total of approximately 7% of the space at our properties in 2007. 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.

We also face significant competition for development and acquisition opportunities. Many of our competitors have greater financial resources and a greater ability to borrow funds than we do to develop or acquire properties. Competition for investments may reduce the number of suitable investment opportunities available to us and may have the effect of increasing development or acquisition costs and/or reducing the rents we can charge and, as a result, adversely affect our operating results. The current market for acquisitions is extremely competitive.

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

A central 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 adversely affect our operations.

Redevelopment activities may be delayed or otherwise may not perform as expected.

We expect to redevelop certain of our 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 are currently pursuing the redevelopment of our Glendale Mall property in Indianapolis, Indiana. As of December 31, 2006, Glendale Mall was our largest property on a square footage basis with an annualized base rent of approximately $2.1 million, representing approximately 3.5% of our total annualized base rent. We anticipate that our redevelopment will include demolishing the enclosed mall between the two anchor buildings, selling a portion of the property to a new anchor, and constructing new small shop buildings on the property. Approximately 54 leases were terminated with tenants located in the portions of the mall to be demolished. We anticipate that tenant buyouts and relocation costs will be approximately $1 million. Macy’s, Kerasotes Theatres, Staples, and the Indianapolis-Marion County Public Library will continue operating and paying rent during the redevelopment. Based on current redevelopment plans, we expect our net investment to be approximately $15 million, after any proceeds from tax increment financing and other sources.

We may not be able to sell properties when appropriate.

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, 2006. 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 these 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 vary our portfolio 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.

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. 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 38% of our total annualized base rent is located; Florida, where approximately 23% of our owned square footage and 21% of our total annualized base rent is located; and Texas, where approximately 20% of our owned square footage and 21% 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;

	•	decreased attractiveness of our properties to tenants;

	•	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;

	•	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.

In addition, periods of economic slowdown or recession, 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, which would 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.

Potential losses may not be covered by insurance.

We carry comprehensive liability, fire, extended coverage and rental loss insurance covering all of the properties in our portfolio. 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. 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 and difficult to obtain exposing us to potential risk of loss.

We currently carry comprehensive insurance on all of our properties, including insurance for property damage and third-party liability. We believe this coverage is of the type and amount customarily obtained for or by an owner of real property assets. We intend to obtain comparable insurance coverage on subsequently acquired properties.

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.

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. The properties will be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses.

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. As a general rule, these tenants have covenanted 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.

Although we believe that our properties are in substantial compliance with federal, state and local environmental laws, ordinances and regulations regarding hazardous or toxic substances, this belief is based on limited testing. 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, 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 overage 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 (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, 2006, we had outstanding 28,842,831 common shares. Of these shares, approximately 27,530,000 are freely tradable, except for any shares held by our “affiliates,” as that term is defined by Rule 144 under the Securities Act. In addition, approximately 8.4 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 in, or issuable upon redemption of units in our Operating Partnership issued 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 partnership 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 management team have outside business interests that could require time and attention.

Certain members of our management team own interests in properties that are not part of our Company. These properties include a 243-room Indianapolis luxury hotel and condominium development that opened in 2006, one option property, 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 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 provide for an initial term that ends in December 2007, with automatic one-year renewals unless either we or the officer elects not to renew the agreement. 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, our operations and financial condition could be impaired.

We depend on external capital.

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. Because of these distribution requirements, we likely 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 elected to be taxed as a REIT for federal income tax purposes commencing with our taxable year ending December 31, 2004, and we plan to operate so that we can meet the requirements for qualification and taxation 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 1.B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Retail Operating Properties

As of December 31, 2006, we owned interests in a portfolio of 49 retail operating properties totaling approximately 7.6 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, 2006:

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

International Speedway Square	FL	Daytona	1999	1999	Developed	233,901	220,901	98.2	%
King’s Lake Square	FL	Naples	1986	2003	Acquired	85,497	85,497	97.5	%
Wal-Mart Plaza	FL	Gainesville	1970	2004	Acquired	177,826	177,826	100.0	%
Waterford Lakes	FL	Orlando	1997	2004	Acquired	77,948	77,948	98.5	%
Shops at Eagle Creek¹⁰	FL	Naples	1998	2003	Acquired	75,944	75,944	57.4	%
Eagle Creek Lowe’s	FL	Naples	2006	2006	Developed	165,000	—	*
Pine Ridge Crossing	FL	Naples	1993	2006	Acquired	258,882	105,515	100.0	%
Riverchase	FL	Naples	1991	2006	Acquired	78,340	78,340	100.0	%
Courthouse Shadow	FL	Naples	1987	2006	Acquired	134,867	134,867	100.0	%
Circuit City Plaza	FL	Ft. Lauderdale	2004	2004	Developed	405,906	45,906	91.5	%
Indian River Square	FL	Vero Beach	1997/2004	2005	Acquired	379,246	144,246	100.0	%
Bolton Plaza⁴	FL	Jacksonville	1986	2005	Acquired	172,938	172,938	95.0	%
Centre at Panola	GA	Atlanta	2001	2004	Acquired	73,079	73,079	98.4	%
Publix at Acworth	GA	Atlanta	1996	2004	Acquired	69,628	69,628	100.0	%
Kedron Village	GA	Atlanta	2006	2006	Acquired	282,124	157,407	84.6	%
Silver Glen Crossing	IL	Chicago	2002	2004	Acquired	138,265	132,716	96.9	%
Fox Lake Crossing	IL	Chicago	2002	2005	Acquired	99,072	99,072	93.3	%
Glendale Mall	IN	Indianapolis	1958/2000	1999	Redeveloped	724,026	579,189	73.8	%
Cool Creek Commons	IN	Indianapolis	2005	2005	Developed	133,207	120,678	100.0	%
Boulevard Crossing	IN	Kokomo	2004	2004	Developed	213,696	123,696	93.1	%
Traders Point	IN	Indianapolis	2005	2005	Developed	348,835	279,558	94.9	%
Traders Point II	IN	Indianapolis	2005	2005	Developed	46,600	46,600	57.1	%
Hamilton Crossing	IN	Indianapolis	1999	2004	Acquired	87,424	82,424	100.0	%
Fishers Station⁵	IN	Indianapolis	1989	2004	Acquired	114,457	114,457	87.9	%
Whitehall Pike	IN	Bloomington	1999	1999	Developed	128,997	128,997	100.0	%
The Centre⁶	IN	Indianapolis	1986	1986	Developed	80,689	80,689	95.5	%
The Corner Shops	IN	Indianapolis	1984/2003	1984	Developed	42,545	42,545	100.0	%
Stoney Creek Commons	IN	Indianapolis	2006	2006	Developed	189,527	49,330	100.0	%
Greyhound Commons	IN	Indianapolis	2005	2005	Developed	153,187	—	*
Weston Park Phase I	IN	Indianapolis	2005	2005	Developed	12,200	—	*
Geist Pavilion	IN	Indianapolis	2006	2006	Developed	64,114	64,114	83.7	%
Zionsville Place	IN	Indianapolis	2006	2006	Developed	12,400	12,400	90.3	%
Red Bank Commons	IN	Evansville	2005	2006	Developed	324,308	34,308	66.3	%
Martinsville Shops	IN	Martinsville	2005	2005	Developed	10,986	10,986	100.0	%
50 South Morton	IN	Indianapolis	1999	1999	Developed	2,000	2,000	100.0	%
Ridge Plaza	NJ	Oak Ridge	2002	2003	Acquired	115,088	115,088	94.5	%
Eastgate Pavilion	OH	Cincinnati	1995	2004	Acquired	236,230	236,230	100.0	%
Shops at Otty⁷	OR	Portland	2004	2004	Developed	154,845	9,845	100.0	%
Plaza at Cedar Hill	TX	Dallas	2000	2004	Acquired	299,847	299,847	100.0	%
Sunland Towne Centre	TX	El Paso	1996	2004	Acquired	312,450	307,474	99.5	%
Galleria Plaza⁸	TX	Dallas	2002	2004	Acquired	44,306	44,306	100.0	%
Cedar Hill Village	TX	Dallas	2002	2004	Acquired	139,092	44,262	94.2	%
Preston Commons	TX	Dallas	2002	2002	Developed	142,564	27,564	90.0	%
Burlington Coat Factory⁹	TX	San Antonio	1992/2000	2000	Redeveloped	107,400	107,400	100.0	%
Plaza Volente	TX	Austin	2004	2005	Acquired	160,333	156,333	100.0	%
Market Street Village	TX	Hurst	2004	2005	Acquired	164,125	157,125	100.0	%
50th & 12th	WA	Seattle	2004	2004	Developed	14,500	14,500	100.0	%
176th & Meridian	WA	Seattle	2004	2004	Developed	14,560	14,560	100.0	%
Four Corner Square	WA	Seattle	1985	2004	Acquired	73,099	73,099	91.5	%

TOTAL						7,576,100	5,231,434	93.4	%



(*)	Property consists of ground leases only, no Owned GLA. As of December 31, 2006, the following were leased: Eagle Creek Lowe’s – single ground lease property; Greyhound Commons – two of four outlots leased; and Weston Park Phase I – two of three outlots leased.


1	All properties are wholly owned, except as indicated. Unless otherwise noted, we own each property in fee simple.

2	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.

3	Percentage of Owned GLA Leased reflects Owned GLA/NRA leased as of December 31, 2006, except for Greyhound Commons, Weston Park Phase I and Eagle Creek Lowe’s (see * ).

4	We acquired a 99.9% interest in this property through a joint venture with a third party that manages the property. At the current time, we receive 85% of the cash flow from the property, a percentage that may decrease under certain circumstances.

5	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 parcel. The joint venture partner is entitled to an annual preferred payment of $96,000. All remaining cash flow is distributed to us.

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

7	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.

8	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.

9	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.

10	In May 2006, we acquired and terminated the Winn-Dixie lease. In the fourth quarter of 2006, we signed a lease with Staples for approximately half of this space. The remainder is being marketed to multiple potential retail tenants.

OPERATING RETAIL PROPERTIES – TABLE II


Property	State	MSA	Encumbrances		Annualized Base Rent Revenue		Annualized Ground Lease Revenue		Annualized Total Retail Revenue¹		Percentage of Annualized Total Retail Revenue			Base Rent Per Leased Owned GLA²		Major Tenants and Non-Owned Anchors³

International Speedway Square⁴	FL	Daytona	$	19,447,892	$	2,423,671	$	232,900	$	2,656,571		4.4	%	$	11.18	SteinMart, Bed Bath & Beyond, Circuit City
King’s Lake Square	FL	Naples		—		1,107,001		—		1,107,001		1.8	%		13.28	Publix, Walgreens
Wal-Mart Plaza	FL	Gainesville		—		941,835		—		941,835		1.6	%		5.30	Wal-Mart, Books-A-Million, Save-A-Lot
Waterford Lakes	FL	Orlando		—		896,363		—		896,363		1.5	%		11.68	Winn-Dixie⁵
Shops at Eagle Creek	FL	Naples		—		748,906		—		748,906		1.2	%		17.17	Staples
Eagle Creek Lowe’s	FL	Naples		—		—		800,000		800,000		1.3	%		—	Lowe’s Home Improvement
Pine Ridge Crossing	FL	Naples		17,500,000		1,568,159		—		1,568,159		2.6	%		14.86	Publix, Bealls (non-owned, Target (non-owned)
Riverchase	FL	Naples		10,500,000		1,070,812		—		1,070,812		1.8	%		13.67	Publix
Courthouse Shadow	FL	Naples		9,768,245		1,465,818		—		1,465,818		2.4	%		10.87	Albertson’s, OfficeMax
Circuit City Plaza	FL	Ft. Lauderdale		—		817,202		—		817,202		1.3	%		19.46	Circuit City, Wal-Mart (non-owned), Lowe’s Home Improvement (non-owned)
Indian River Square	FL	Vero Beach		13,300,000		1,453,078		—		1,453,078		2.4	%		10.07	Office Depot, Bealls, Ragshop, Lowe’s Home Improvement (non-owned), Target (non-owned)
Bolton Plaza⁴	FL	Jacksonville		—		1,092,745		—		1,092,745		1.8	%		6.65	Wal-Mart
Centre at Panola	GA	Atlanta		4,164,506		818,294		—		818,294		1.4	%		11.38	Publix
Publix at Acworth	GA	Atlanta		—		800,946		—		800,946		1.3	%		11.50	Publix, CVS
Kedron Village	GA	Atlanta		29,700,000		2,317,308		—		2,317,308		3.8	%		17.41	Target (non-owned), Bed Bath & Beyond, Ross, PETCO
Silver Glen Crossing	IL	Chicago		—		1,873,014		85,000		1,958,014		3.2	%		14.57	Dominick’s, MC Sports
Fox Lake Crossing	IL	Chicago		11,931,901		1,285,333		—		1,285,333		2.1	%		13.90	Dominick’s
Glendale Mall	IN	Indianapolis		—		1,957,189		154,004		2,111,193		3.5	%		4.58	Macy’s, Kerasotes Theatre, Lowe’s Home Improvement (non-owned)
Cool Creek Commons	IN	Indianapolis		18,000,000		1,917,109		155,500		2,072,609		3.4	%		15.89	Fresh Market, SteinMart
Boulevard Crossing	IN	Kokomo		12,302,788		1,552,329		—		1,552,329		2.6	%		13.48	TJ Maxx, PETCO, Shoe Carnival, Kohl’s (non-owned)
Traders Point	IN	Indianapolis		48,000,000		3,699,922		545,000		4,244,922		7.0	%		13.95	Dick’s Sporting Goods, Bed Bath & Beyond, Michaels, Marsh Supermarkets, Books-A-Million, Old Navy, PetSmart
Traders Point II	IN	Indianapolis		7,658,165		695,239		—		695,239		1.1	%		26.13
Hamilton Crossing	IN	Indianapolis		—		1,403,954		71,500		1,475,454		2.4	%		17.03	Office Depot
Fishers Station	IN	Indianapolis		4,852,782		1,252,807		—		1,252,807		2.1	%		12.46	Marsh Supermarket
Whitehall Pike	IN	Bloomington		9,403,714		1,014,000		—		1,014,000		1.7	%		7.86	Lowe’s Home Improvement
The Centre⁶	IN	Indianapolis		—		996,551		—		996,551		1.6	%		12.94	Osco
The Corner Shops	IN	Indianapolis		1,801,315		533,373		—		533,373		0.9	%		12.54	Hancock Fabrics
Stoney Creek Commons	IN	Indianapolis		—		464,755		—		464,755		0.8	%		9.42	Lowe’s Home Improvement (non-owned), HH Gregg, Office Depot
Greyhound Commons	IN	Indianapolis		—		—		202,500		202,500		0.3	%		—	Lowe’s Home Improvement (non-owned)


Weston Park Phase I	IN	Indianapolis		—		—		190,000		190,000	0.3	%		—
Geist Pavilion	IN	Indianapolis		11,125,000		868,865		—		868,865	1.4	%		16.20	Ace Hardware, Party Tree
Zionsville Place	IN	Indianapolis		—		231,204		—		231,204	0.4	%		20.64
Red Bank Commons	IN	Evansville		4,798,797		335,784		—		335,784	0.6	%		14.76	Wal-Mart (non-owned) Home Depot (non-owned)
Martinsville Shops	IN	Martinsville		—		151,000		—		151,000	0.3	%		13.74
50 South Morton	IN	Indianapolis		—		132,000		—		132,000	0.2	%		66.00
Ridge Plaza	NJ	Oak Ridge		16,482,599		1,751,991		—		1,751,991	2.9	%		16.10	A&P, CVS
Eastgate Pavilion	OH	Cincinnati		—		2,366,522		—		2,366,522	3.9	%		10.02	Dick’s Sporting Goods, Value City Furniture, Best Buy
Shops at Otty	OR	Portland		—		271,609		122,500		394,109	0.7	%		27.59	Wal-Mart (non-owned)
Plaza at Cedar Hill	TX	Dallas		26,681,396		3,608,377		—		3,608,377	5.8	%		12.03	Hobby Lobby, Linens ‘n Things, Marshalls
Sunland Towne Centre	TX	El Paso		25,000,000		3,011,918		104,809		3,116,727	5.0	%		9.84	Kmart, Circuit City, Room Store
Galleria Plaza	TX	Dallas		—		1,083,224		—		1,083,224	1.8	%		24.45	Shoe Pavilion
Cedar Hill Village	TX	Dallas		—		673,085		—		673,085	1.1	%		16.14	24 Hour Fitness, JCPenney (non-owned)
Preston Commons	TX	Dallas		4,525,910		587,502		—		587,502	1.0	%		23.69	Lowe’s Home Improvement (non-owned)
Burlington Coat Factory	TX	San Antonio		—		510,150		—		510,150	0.8	%		4.75	Burlington Coat Factory
Plaza Volente	TX	Austin		28,680,000		2,453,119		100,000		2,553,119	4.2	%		15.69	H-E-B Grocery
Market Street Village	TX	Hurst		—		2,026,858		115,700		2,142,558	3.5	%		12.90	Ross, Office Depot, JoAnn’s, Circuit City, Hancock Fabrics
50th & 12th	WA	Seattle		4,575,820		475,000		—		475,000	0.8	%		32.76	Walgreens
176th & Meridian	WA	Seattle		4,157,182		433,000		—		433,000	0.7	%		29.74	Walgreens
Four Corner Square	WA	Seattle		—		801,269		—		801,269	1.3	%		11.98	Johnson Hardware Store

TOTAL			$	344,358,012	$	57,940,190	$	2,879,413	$	60,819,603	100.0	%	$	11.85


1	Annualized Base Rent represents the contractual rent for December 2006 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, 2006.

2	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.

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

4	A third party manages this property.

5	In February 2005, Winn-Dixie Stores, Inc. filed a petition for Chapter 11 bankruptcy to reorganize its business operations. As of December 31, 2006, Winn-Dixie had not announced plans to close the Waterford Lakes store, nor had it rejected the lease. In a public announcement, Winn-Dixie included the store at Waterford Lakes on its list of stores it intended to retain as of that date.

6	We own a 60% interest in this property through a joint venture. The Company’s portion of debt encumbering the property is $2,389,945.

Commercial Properties

As of December 31, 2006, we owned interests in four operating commercial properties totaling approximately 563,000 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, 2006:

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 Tenants

Indiana

Thirty South^{4, 5}	Indianapolis	1905/2002	Redeveloped	$	22,685,706		298,346		84.4	%	$	4,373,673		59.5	%	$	17.37	Eli Lilly, City Securities, Kite Realty Group
Pen Products	Indianapolis	2003	Developed		—		85,875		100.0	%		813,236		11.1	%		9.47	Indiana Dept of Administration
Spring Mill Medical²	Indianapolis	1998/2002	Redeveloped		—		63,431		100.0	%		1,466,603		20.0	%		23.12	University Medical Diagnostic Associates; Indiana University Healthcare Associates
Union Station Parking Garage³	Indianapolis	1986	Acquired		—		N/A		N/A			N/A		N/A			N/A	Denison Parking
Indiana State Motorpool	Indianapolis	2004	Developed	$	4,063,781		115,000		100.0	%		693,450		9.4	%		6.03	Indiana Dept. of Administration

TOTAL				$	26,749,487		562,652		91.7	%	$	7,346,962		100.0	%	$	14.24


1	Annualized Base Rent represents the monthly contractual rent for December 2006 for each applicable property, multiplied by 12.

2	We own a 50% interest in this property through a joint venture with one of the tenants at this property. This property is encumbered by debt of $5,994,967 (the Company’s portion).

3	Annualized Base Rent for 2006 is approximately $500,000.

4	Annualized Base Rent includes $728,527 from the Company and subsidiaries as of December 31, 2006.

5	On December 1, 2006, we agreed to terminate our lease with Eli Lilly & Company for 29,140 square feet effective December 31, 2006, and 70,402 square feet effective October 1, 2007.

Retail Development Properties

In addition to our operating retail properties, as of December 31, 2006, we owned 11 retail development properties that are expected to contain approximately 1.7 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, 2006:


2006-2007 Deliveries	Company Ownership %^6,7		MSA	Type of Property	Actual/ Projected Opening Date¹		Encumbrances		Projected Owned GLA²		Projected Total GLA³		Percent of Owned GLA Occupied⁸			Percent of Owned GLA Pre-Leased/ Committed⁵			Total Estimated Project Cost⁴		Cost Incurred as of Dec. 31, 2006⁴		Major Tenants and Non-owned Anchors

*Florida*
Tarpon Springs Plaza	100	%	Naples	Retail		Q1 2007	$	16,455,551		92,546		276,346		0.0	%		89.2	%	$	28,000	$	16,299	Target (non-owned), Staples, Cost Plus, AC Moore
Estero Town Center	40	%	Naples	Retail		Q3 2006		14,755,473		25,600		206,600		0.0	%		93.9	%		20,000		18,584	Lowe’s Home Improvement
Bayport Commons	60	%	Tampa	Retail		Q3 2007		5,064,883		92,300		281,100		0.0	%		56.0	%		25,000		10,846	Michaels, PetSmart, Target (non-owned)
Cobblestone Plaza	50	%	Ft. Lauderdale	Retail		Q3 2007		10,428,632		147,800		157,800		0.0	%		68.0	%		45,000		16,061	Whole Foods, Staples
*Indiana*
Beacon Hill Shopping Center	50	%	Crown Point	Retail		Q4 2006		8,390,098		57,200		162,700		9.8	%		66.1	%		17,000		12,878	Strack & VanTill’s (non-owned), Walgreens (non-owned)
Bridgewater Marketplace I	100	%	Indianapolis	Retail		Q3 2006		7,162,255		26,000		50,820		0.0	%		32.2	%		11,000		10,194	Walgreens (non-owned)
54th & College	100	%	Indianapolis	Retail		Q4 2007		—		N/A		20,100		0.0	%		100.0	%		2,500		2,177	Fresh Market
*Illinois*
Naperville Marketplace	100	%	Chicago	Retail		Q4 2006		9,799,725		99,600		169,600		33.1	%		36.6	%		16,500		11,961	Caputo’s Fresh Market (non-owned), TJ Maxx
*Oregon*
Cornelius Gateway Build To Suit For Sale	80	%	Portland	Retail		Q2 2006		—		21,000		35,800		0.0	%		14.4	%		5,400		4,312	Walgreens (non-owned)
*Washington*
Sandifur Plaza Build To Suit For Sale	80%/95	%	Tri-Cities	Retail		Q4 2006		2,777,011		27,400		27,400		0.0	%		86.1	%		6,400		3,921	Walgreens (built-to-suit for sale)
Gateway Shopping Center Phase I&II	50	%	Seattle	Retail		Q1 2007		7,214,509		79,200		285,200		0.0	%		78.3	%		24,300		11,863	Ross, PetSmart, Kohl’s (non-owned), Winco Foods (non-owned)

TOTAL							$	82,048,137		668,646		1,673,466		5.8	%		70.0	%	$	201,100	$	119,096


1	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.

2	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.

3	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.

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


5	Excludes outlot land parcels we own and ground leased to tenants. Includes leases under negotiation for approximately 65,096 square feet for which we have signed non-binding letters of intent.

6	These joint ventures are consolidated in our financial statements.

7	We own the following development properties through joint ventures: Cornelius Gateway (80%); Sandifur Plaza (Walgreens 80%; small shops 95%); Beacon Hill (preferred return, then 50%); Gateway Shopping Center (preferred return, then 50% until internal rate of return threshold is reached and then 25%); Estero Town Commons (preferred return, then 40%) and Bayport Commons (preferred return, then 60%).

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

Other Development Activity

In addition to our current development pipeline, as displayed in the table above, we have a significant “visible shadow” development pipeline, which includes land parcels that are in the final stages of preparation for construction to commence. As of December 31, 2006, this visible shadow pipeline consisted of three projects that are expected to contain approximately 1.2 million square feet at a total estimated project cost of approximately $244 million.


Property	MSA	Company Ownership %⁴		Estimated Start Date	Estimated Total GLA^1,3		Total Estimated Cost^1,3		Cost Incurred as of Dec. 31, 2006¹		Executed Leases & Potential Tenancy

Parkside Town Commons²	Raleigh, NC	40	%	TBD		750,000	$	118,000	$	38,903	TBD
Delray Marketplace	Delray Beach, FL	50	%	TBD		318,000		90,000		29,914	Grocery, Theater, Jr. Boxes, Shops, Restaurants
Maple Valley	Seattle, WA	100	%	TBD		156,000		36,000		6,859	Grocery, Hardware Store, Shops, Restaurants

TOTAL						1,224,000	$	244,000	$	75,676


1	Dollars in thousands. Reflects Company and partners’ share of costs.

2	In December 2006, Parkside Town Commons was acquired in a joint venture with Prudential Real Estate Investors. Our interest in the joint venture is 40% as of December 31, 2006, and will be reduced to 20% upon the commencement of construction.

3	Total Estimated Cost and Estimated Total GLA based on preliminary siteplans.

4	We own Delray Marketplace through a joint venture (preferred return, then 50%).

Land Held for Future Development

As of December 31, 2006, we owned interests in land parcels comprising approximately 115 acres that may be used for future expansion of existing properties or development of new retail or commercial properties.

Option Property and Right of First Refusal

In connection with our IPO, we entered into an option agreement with the contributors of our properties (or entities controlled or owned by them) that granted our Operating Partnership the right to acquire an interest in Erskine Village. Erskine Village is a joint venture among Kite South Bend, LLC (a company owned by Al Kite, John Kite, Paul Kite, and Tom McGowan), Kimco Realty Corporation and Schottenstein Management. The joint venture purchased the 800,000 square foot Scottsdale Mall located in South Bend, Indiana, in August 2003 in order to redevelop it. The 58-acre parcel of land is located at the intersection of Miami Street and Ireland Road in South Bend. Our Operating Partnership has the right to purchase Kite South Bend, LLC’s 25% interest in this joint venture, subject to approval of the other joint venture partners and the lender.

Under the terms of the option agreement, once the property is redeveloped and reaches 85% occupancy, we may directly or indirectly acquire the property at a price equal to the lesser of:


	•	the annualized net operating income for the property (based on net operating income over a three-month period, which includes the month of exercise) divided by 8.5% and multiplied by the contributors’ interest in the property; or




	•	the then fair market value of the property based on the average of two appraisals (or the average of the two closest of three appraisals in certain circumstances) multiplied by the contributors’ interest in the property.

The option price is payable in Operating Partnership units or cash, at our option. The option expires four years from the date construction begins on the property. We also have a right of first refusal to acquire Kite South Bend, LLC’s interest in the property if a third party offers to acquire the interest at the price offered by the third party or, if the option is then exercisable, at the option price described above, if lower. If we do not acquire the interest during the four-year option period, then the contributors will agree to sell their interests in Kite South Bend, LLC or Kite South Bend, LLC’s interest in the joint venture as soon as reasonably practicable. As of December 31, 2006, the property is less than 85% leased.

Tenant Diversification

No individual retail or commercial tenant accounted for more than 3.7% of the portfolio’s annualized base rent for the year ended December 31, 2006 or 4.0% of total retail portfolio GLA as of December 31, 2006. 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, 2006:

TOP 10 RETAIL TENANTS BY GROSS LEASABLE AREA


Tenant	Number of Locations		Total GLA		Number of Leases		Company Owned GLA²		Number of Anchor Owned Locations		Anchor Owned GLA³

Lowe’s Home Improvement¹		9		1,247,630		3		128,997		6		1,118,633
Wal-Mart		5		749,649		2		234,649		3		515,000
Target		3		341,640		—		—		3		341,640
Federated Department Stores		1		237,455		1		237,455		—		—
Publix		5		234,246		5		234,246		—		—
Home Depot		5		140,000		—		—		1		140,000
Circuit City		4		132,347		4		132,347		—		—
Dominick’s		2		131,613		2		131,613		—		—
Dick’s Sporting Goods		2		126,672		2		126,672		—		—
Marsh Supermarkets		2		124,902		2		124,902		—		—

Total		38		3,466,154		21		1,350,881		13		2,115,273


1	A ground lease with Lowe’s Home Improvement was entered into during the first quarter of 2006. An estimated 165,000 square feet is included in Anchor Owned GLA to account for this property. Also, a ground lease with Lowe’s Home Improvement was entered into during the second quarter of 2006. An estimated 163,000 square feet is included in Anchor Owned GLA to account for this property.

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

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

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, 2006:

TOP 25 TENANTS BY ANNUALIZED BASE RENT^{1, 2}


Tenant	Type of Property	Number of Locations		Leased GLA/NRA⁵		% of Owned GLA/NRA of the Portfolio			Annualized Base Rent^1,2		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	$	5.67		3.7	%
Circuit City	Retail		4		132,347		2.3	%		1,930,190		14.58		2.8	%
Publix	Retail		5		234,246		4.0	%		1,837,588		7.84		2.7	%
State of Indiana	Commercial		3		210,393		3.6	%		1,663,733		7.91		2.4	%
Marsh Supermarkets	Retail		2		124,902		2.1	%		1,633,958		13.08		2.4	%
Dominick’s	Retail		2		131,613		2.3	%		1,411,728		10.73		2.0	%
Bed Bath & Beyond	Retail		4		109,296		1.9	%		1,356,866		12.41		2.0	%
Dick’s Sporting Goods	Retail		2		126,672		2.2	%		1,220,004		9.63		1.8	%
Ross Stores	Retail		4		118,374		2.0	%		1,210,785		10.23		1.7	%
Eli Lilly⁶	Commercial		1		70,402		1.2	%		1,161,633		16.50		1.7	%
H-E-B	Retail		1		105,000		1.8	%		1,155,000		11.00		1.7	%
Office Depot	Retail		4		103,294		1.8	%		1,058,351		10.25		1.5	%
Walgreen’s	Retail		3		39,070		0.7	%		1,031,023		26.39		1.5	%
PetSmart	Retail		3		77,966		1.3	%		975,998		12.52		1.4	%
Wal-Mart	Retail		2		234,649		4.0	%		930,927		3.97		1.3	%
Kmart	Retail		1		110,875		1.9	%		850,379		7.67		1.2	%
UMDA³	Commercial		1		32,256		0.6	%		844,402		26.18		1.2	%
TJX Companies	Retail		3		88,550		1.5	%		805,312		9.09		1.2	%
Kerasotes⁴	Retail		2		43,050		0.7	%		776,496		8.92		1.1	%
A & P	Retail		1		58,732		1.0	%		763,516		13.00		1.1	%
Old Navy	Retail		3		64,868		1.1	%		748,693		11.54		1.1	%
OfficeMax	Retail		3		69,872		1.2	%		733,970		10.50		1.1	%
Shoe Pavilion	Retail		1		31,396		0.5	%		722,108		23.00		1.0	%
City Securities	Commercial		1		34,949		0.6	%		694,900		19.88		1.0	%
Indiana University Healthcare Associates³	Commercial		1		31,175		0.5	%		622,201		19.96		0.9	%

TOTAL					2,512,944		43.0	%	$	28,703,761	$	9.97		41.5	%


1	Annualized base rent represents the monthly contractual rent for December 2006 for each applicable tenant multiplied by 12.

2	Excludes tenants at development properties that are Build-to-Suits for sale.

3	Property held in unconsolidated joint venture. Annualized base rent is reflected at 100 percent.

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

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

6	On December 1, 2006, we agreed to terminate our lease with Eli Lilly & Company for this space effective October 1, 2007.

Geographic Information

The Company owns 49 operating retail properties, totaling approximately 5.2 million of owned square feet in nine states. As of December 31, 2006, the Company owned interests in four operating commercial properties, totaling approximately 563,000 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, 2006:


		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			23		2,334,623		40.3	%		233	$	24,553,044		37.7	%	$	11.96
•	Retail – Mall		1		579,189		10.0	%		31		1,957,189		3.0	%		4.58
•	Retail		17		1,192,782		20.6	%		183		15,248,893		23.4	%		13.75
•	Commercial		5		562,652		9.7	%		19		7,346,962		11.3	%		14.24
Florida			12		1,319,928		22.8	%		170		13,585,589		20.8	%		10.72
Texas			8		1,144,311		19.8	%		97		13,954,233		21.4	%		12.27
Illinois			2		231,788		4.0	%		36		3,158,347		4.8	%		14.29
New Jersey			1		115,088		2.0	%		16		1,751,991		2.7	%		16.10
Georgia			3		300,114		5.1	%		57		3,936,549		6.0	%		14.33
Washington			3		102,159		1.8	%		24		1,709,269		2.6	%		17.82
Ohio			1		236,230		4.1	%		7		2,366,522		3.6	%		10.02
Oregon			1		9,845		0.1	%		7		271,609		0.4	%		27.59

TOTAL			54		5,794,086		100.0	%		647	$	65,287,153		100.0	%	$	12.08


1	Excludes tenants at development properties which are Build-to-Suits for sale.

2	Owned GLA/NRA represents gross leasable area or net leasable area we own. It does not include 22 parcels or outlots we own and ground leased to tenants which contain 22 non-owned structures totaling approximately 314,619 square feet. It also excludes the square footage of Union Station Parking Garage.

3	Annualized Base Rent Revenue excludes $2,879,413 in annualized ground lease revenue attributable to parcels and outlots we own and ground leased to tenants. It also excludes approximately $500,000 in 2006 annualized minimum rent attributable to Union Station Parking Garage as well as the leases on properties classified as development properties.

Lease Expirations

Approximately 7% of both total annualized base rent and total GLA/NRA expire in 2007. The following tables show scheduled lease expirations for retail and commercial tenants and development property tenants open for business and development property tenants open for business as of December 31, 2006, 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, 2006.

LEASE EXPIRATION TABLE – OPERATING PORTFOLIO¹


	Number of Expiring Leases 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

2007⁵		102		381,715		7.0	%	$	4,583,480		7.0	%	$	12.01	$	800,000
2008		52		456,062		8.4	%		3,596,710		5.5	%		7.89		—
2009		82		255,326		4.7	%		4,267,400		6.5	%		16.71		—
2010		76		452,363		8.3	%		5,654,536		8.6	%		12.50		—
2011		85		643,034		11.8	%		6,072,977		9.2	%		9.44		—
2012		54		333,123		6.1	%		4,812,094		7.3	%		14.45		85,000
2013		28		212,744		3.9	%		3,152,817		4.8	%		14.82		—
2014		35		475,468		8.7	%		5,441,800		8.3	%		11.45		427,900
2015		41		512,817		9.4	%		6,392,896		9.7	%		12.47		251,500
2016		31		312,486		5.7	%		4,284,714		6.5	%		13.71		93,500
Beyond		43		1,407,773		25.9	%		17,444,366		26.6	%		12.39		2,031,513

TOTAL		629		5,442,911		100.0	%	$	65,703,790		100.0	%	$	12.07	$	3,689,413


1	Excludes tenants at development properties that are Build-to-Suits for sale.

2	Lease expiration table reflects rents in place as of December 31, 2006, and does not include option periods; 2007 expirations include 27 month-to-month tenants. This column also excludes ground leases.

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

4	Annualized base rent represents the monthly contractual rent for December 2006 for each applicable tenant multiplied by 12. Excludes ground lease revenue.

5	On December 1, 2006, we agreed to terminate our lease with Eli Lilly & Company for 29,140 square feet effective December 31, 2006, and 70,402 square feet effective October 1, 2007.

LEASE EXPIRATION TABLE – RETAIL ANCHOR TENANTS¹


	Number of Expiring Leases ²		Expiring GLA³		% of Total GLA Expiring			Expiring Annualized Base Rent⁴		% of Total Annualized Base Rent			Expiring Annualized Base Rent per Sq. Ft.		Expiring Ground Lease Revenue

2007		8		131,258		2.4	%	$	880,066		1.3	%	$	6.70	$	800,000
2008		3		342,049		6.3	%		1,441,077		2.2	%		4.21		—
2009		3		69,382		1.3	%		669,318		1.0	%		9.65		—
2010		12		295,189		5.4	%		2,713,985		4.1	%		9.19		—
2011		8		455,904		8.4	%		2,499,684		3.8	%		5.48		—
2012		6		150,399		2.8	%		1,319,858		2.0	%		8.78		—
2013		1		11,960		0.2	%		161,460		0.3	%		13.50		—
2014		10		271,018		5.0	%		2,690,031		4.1	%		9.93		—
2015		11		374,879		6.9	%		3,614,475		5.5	%		9.64		—
2016		7		220,312		4.1	%		2,394,510		3.6	%		10.87		—
Beyond		32		1,310,693		24.1	%		15,185,841		23.1	%		11.59		990,000

TOTAL		101		3,633,043		66.7	%	$	33,570,305		51.0	%	$	9.24	$	1,790,000


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

2	Lease expiration table reflects rents in place as of December 31, 2006, and does not include option periods; 2007 expirations includes one month-to-month tenants. This column also excludes ground leases.

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

4	Annualized base rent represents the monthly contractual rent for December 2006 for each applicable property multiplied by 12. Excludes ground lease revenue.

LEASE EXPIRATION TABLE – RETAIL SHOPS


	Number of Expiring Leases¹		Expiring GLA²		% of Total GLA Expiring			Expiring Annualized Base Rent³		% of Total Annualized Base Rent			Expiring Annualized Base Rent per Sq. Ft.		Expiring Ground Lease Revenue

2007		89		175,100		3.2	%	$	2,464,171		3.8	%	$	14.07	$	—
2008		48		106,048		2.0	%		1,995,695		3.0	%		18.82		—
2009		79		185,944		3.4	%		3,598,082		5.5	%		19.35		—
2010		63		148,296		2.7	%		2,760,771		4.2	%		18.62		—
2011		77		187,130		3.4	%		3,573,293		5.4	%		19.10		—
2012		46		145,672		2.7	%		2,901,529		4.4	%		19.92		85,000
2013		23		72,430		1.3	%		1,397,543		2.1	%		19.30		—
2014		23		54,501		1.0	%		1,363,418		2.1	%		25.02		427,900
2015		28		92,831		1.7	%		2,049,894		3.1	%		22.08		251,500
2016		24		92,174		1.7	%		1,890,204		2.9	%		20.51		93,500
Beyond		9		33,649		0.6	%		791,923		1.2	%		23.53		1,041,513

TOTAL		509		1,293,775		23.8	%	$	24,786,523		37.8	%	$	19.16	$	1,899,413


1	Lease expiration table reflects rents in place as of December 31, 2006, and does not include option periods; 2007 expirations include 25 month-to-month tenants. This column also excludes ground leases.

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

3	Annualized base rent represents the monthly contractual rent for December 2006 for each applicable property multiplied by 12. Excludes ground lease revenue.

LEASE EXPIRATION TABLE – COMMERCIAL TENANTS


	Number of Expiring Leases¹		Expiring NLA²		% of Total NRA Expiring			Expiring Annualized Base Rent³		% of Total Annualized Base Rent			Expiring Annualized Base Rent per Sq. Ft.

2007³		5		75,357		1.4	%	$	1,239,243		1.9	%	$	16.45
2008		1		7,965		0.2	%		159,938		0.2	%		20.08
2009		—		—		0.0	%		—		0.0	%		—
2010		1		8,878		0.2	%		179,780		0.3	%		20.25
2011		—		—		0.0	%		—		0.0	%		—
2012		2		37,052		0.7	%		590,708		0.9	%		15.94
2013		4		128,354		2.4	%		1,593,814		2.4	%		12.42
2014		2		149,949		2.8	%		1,388,350		2.1	%		9.26
2015		2		45,107		0.8	%		728,527		1.1	%		16.15
2016		—		—		0.0	%		—		0.0	%		—
Beyond		2		63,431		1.2	%		1,466,603		2.2	%		23.12

TOTAL		19		516,093		9.5	%	$	7,346,962		11.2	%	$	14.24


1	Lease expiration table reflects rents in place as of December 31, 2006, and does not include option periods; 2007 expirations include one month-to-month tenant. This column also excludes ground leases.

2	Annualized base rent represents the monthly contractual rent for December 2006 for each applicable property multiplied by 12.

3	On December 1, 2006, we agreed to terminate our lease with Eli Lilly & Company for 29,140 square feet effective December 31, 2006, and 70,402 square feet effective October 1, 2007.

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 MATTTERS 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 2006.

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 9, 2007, the last reported sales price of our common shares on the NYSE was $20.70.

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, 2005	$	15.65	$	14.05	$	14.40
Quarter Ended June 30, 2005	$	15.50	$	13.40	$	15.00
Quarter Ended September 30, 2005	$	16.52	$	14.75	$	14.92
Quarter Ended December 31, 2005	$	16.26	$	14.04	$	15.47
Quarter Ended March 31, 2006	$	16.15	$	14.81	$	15.95
Quarter Ended June 30, 2006	$	15.88	$	14.05	$	15.59
Quarter Ended September 30, 2006	$	17.10	$	14.88	$	17.04
Quarter Ended December 31, 2006	$	19.70	$	16.66	$	18.62

Holders – The number of registered holders of record of our common shares was 48 as of March 9, 2007. 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 2005	April 5, 2005	$	0.1875	April 19, 2005
2^nd 2005	July 5, 2005	$	0.1875	July 19, 2005
3^rd 2005	October 3, 2005	$	0.1875	October 18, 2005
4^th 2005	January 6, 2006	$	0.1875	January 17, 2006
1^st 2006	April 6, 2006	$	0.1875	April 18, 2006
2^nd 2006	July 6, 2006	$	0.1875	July 18, 2006
3^rd 2006	October 5, 2006	$	0.1950	October 17, 2006
4^th 2006	January 5, 2007	$	0.1950	January 16, 2007

We intend to continue to pay regular quarterly distributions to our common shareholders. Future distributions will be declared and paid at the discretion of our Board of Trustees, and will depend upon 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. We anticipate that for the foreseeable future, cash available for distribution will be greater than earnings and profits due to non-cash expenses, primarily depreciation and amortization, to be incurred by us. 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, 2006, approximately 45.0% of our distributions to shareholders constituted a return of capital, approximately 50.1% constituted taxable ordinary income dividends and approximately 4.9% constituted taxable capital gains.

Under our revolving credit facility, we are permitted to make distributions to our shareholders not to exceed 95% of our Funds From Operations (“FFO”) provided that no event of default exists. See pages 59-60 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 exist, 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, 2006, 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 dividends were reinvested. The shareholder return shown on the graph below is not indicative of future performance.

COMPARISON OF 28 MONTH CUMULATIVE TOTAL RETURN*
Among Kite Realty Group Trust, The S & P 500 Index
And The NAREIT Equity Index

(LINE GRAPH)


*	$100 invested on 8/11/04 in stock or on 7/31/04 in index-including reinvestment of dividends. Fiscal year ending December 31.


Index	8/11/04	9/30/04	12/31/04	3/31/05	6/30/05	9/30/05	12/31/05	3/31/06	6/30/06	9/30/06	12/31/06

Kite Realty Group Trust	100.00	101.15	117.54	112.93	120.69	121.56	126.04	122.69	119.92	131.08	143.23
S & P 500	100.00	101.49	110.86	108.48	109.96	113.93	116.30	121.20	119.45	126.22	134.68
NAREIT All Equity REIT Index	100.00	107.87	124.30	115.53	132.23	137.30	139.42	159.97	157.42	172.01	188.30

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 the Predecessor. This information should be read in conjunction with the audited consolidated financial statements of the Company and the Predecessor 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, 2006¹			Year Ended December 31, 2005			Period August 16, 2004 through December 31, 2004			Period January 1, 2004 through August 15, 2004			Year Ended December 31,

													2003			2002

	*($ in thousands, except share and per share data)*
Operating Data:
Revenues:
Rental related revenue	$	90,481		$	72,945		$	19,755		$	12,935		$	11,056		$	5,921
Construction and service fee revenue		41,447			26,420			9,334			5,257			14,852			22,445

Total revenue		131,928			99,365			29,089			18,192			25,908			28,366

Expenses:
Property operating		13,578			12,343			3,667			4,033			3,603			2,123
Real estate taxes		11,260			7,459			1,927			1,409			1,132			549
General and administrative		5,323			5,328			1,781			1,477			2,746			1,905
Cost of construction and services		35,901			21,823			8,787			4,405			11,536			19,509
Depreciation and amortization		29,666			21,791			7,661			3,270			2,405			835

Total expenses		95,728			68,744			23,823			14,594			21,422			24,921

Operating income		36,200			30,621			5,266			3,598			4,486			3,445
Interest expense		(21,470	)		(18,089	)		(4,449	)		(4,557	)		(3,809	)		(2,206	)
Loss on sale of asset		(764	)		—			—			—			—			—
Loan prepayment penalties and expenses		—			—			(1,671	)		—			—			—
Income tax expense of taxable REIT subsidiary		(966	)		(1,042	)		—			—			—			—
Minority interest (income) loss of unconsolidated subsidiaries		(117	)		(1,267	)		(126	)		215			(233	)		85
Equity in earnings of unconsolidated entities and other, net		286			253			134			164			273			1,318
Limited Partners’ interests in the continuing operations of the Operating Partnership		(2,989	)		(3,331	)		257			—			—			—

Income (loss) from continuing operations		10,180			7,145			(589	)		(580	)		717			2,642
Discontinued operations:
Operating income (loss) from discontinued operations, net of Limited Partners’ interests		—			766			257			388			720			(404	)
Gain on sale of operating property, net of Limited Partners’ interests		—			5,525