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** **

 

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

**x****      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly periodended September 30, 2010**

 

**OR**

 

**o****         TRANSITION REPORT PURSUANT TO SECTION 13 OR15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thetransition period from                  to                  **

 

**Commission file number 001-32389**

 

**NTS REALTYHOLDINGS LIMITED PARTNERSHIP**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                              | ** ** | **41-2111139**                        |
|-------------------------------------------|------------|---------------------------------------|
| (State  of incorporation or organization) |       | (I.R.S.  Employer Identification No.) |
|                                      |       |                                  |
| **10172  Linn Station Road**              |       |                                  |
| **Louisville,  Kentucky**                 | ** ** | **40223**                             |
| (Address of principal executive offices)  |       | (Zip Code)                            |

 

**(502) 426-4800**

(Registrant’s telephonenumber, including area code)

 

**Not applicable**

(Former name, former addressand former fiscal year, if changed since last report)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes x     No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes  £    No £

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reportingcompany.  See the definitions of “largeaccelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.  (Check one):

 

| Large accelerated filer  £ |   | Accelerated filer  £ |
|--------------------------------------|--------|--------------------------------|
|                                 |   |                           |
| Non-accelerated filer  £   |   | Smaller reporting company S    |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes £   No x

 

**APPLICABLE ONLY TO CORPORATEISSUERS**

 

Asof November 3, 2010 there were 11,380,760 of the registrant’s limitedpartnership units outstanding.

 

 

 

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

 

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| **PART I — FINANCIAL INFORMATION** | **4**                                                                                                                         |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
| ** **                              | ** **                                                                                                                    |
| Item 1                                  | Financial  Statements                                                                                                         | 4 |
|                                    | Condensed  Consolidated Balance Sheets as of September 30, 2010 (Unaudited) and December  31, 2009                            | 4 |
|                                    | Condensed  Consolidated Statement of Equity as of September 30, 2010 (Unaudited)                                              | 4 |
|                                    | Condensed  Consolidated Statements of Operations for the Three and Nine Months Ended  September 30, 2010 and 2009 (Unaudited) | 5 |
|                                    | Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended September 30,  2010 and 2009 (Unaudited)           | 6 |
|                                    | Notes to Condensed Consolidated Financial Statements                                                                          | 7 |
| Item 2                                  | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                                   | 22 |
| Item 3                                  | Quantitative  and Qualitative Disclosures About Market Risk                                                                   | 33 |
| Item 4                                  | Controls  and Procedures                                                                                                      | 33 |
|                                    |                                                                                                                          |
| **PART  II — OTHER INFORMATION**   | **34**                                                                                                                        |
| ** **                              | ** **                                                                                                                    |
| Item 1                                  | Legal  Proceedings                                                                                                            | 34 |
| Item 1A                                 | Risk  Factors                                                                                                                 | 34 |
| Item 2                                  | Unregistered  Sales of Equity Securities and Use of Proceeds                                                                  | 34 |
| Item 3                                  | Defaults Upon  Senior Securities                                                                                              | 34 |
| Item 4                                  | Reserved                                                                                                                      | 34 |
| Item 5                                  | Other  Information                                                                                                            | 34 |
| Item 6                                  | Exhibits                                                                                                                      | 35 |
| Signatures                              | 37                                                                                                                            |
|                                         |                                                                                                                               |  |  |

 

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**INFORMATION REGARDING FORWARD-LOOKING STATEMENTS**

 

Some of the statements included in this Quarterly Report on Form 10-Q,particularly those included in Part I, Item 2 — Management’s Discussion andAnalysis of Financial Condition and Results of Operations (“MD&A”),constitute “forward-looking statements”. These forward-looking statements include discussion and analysis of ourfinancial condition, including our ability to rent space on favorable terms,our ability to address debt maturities and fund our liquidity requirements, thevalue of our assets, our anticipated capital expenditures, the amount andtiming of anticipated future cash distributions to our unit holders and othermatters.  Words such as “may,” “anticipates,”“expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,”“should” and variations of these words and similar expressions are intended toidentify forward-looking statements and indicate that it is possible that theevent may not occur.  If these events donot occur, the result, which we expected, also may, or may not, occur in adifferent manner, which may be more or less favorable to us.  We do not undertake any obligation to updatethese forward-looking statements.

 

Any forward-lookingstatements included in MD&A, or elsewhere in this report, are nothistorical facts, but reflect the intent, belief or current expectations of ourmanaging general partner based on its knowledge and understanding of thebusiness and industry, the economy and other future conditions only as of thedate of this report and may ultimately prove to be incorrect or false.  These statements are not guarantees of futureperformance, and we caution unit holders not to place undue reliance onforward-looking statements.  Actualresults could differ materially from those expressed or forecast in anyforward-looking statements as a result of a number of factors, including butnot limited to the factors listed and described under “Risk Factors” in ourfilings with the Securities and Exchange Commission (the “SEC”), particularlyour most recent Annual Report on Form 10-K, for the year ended December 31,2009, as filed with the SEC on March 29, 2010.

 

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**PART I — FINANCIAL INFORMATION**

**Item 1 — FinancialStatements**

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Balance Sheets as of September 30, 2010 (Unaudited) and December31, 2009

 
| ** **                                                                                                                       | ** ** | **(Unaudited)**                  | ** **  | ** **                      | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                       | ** ** | **September 30, 2010** | ** **  | **December 31, 2009** | ** ** |
| **ASSETS:**                                                                                                                      | ** ** | ** **                       |        |                            |       |
| Cash and equivalents                                                                                                             |       | $                                | 3,324,645   |                            | $          | 11,233,735 |   |
| Cash and equivalents - restricted                                                                                                |       | 6,589,588                        |        | 2,227,744                       |       |
| Accounts receivable, net of allowance for doubtful  accounts of $352,647 at September 30, 2010 and $203,359 at December 31, 2009 |       | 1,590,847                        |        | 1,646,142                       |       |
| Note receivable                                                                                                                  |       | 1,000,000                        |        | 1,000,000                       |       |
| Land, buildings and amenities, net                                                                                               |       | 280,267,021                      |        | 291,151,198                     |       |
| Long-lived assets held for sale                                                                                                  |       | -                                |        | 5,549,932                       |       |
| Investments in and advances to tenants in common                                                                                 |       | 2,742,872                        |        | 4,174,947                       |       |
| Other assets                                                                                                                     |       | 4,020,851                        |        | 4,598,167                       |       |
|                                                                                                                             |       |                             |        |                            |       |
| **Total assets**                                                                                                                 |       | $                                | 299,535,824 |                            | $          | 321,581,865 |   |
|                                                                                                                             |       |                             |        |                            |       |
| **LIABILITIES:**                                                                                                                 |       |                             |        |                            |       |
| Mortgages and notes payable                                                                                                      |       | $                                | 233,638,892 |                            | $          | 246,088,305 |   |
| Accounts payable and accrued expenses                                                                                            |       | 2,630,989                        |        | 2,875,643                       |       |
| Accounts payable and accrued expenses due to  affiliate                                                                          |       | 648,268                          |        | 634,930                         |       |
| Distributions payable                                                                                                            |       | 569,038                          |        | 569,038                         |       |
| Security deposits                                                                                                                |       | 869,067                          |        | 856,384                         |       |
| Long-lived liabilities held for sale                                                                                             |       | -                                |        | 72,321                          |       |
| Other liabilities                                                                                                                |       | 5,254,995                        |        | 3,754,653                       |       |
|                                                                                                                             |       |                             |        |                            |       |
| **Total liabilities**                                                                                                            |       | 243,611,249                      |        | 254,851,274                     |       |
|                                                                                                                             |       |                             |        |                            |       |
| COMMITMENTS AND CONTINGENCIES (NOTE 12)                                                                                          |       |                             |        |                            |       |
|                                                                                                                             |       |                             |        |                            |       |
| **EQUITY:**                                                                                                                      |       |                             |        |                            |       |
| Partners’ equity                                                                                                            |       | 51,553,221                       |        | 61,633,718                      |       |
| Noncontrolling interests                                                                                                         |       | 4,371,354                        |        | 5,096,873                       |       |
|                                                                                                                             |       |                             |        |                            |       |
| **Total equity**                                                                                                                 |       | 55,924,575                       |        | 66,730,591                      |       |
|                                                                                                                             |       |                             |        |                            |       |
| **Total liabilities and equity**                                                                                                 |       | $                                | 299,535,824 |                            | $          | 321,581,865 |   |

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statement of Equity as of September 30, 2010

(Unaudited)

 
| ** **                                                | ** ** | **(Unaudited)**                 | ** ** |
|-----------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners’  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Noncontrolling  Interests** | ** ** | **Total** | ** ** |
| **EQUITY:**                                               |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Initial equity                                            |       | 714,491                         |       | 10,667,117 |   | $ | 3,131,381 |   | $ | 46,750,444 |   | $ | 5,588,426 |   | $ | 55,470,251 |   |
| Net income (loss) prior years                             |       | -                               |       | - |   | 2,102,522 |   | 31,387,471 |   | (491,553 | ) | 32,998,440 |   |
| Consolidated net loss current year                        |       | -                               |       | - |   | (525,686 | ) | (7,847,697 | ) | (823,519 | ) | (9,196,902 | ) |
| Cash distributions declared to date                       |       | -                               |       | - |   | (1,471,852 | ) | (21,973,362 | ) | (49,000 | ) | (23,494,214 | ) |
| Current year contributions from noncontrolling  interests |       | -                               |       | - |   | - |   | - |   | 147,000 |   | 147,000 |   |
| Retirement of limited partnership interests to  date      |       | -                               |       | (848 | ) | - |   | - |   | - |   | - |   |
|                                                      |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Balances on September 30, 2010                            |       | 714,491                         |       | 10,666,269 |   | $ | 3,236,365 |   | $ | 48,316,856 |   | $ | 4,371,354 |   | $ | 55,924,575 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statements of Operations for the

Threeand Nine Months Ended September 30, 2010 and 2009

(Unaudited)

 
| ** **                                                                       | ** ** | **(Unaudited)**                          | ** ** | **(Unaudited)**                         | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                       | ** ** | **Three  Months Ended****September 30,** | ** ** | **Nine  Months Ended****September 30,** | ** ** |
| ** **                                                                       | ** ** | **2010**                                 | ** ** | **2009**                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                                     |       |                                     | ** ** | ** **                              |       |   | ** ** |   | ** ** |
| Rental income                                                                    |       | $                                        | 11,626,858 |                                    | $          | 11,257,042 |   | $ | 34,192,983 |   | $ | 31,598,434 |   |
| Tenant reimbursements                                                            |       | 608,904                                  |       | 450,194                                 |       | 1,472,515 |   | 1,353,674 |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **Total revenue**                                                                |       | 12,235,762                               |       | 11,707,236                              |       | 35,665,498 |   | 32,952,108 |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **EXPENSES:**                                                                    |       |                                     |       |                                    |       |   |   |   |   |
| Operating expenses                                                               |       | 3,372,891                                |       | 3,145,104                               |       | 9,789,810 |   | 7,920,667 |   |
| Operating expenses reimbursed to affiliate                                       |       | 1,292,446                                |       | 1,314,106                               |       | 3,912,702 |   | 3,628,559 |   |
| Management fees                                                                  |       | 607,622                                  |       | 574,270                                 |       | 1,757,477 |   | 1,630,987 |   |
| Property taxes and insurance                                                     |       | 1,610,869                                |       | 1,631,956                               |       | 4,693,526 |   | 4,916,190 |   |
| Professional and administrative expenses                                         |       | 181,820                                  |       | 106,171                                 |       | 603,789 |   | 755,132 |   |
| Professional and administrative expenses  reimbursed to affiliate                |       | 418,123                                  |       | 366,534                                 |       | 1,237,682 |   | 1,151,927 |   |
| Depreciation and amortization                                                    |       | 4,465,385                                |       | 4,518,462                               |       | 13,547,913 |   | 12,788,192 |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **Total operating expenses**                                                     |       | 11,949,156                               |       | 11,656,603                              |       | 35,542,899 |   | 32,791,654 |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **OPERATING INCOME**                                                             |       | 286,606                                  |       | 50,633                                  |       | 122,599 |   | 160,454 |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| Interest and other income                                                        |       | 50,512                                   |       | 87,211                                  |       | 115,435 |   | 226,359 |   |
| Interest expense                                                                 |       | (3,206,937                               | )          | (3,070,528                              | )          | (9,663,818 | ) | (8,649,899 | ) |
| Loss on disposal of assets                                                       |       | (89,080                                  | )          | (109,717                                | )          | (146,528 | ) | (122,878 | ) |
| Loss from investments in tenants in common                                       |       | (493,948                                 | )          | (551,925                                | )          | (1,432,075 | ) | (1,654,142 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **LOSS FROM CONTINUING OPERATIONS**                                              |       | (3,452,847                               | )          | (3,594,326                              | )          | (11,004,387 | ) | (10,040,106 | ) |
| Discontinued operations, net                                                     |       | (3,827                                   | )          | 225,566                                 |       | 24,203 |   | 265,900 |   |
| Gain on sale of discontinued operations                                          |       | -                                        |       | -                                       |       | 1,783,282 |   | - |   |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **CONSOLIDATED NET LOSS**                                                        |       | (3,456,674                               | )          | (3,368,760                              | )          | (9,196,902 | ) | (9,774,206 | ) |
| Net loss attributable to noncontrolling interests                                |       | (258,841                                 | )          | (228,256                                | )          | (823,519 | ) | (260,108 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **NET LOSS**                                                                     |       | $                                        | (3,197,833 | )                                       | $          | (3,140,504 | ) | $ | (8,373,383 | ) | $ | (9,514,098 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **Loss from continuing operations  allocated to****limited partners**            |       | $                                        | (3,236,075 | )                                       | $          | (3,368,673 | ) | $ | (10,313,525 | ) | $ | (9,409,782 | ) |
| Discontinued operations, net allocated to limited  partners                      |       | (3,587                                   | )          | 211,406                                 |       | 22,684 |   | 249,207 |   |
| Gain on sale of discontinued operations allocated  to limited partners           |       | -                                        |       | -                                       |       | 1,671,326 |   | - |   |
| Net loss attributable to noncontrolling interests  allocated to limited partners |       | (242,591                                 | )          | (213,926                                | )          | (771,818 | ) | (243,778 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **NET LOSS ALLOCATED TO LIMITED****PARTNERS**                                    |       | $                                        | (2,997,071 | )                                       | $          | (2,943,341 | ) | $ | (7,847,697 | ) | $ | (8,916,797 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **Loss from continuing operations  per limited****partnership unit**             |       | $                                        | (0.30      | )                                       | $          | (0.32 | ) | $ | (0.97 | ) | $ | (0.88 | ) |
| Discontinued operations, net per limited  partnership unit                       |       | -                                        |       | 0.02                                    |       | - |   | 0.02 |   |
| Gain on sale of discontinued operations per  limited partnership unit            |       | -                                        |       | -                                       |       | 0.16 |   | - |   |
| Net loss attributable to noncontrolling interests  per limited partnership unit  |       | (0.02                                    | )          | (0.02                                   | )          | (0.07 | ) | (0.02 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **NET LOSS PER LIMITED  PARTNERSHIP UNIT**                                       |       | $                                        | (0.28      | )                                       | $          | (0.28 | ) | $ | (0.74 | ) | $ | (0.84 | ) |
|                                                                             |       |                                     |       |                                    |       |   |   |   |   |
| **Weighted average number of  limited partnership interests**                    |       | 10,666,269                               |       | 10,666,269                              |       | 10,666,269 |   | 10,666,269 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

CondensedConsolidated Statements of Cash Flows for the Nine Months Ended September 30,2010 and 2009

(Unaudited)

 
| ** **                                                                                    | ** ** | **(Unaudited)** | ** ** |
|-----------------------------------------------------------------------------------------------|------------|-----------------|------------|
| ** **                                                                                    | ** ** | **2010**        | ** ** | **2009** | ** ** |
| **OPERATING ACTIVITIES:**                                                                | ** ** | ** **      | ** ** | ** ** | ** ** |
| **Consolidated net loss**                                                           | ** ** | $               | (9,196,902 | ) | $ | (9,774,206 | ) |
| Adjustments  to reconcile consolidated net loss to net cash provided by operating activities: |       |            |       |   |   |
| Gain from sale of discontinued operations                                                     |       | (1,783,282      | )          | - |   |
| Loss on disposal of assets                                                                    |       | 146,528         |       | 122,878 |   |
| Depreciation and amortization                                                                 |       | 14,150,000      |       | 13,477,859 |   |
| Loss from investments in tenants in common                                                    |       | 1,432,075       |       | 1,654,142 |   |
| **Changes in assets and  liabilities:**                                                       |       |            |       |   |   |
| Cash and equivalents — restricted                                                        |       | (4,361,844      | )          | (1,338,247 | ) |
| Accounts receivable                                                                           |       | 55,295          |       | (118,445 | ) |
| Other assets                                                                                  |       | 115,643         |       | (607,151 | ) |
| Accounts payable and accrued expenses                                                         |       | (249,272        | )          | 509,656 |   |
| Accounts payable and accrued expenses due to  affiliate                                       |       | 6,761           |       | 441,433 |   |
| Security deposits                                                                             |       | 12,683          |       | 44,355 |   |
| Other liabilities                                                                             |       | 1,439,215       |       | 1,491,727 |   |
|                                                                                          |       |            |       |   |   |
| **Net cash provided by operating  activities**                                                |       | 1,766,900       |       | 5,904,001 |   |
|                                                                                          |       |            |       |   |   |
| **INVESTING ACTIVITIES:**                                                                     |       |            |       |   |   |
| Additions to land, buildings and amenities                                                    |       | (2,652,505      | )          | (1,750,614 | ) |
| Proceeds from sale of discontinued operations                                                 |       | 7,331,729       |       | - |   |
| Acquisitions                                                                                  |       | -               |       | (32,175,459 | ) |
| Investment in joint venture                                                                   |       | (224,680        | )          | - |   |
|                                                                                          |       |            |       |   |   |
| **Net cash provided by (used in)  investing activities**                                      |       | 4,454,544       |       | (33,926,073 | ) |
|                                                                                          |       |            |       |   |   |
| **FINANCING ACTIVITIES:**                                                                     |       |            |       |   |   |
| Contributions from noncontrolling interest holders  in properties                             |       | 147,000         |       | 5,588,426 |   |
| Distributions to noncontrolling interest holders  in properties                               |       | (49,000         | )          | - |   |
| Distributions from tenants in common properties                                               |       | -               |       | 120,000 |   |
| Proceeds from mortgages payable                                                               |       | -               |       | 24,225,000 |   |
| Revolving note payable, net                                                                   |       | -               |       | 4,278,089 |   |
| Principal payments on mortgages payable                                                       |       | (2,002,938      | )          | (2,492,393 | ) |
| Additional payments on mortgages payable                                                      |       | (2,246,475      | )          | - |   |
| Additional payments on revolving note payable                                                 |       | (8,200,000      | )          | - |   |
| Additions to loan costs                                                                       |       | (72,007         | )          | (652,652 | ) |
| Cash distributions                                                                            |       | (1,707,114      | )          | (1,707,114 | ) |
|                                                                                          |       |            |       |   |   |
| **Net cash (used in) provided by  financing activities**                                      |       | (14,130,534     | )          | 29,359,356 |   |
|                                                                                          |       |            |       |   |   |
| **NET (DECREASE) INCREASE IN CASH  AND EQUIVALENTS**                                          |       | (7,909,090      | )          | 1,337,284 |   |
|                                                                                          |       |            |       |   |   |
| **CASH AND EQUIVALENTS, beginning  of period**                                                |       | 11,233,735      |       | - |   |
|                                                                                          |       |            |       |   |   |
| **CASH AND EQUIVALENTS, end of  period**                                                      |       | $               | 3,324,645  |   | $ | 1,337,284 |   |

 

The accompanying notes to condensed consolidated financial statementsare an integral part of these statements.

 

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** **

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

Notesto Condensed Consolidated Financial Statements

(Unaudited)

 

The unaudited condensed consolidated financial statements includedherein should be read in conjunction with NTS Realty Holdings LimitedPartnership’s (“NTS Realty”) 2009 annual report on Form 10-K as filed with theSecurities and Exchange Commission on March 29, 2010.  The Condensed Consolidated Balance Sheet asof December 31, 2009, has been derived from the audited consolidated financialstatements of NTS Realty.  Certaininformation and note disclosures normally included in our annual financialstatements prepared in accordance with generally accepted accounting principleshave been condensed or omitted.  In theopinion of NTS Realty Capital, Inc., our managing general partner, alladjustments, consisting only of normal recurring accruals, necessary for a fairpresentation have been made to the accompanying condensed consolidatedfinancial statements for the three and nine months ended September 30, 2010 and2009.  The results of operations for theinterim periods are not necessarily indicative of the results that may beexpected for the full year or any other interim period.  As used in this quarterly report on Form10-Q, the terms “we,” “us” or “our,” as the context requires, may refer to NTSRealty or its interests in its properties and joint ventures.

 

**Note 1 —Summary of Significant Accounting Policies**

 

***Organization and Distribution Policy***

 

We are in the business of developing, constructing, owning andoperating multifamily properties, commercial and retail real estate.  As of September 30, 2010, we owned wholly, asa tenant in common with an unaffiliated third party or through joint ventureinvestments with an unaffiliated third party, 22 properties, comprised of 6commercial properties, 14 multifamily properties and 2 retail properties.  The properties are located in and aroundLouisville (6) and Lexington (1), Kentucky, Fort Lauderdale (3) and Orlando(2), Florida, Indianapolis (4), Indiana, Memphis (1) and Nashville (2),Tennessee, Richmond (2), Virginia and Atlanta (1), Georgia.  Our commercial properties aggregateapproximately 605,000 square feet.  We ownmultifamily properties containing 4,029 rental units and retail propertiescontaining approximately 47,000 square feet.

 

We pay distributions if and when authorized by our managing generalpartner using proceeds from advances drawn on our revolving note payable to abank.  We are required to paydistributions on a quarterly basis, no less than sixty-five percent (65%) ofour “net cash flow from operations” as this term is defined in regulationspromulgated by the Treasury Department under the Internal Revenue Code of 1986,as amended; provided that if a law is enacted or existing law is modified orinterpreted in a manner that subjects us to taxation as a corporation orotherwise subjects us to entity level taxation for federal, state or localincome tax purposes, we will adjust the amount distributed to reflect ourobligation to pay tax.  Any distributionother than a distribution with respect to the final quarter of a calendar yearwill be made no later than forty-five (45) days after the last day of suchquarter based on our estimate of “net cash flow from operations” for theyear.  Any distribution with respect tothe final quarter of a calendar year will be made no later than ninety (90)days after the last day of such quarter based on actual “net cash flow fromoperations” for the year, adjusted for any excess or insufficient distributionsmade with respect to the first three quarters of the calendar year.

 

“Net cash flow from operations” may be reduced by the amount ofreserves as determined by us each quarter. Our managing general partner will establish these reserves for, amongother things, working capital or capital improvement needs.  Therefore, there is no assurance that we willhave “net cash flow from operations” from which to pay distributions in thefuture.  For example, our partnershipagreement permits our managing general partner to reinvest sales or refinancingproceeds in new and existing properties or to create reserves to fund futurecapital expenditures.  Because “net cashflow from operations” is calculated after reinvesting sales or refinancingproceeds or establishing reserves, we may not have any “net cash flow fromoperations” from which to pay distributions.

 

We paid quarterly distributions of $0.05 per unit to limited partners onApril 16, 2010, July 16, 2010 and October 15, 2010.

 

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***Basis of Presentation***

 

The unaudited condensed consolidated financial statements include theaccounts of all wholly-owned properties and properties that are less thanwholly-owned, but which we control or for which we are the primarybeneficiary.  We consolidate a variableinterest entity, or VIE, when we are determined to be the primary beneficiarybased on the qualitative factors affecting:

 

·                  Our power to direct theactivities of a variable interest entity that most significantly affect thevariable interest entity’s economic performance; and

 

·                  Our obligation to absorblosses of the variable interest entity that could potentially be significant tothe variable interest entity or the right to receive benefits from the variableinterest entity that could potentially be significant to the variable interest entity.

 

Ourdetermination of the primary beneficiary of a VIE considers all relationshipsbetween us and the VIE, including management agreements and other contractualarrangements, when determining the party obligated to absorb the majority ofthe expected losses, as defined, by accounting standards.  Effective January 1, 2010, we adopted theprovisions of Auditing Standards Update No. 2009-17, *Improvementsto Financial Reporting by Enterprises Involved with Variable Interest Entities*(“ASU 2009-17”) which amends the Financial Accounting Standards Board (“FASB”)Accounting Standards Codification (“ASC”) Topic 810, *Consolidation*(“FASB ASC Topic 810”).  The amendment toFASB ASC Topic 810 revises the consolidation guidance for variable interestentities (VIE’s) focusing on a qualitative evaluation of the conditionssubjecting the entity to consolidation. There have been no changes during 2010 in conclusions about whether anentity qualifies as a VIE or whether we are the primary beneficiary of anypreviously identified VIE.  During thenine months ended September 30, 2010, we did not provide financial or othersupport to a previously identified VIE that we were not previouslycontractually obligated to provide.  Ourproperties owned as a tenant in common with an unaffiliated third party areaccounted for under the equity method. Intercompany transactions and balances have been eliminated.

 

***Fair Value of Financial Instruments***

 

FASB ASC Topic 820 *Fair Value Measurementsand Disclosures* requires companies to determine fair value based onthe price that would be received to sell the asset or paid to transfer theliability to a market participant.  FASBASC Topic 820 emphasizes that fair value is a market-based measurement, not anentity specific measurement.

 

FASB ASC Topic 820 requires that assets and liabilities carried at fairvalue be classified and disclosed in one of the following categories:

 

·                  Level 1:  Quoted market prices in active markets foridentical assets or liabilities.

 

·                  Level 2:  Observable market based inputs orunobservable inputs that are corroborated by market data.

 

·                  Level 3:  Unobservable inputs that are not corroboratedby market data.

 

We did not have any material financial assets or liabilities that arerequired to be recorded at fair value as of September 30, 2010 or December 31,2009.

 

***Financial Instruments***

 

The book values of cash and equivalents, trade receivables and tradepayables are considered to be representative of their respective fair valuesbecause of the immediate or short-term maturity of these financial instruments.

 

FASBASC Topic 825 *Financial Instruments* requiresdisclosures about fair value of financial instruments in both interim andannual financial statements.

 

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Certainof our assets and liabilities are considered financial instruments.  Fair value estimates, methods and assumptionsare set forth below.

 

Cashand equivalents and cash and equivalents — restricted — The carrying amount ofthese assets approximates fair value as of September 30, 2010 and December 31,2009, due to the short-term nature of such accounts.

 

Notereceivable — As of September 30, 2010 and December 31, 2009, we determined theestimated fair values of our notes receivable were approximately $1.0 millionand $0.9 million, respectively, by discounting expected future cash receiptsutilizing a discount rate equivalent to the rate at which similar notes receivablewould be originated at the reporting date.

 

Mortgagesand notes payable — As of September 30, 2010 and December 31, 2009, wedetermined the estimated fair values of our mortgages and notes payable wereapproximately $248.9 million and $246.0 million, respectively, by discountingexpected future cash payments utilizing a discount rate equivalent to the rateat which similar instruments would be originated at the reporting date.

 

***Recent Accounting Pronouncements***

 

In January 2010, the FASB issued Accounting Standards Update No.2010-06 *Improving Disclosures About Fair Value Measurements*(“ASU 2010-06”), which provides amendments to FASB ASC Subtopic 820-10 *Fair Value Measurements and Disclosures — Overall*.  ASU 2010-06 requires additional disclosuresand clarifications of existing disclosures for recurring and nonrecurring fairvalue measurements.  The revised guidanceis effective for interim and annual reporting periods beginning after December15, 2009.  ASU 2010-06 concernsdisclosure only and will not have a material impact on our financial positionor results of operations.

 

**Note 2 —Use of Estimates and Reclassifications in the Preparation of FinancialStatements**

 

The preparation of financial statements in accordance with U.S.generally accepted accounting principles requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Certain reclassifications have been made to the prior period financialstatements to conform with September 30, 2010 classifications.  Our Outlet Mall retail property and SearsOffice Building were reclassified during 2009 from continuing operations todiscontinued operations and were classified as held for sale on our balancesheets.  These reclassifications did nothave a material impact on the related financial statement line items on ourconsolidated balance sheets or statement of operations and no effect onpreviously reported operating results or partners’ equity.

 

**Note 3 —Real Estate Transactions**

 

***Acquisitions***

 

Upon acquisition of wholly-owned properties or joint ventureinvestments that are less than wholly-owned, but which we control or for whichwe are the primary beneficiary, the assets and liabilities purchased arerecorded at their fair market value at the date of the acquisition using theacquisition method in accordance with FASB ASC Topic 805 *BusinessCombinations*.  We recognizethe net tangible and identified intangible assets based on fair values(including land, buildings, tenant improvements, acquired above and belowmarket leases and the origination cost of acquired in-place leases) andacquired liabilities.  The intangibleassets recorded are amortized over the weighted average lease lives.  We identify any above or below market leasesor customer relationship intangibles that exist at the acquisition date.  We recognize mortgages and other liabilitiesat fair market value at the date of the acquisition.  We utilize an independent appraiser to assessfair value based on estimated cash flow projections for the tangible assetsacquired that utilize discount and capitalization rates deemed appropriate andavailable market information.

 

We expense acquisition costs as incurred.  During the three and nine months endedSeptember 30, 2010, we did not acquire any properties.

 

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Duringthe nine months ended September 30, 2009, we made the following propertyacquisitions:

 
| **Property — Multifamily** | ** ** | **Location** | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** **       |
|-------------------------------------------|------------|--------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------------|
| Sabal Park Apartments (1)                 |       | Longwood, FL |       | 162       |       | June 11, 2009              | ** ** | $                       |  13,000,000 |   |
| Golf Brook Apartments (2)                 |       | Longwood, FL |       | 195       |       | June 11, 2009              | ** ** | 19,500,000              |             |
|                                           |            |              |            |           |            |                            |            |                         |                  |  |

 

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(1)         Financed by a mortgagepayable to a bank of $9.6 million.  Weown a 51% joint venture interest in this property.

(2)         Financed by a mortgagepayable to a bank of $14.6 million.  Weown a 51% joint venture interest in this property.

 

***Dispositions***

 

During the nine months ended September 30, 2010, we made the followingproperty dispositions:

 
| **Wholly-Owned Properties** | ** ** | **Square Feet** | ** ** | **Our Ownership** | ** ** | **Date of Sale** | ** ** |
|----------------------------------|------------|----------------------|------------|------------------------|------------|----------------------------|------------|
| Outlet Mall (1)                  |       | 162,600              |       | 100                    | %          | March, 2010                |       |
| Sears Office Building (2)        |       | 66,900               |       | 100                    | %          | June, 2010                 |       |

 

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(1)                   Gain of approximately $0.5 million.

(2)                   Gain of approximately $1.2 million.

 

***Discontinued Operations and Long-Lived Assets andLiabilities Held for Sale***

 

We may engage in transactions structured as “like-kind exchanges” ofproperty to obtain favorable tax treatment under Section 1031 of the InternalRevenue Code.  If we are able tostructure an exchange of properties as a “like-kind exchange,” then any gain werealize from the exchange would not be recognized for federal income taxpurposes.  The test for determiningwhether exchanged properties are of “like-kind” is whether the properties areof the same nature or character.

 

At September 30, 2010, proceeds of approximately $3.6 million from thesale of our Sears Office Building were held by a third party qualifiedintermediary to be invested in replacement “like-kind” property.  These funds are included in cash andequivalents - restricted at September 30, 2010. Our ability to successfully invest the proceeds in accordance withSection 1031 of the Internal Revenue Code and qualify the proceeds for deferralof gain recognition for federal income tax purposes is dependent on manyfactors and there can be no assurance that we will be successful in doingso.  We are required to complete thepurchase of replacement property by December 27, 2010 to qualify the SearsOffice Building proceeds for deferral of gain recognition.

 

We have presented separately as discontinued operations in all periodsthe results of operations for the following properties:

 
| **Property**          | ** ** | **Location**   | ** ** | **Date of Sale** | ** ** |
|-----------------------|------------|----------------|------------|----------------------------|------------|
| Outlet Mall           |       | Louisville, KY |       | March, 2010                |       |
| Sears Office Building |       | Louisville, KY |       | June, 2010                 |       |

 

These assets and liabilities held for sale were separately identifiedon our balance sheet at December 31, 2009.

 

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The components of discontinued operations are outlined below andinclude the results of operations for the period in which we owned such assetsduring the three and nine months ended September 30, 2010 and 2009,respectively.

 
| ** **                                                         | ** ** | **(Unaudited)**                          | ** ** | **(Unaudited)**                         | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                         | ** ** | **Three  Months Ended****September 30,** | ** ** | **Nine  Months Ended****September 30,** | ** ** |
| ** **                                                         | ** ** | **2010**                                 | ** ** | **2009**                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| **REVENUE:**                                                       |       |                                     |       |                                    |       |   |   |   |   |
| Rental income                                                      |       | $                                        | -          |                                    | $          | 182,944 |   | $ | 145,568 |   | $ | 548,832 |   |
| Tenant reimbursements                                              |       | -                                        |       | 24,393                                  |       | - |   | 24,393 |   |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| **Total revenue**                                                  |       | -                                        |       | 207,337                                 |       | 145,568 |   | 573,225 |   |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| **EXPENSES:**                                                      |       |                                     |       |                                    |       |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 3,707                                    |       | 44,563                                  |       | 89,664 |   | 131,404 |   |
| Management fees                                                    |       | -                                        |       | 9,147                                   |       | 4,229 |   | 30,490 |   |
| Property taxes and insurance                                       |       | -                                        |       | (558                                    | )          | 27,097 |   | 36,644 |   |
| Depreciation and amortization                                      |       | -                                        |       | 41,907                                  |       | - |   | 179,258 |   |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| **Total expenses**                                                 |       | 3,707                                    |       | 95,059                                  |       | 120,990 |   | 377,796 |   |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| **DISCONTINUED OPERATING (LOSS)****INCOME**                        |       | (3,707                                   | )          | 112,278                                 |       | 24,578 |   | 195,429 |   |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| Interest and other income                                          |       | -                                        |       | 134,877                                 |       | - |   | 134,877 |   |
| Interest expense                                                   |       | (120                                     | )          | (21,589                                 | )          | (375 | ) | (64,406 | ) |
|                                                               |       |                                     |       |                                    |       |   |   |   |   |
| **Discontinued operations, net**                                   |       | $                                        | (3,827     | )                                       | $          | 225,566 |   | $ | 24,203 |   | $ | 265,900 |   |

 

**Note 4 —Concentration of Credit Risk**

 

We own and operate wholly, as a tenant in common with an unaffiliatedthird party or through joint venture investments with an unaffiliated thirdparty, commercial, multifamily and retail properties in Louisville andLexington, Kentucky; Fort Lauderdale and Orlando, Florida; Indianapolis,Indiana; Memphis and Nashville, Tennessee; Richmond, Virginia and Atlanta,Georgia.

 

Our financial instruments that are exposed to concentrations of creditrisk consist of cash and equivalents and cash and equivalents -restricted.  We maintain our cashaccounts primarily with banks located in Kentucky.

 

**Note 5 —Cash and Equivalents**

 

Cash and equivalents include cash on hand and short-term, highly liquidinvestments with initial maturities of three months or less.  We have a cash management program, whichprovides for the overnight investment of excess cash balances.  Under an agreement with a bank, excess cashis invested in a mutual fund for U.S. government and agency securities eachnight.

 

**Note 6 —Cash and Equivalents - Restricted**

 

Cash and equivalents - restricted represents cash on hand andshort-term, highly liquid investments with initial maturities of three monthsor less which have been escrowed with certain mortgage companies and banks forproperty taxes, insurance and tenant improvements in accordance with certainloan and lease agreements and certain security deposits.  We also hold the proceeds of our recentproperty sales with a third party intermediary to be invested in replacement “like-kind”property.  See Note 3 — *Real Estate Transactions* for a discussion of therestrictions on these proceeds.

 

**Note 7 —Property and Depreciation**

 

Land, buildings and amenities are stated at cost.  Costs directly associated with thedevelopment and construction of a project are capitalized.  Depreciation is computed using thestraight-line method over the estimated useful lives of the assets, which aregenerally 5-30 years for land improvements, 7-30 years for buildings and 

 

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improvementsand 5-30 years for amenities.  Tenantimprovements are generally depreciated over the life of the initial or renewalterm of the respective tenant lease. Depreciation expense from continuing operations for the three monthsended September 30, 2010 and 2009 was approximately $4.5 million and $4.4million, respectively.  Depreciationexpense from continuing operations for the nine months ended September 30, 2010and 2009 was approximately $13.4 million and $12.5 million, respectively.

 

FASB ASC Topic 360 *Property, Plant andEquipment* specifies circumstances in which certain long-lived assetsmust be reviewed for impairment.  If thecarrying amount of an asset exceeds the sum of its expected future cash flows,the asset’s carrying value must be written down to fair value.  In determining the value of an investmentproperty and whether the investment property is impaired, management considersseveral factors such as projected rental and vacancy rates, property operatingexpenses, capital expenditures and interest rates.  The capitalization rate used to determineproperty valuation is based on the market in which the investment property islocated, length of leases, tenant financial strength, the economy in general,demographics, environment, property location, visibility, age and physicalcondition among others.  All of thesefactors are considered by management in determining the value of any particularinvestment property.  The value of anyparticular investment property is sensitive to the actual results of any ofthese factors, either individually or taken as a whole.  If the actual results differ from management’sjudgment, the valuation could be negatively or positively affected.  Application of this standard during the threeand nine months ended September 30, 2010 and 2009 did not result in animpairment loss.

 

**Note 8 —Investments in and Advances to Tenants in Common**

 

Weown a tenant in common interest in and operate the following properties:

 

·                  The Overlook at St. Thomas Apartments; a484-unit luxury apartment complex in Louisville, Kentucky.  We own a 60% interest as a tenant in commonwith an unaffiliated third party.

·                  Creek’s Edge at Stony Point Apartments; a202-unit luxury apartment complex in Richmond, Virginia.  We own a 51% interest as a tenant in commonwith an unaffiliated third party.

 

Presentedbelow are the unaudited condensed balance sheets and statements of operationsfor these properties:

 
| ** **                              | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                 | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| **Condensed Balance Sheets**            | ** ** | ** **                       |       |                            |       |
| Land, buildings and amenities           |       | $                                | 62,979,000 |                            | $          | 66,186,166 |   |
| Other, net                              |       | 1,914,599                        |       | 1,497,712                       |       |
| Total assets                            |       | $                                | 64,893,599 |                            | $          | 67,683,878 |   |
|                                    |       |                             |       |                            |       |
| Mortgages payable and other liabilities |       | $                                | 57,948,590 |                            | $          | 58,170,033 |   |
| Equity                                  |       | 6,945,009                        |       | 9,513,845                       |       |
| Total liabilities and equity            |       | $                                | 64,893,599 |                            | $          | 67,683,878 |   |

 

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| ** **                                  | ** ** | **(Unaudited)****Three Months Ended** |       | **(Unaudited)****Nine Months Ended** |   |
|---------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|--------|
| ** **                                  | ** ** | **September  30,  2010**              | ** ** | **September  30,  2009**             |   | **September  30,  2010** |   | **September  30,  2009** |   |
| **Condensed Statements of  Operations**     | ** ** | ** **                            | ** ** | ** **                           |   |   |   |   |   |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| Revenue                                     |       | $                                     | 2,220,200  |                                 | $      | 2,090,335 |   | $ | 6,564,832 |   | $ | 6,137,906 |   |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| Operating expenses                          |       | 560,436                               |       | 502,135                              |   | 1,472,155 |   | 1,370,609 |   |
| Operating expenses reimbursed to affiliate  |       | 221,662                               |       | 249,362                              |   | 698,187 |   | 734,641 |   |
| Management fees                             |       | 75,453                                |       | 73,314                               |   | 228,713 |   | 213,419 |   |
| Property taxes and insurance                |       | 220,402                               |       | 225,889                              |   | 660,996 |   | 698,895 |   |
| Depreciation and amortization               |       | 1,183,383                             |       | 1,172,709                            |   | 3,535,268 |   | 3,509,588 |   |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| Total operating expenses                    |       | 2,261,336                             |       | 2,223,409                            |   | 6,595,319 |   | 6,527,152 |   |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| Operating loss                              |       | $                                     | (41,136    | )                                    | $      | (133,074 | ) | $ | (30,487 | ) | $ | (389,246 | ) |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| Net loss                                    |       | $                                     | (882,724   | )                                    | $      | (991,045 | ) | $ | (2,568,836 | ) | $ | (2,972,460 | ) |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| **Distributions**                           |       |                                  |       |                                 |   |   |   |   |   |
|                                        |       |                                  |       |                                 |   |   |   |   |   |
| The Overlook at St. Thomas Apartments       |       | $                                     | -          |                                 | $      | 200,000 |   | $ | - |   | $ | 200,000 |   |
| Creek’s Edge at Stony Point Apartments |       | -                                     |       | -                                    |   | - |   | - |   |

 

**Note 9 —Mortgages and Notes Payable**

 

Mortgages and notes payable consist of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                      | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.50%, currently 3.76%, due June 1, 2011, secured by  certain land, buildings and amenities, with a carrying value of $16,463,219  and a $640,000 letter of credit. The mortgage is guaranteed by Mr. Nichols and  Mr. Lavin, the chairman and president, respectively, of our managing general  partner |       | $                                | 15,087,000 |                            | $          | 23,566,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to GE Commercial Finance Business  Property in monthly installments of principal and interest, bearing fixed  interest at 9.0%, maturing August 1, 2010, secured by certain land, buildings  and amenities                                                                                                                                                                                                                                     |       | -                                |       | 2,289,831                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to an insurance company in  monthly installments of principal and interest, bearing fixed interest at  8.45%, maturing November 1, 2015, secured by certain land, buildings and  amenities, with a carrying value of $1,787,967                                                                                                                                                                                                                |       | 1,819,893                        |       | 2,002,165                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.11%, maturing December  1, 2014, secured by certain land, buildings and amenities, with a carrying  value of $11,166,895                                                                                                                                                                                                                             |       | 11,229,893                       |       | 11,381,809                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to a bank, currently with  interest only payable in monthly installments until October 1, 2011, bearing  fixed interest at 6.03% maturing September 1, 2018, secured by certain land,  buildings and amenities, with a carrying value of $35,251,293                                                                                                                                                                                           |       | 26,328,500                       |       | 26,328,500                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, currently with interest only payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.33%, currently 3.59%, maturing July 1, 2016, secured by  certain land, buildings and amenities, with a carrying value of $18,763,155                                                                                                   |       | 14,625,000                       |       | 14,625,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |       |                             |       |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, currently with interest only payable in monthly installments  until July 1, 2011, bearing interest at a variable rate based on LIBOR  one-month rate plus 3.50%, currently 3.76%, maturing July 1, 2016, secured by  certain land, buildings and amenities, with a carrying value of $12,339,232                                                                                                   |       | 9,600,000                        |       | 9,600,000                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |            |                                  |            |                                 |            |  |  |

 

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| ** **                                                                                                                                                                                                                                                          | ** ** | **(Unaudited)**                  | ** **  | ** **                      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                          | ** ** | **September 30, 2010** | ** **  | **December 31, 2009** | ** ** |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $20,339,417 |       | 13,775,303                       |        | 13,895,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $35,839,707 |       | 26,767,410                       |        | 27,000,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $20,063,643 |       | 16,699,890                       |        | 16,845,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $34,651,325 |       | 27,436,595                       |        | 27,675,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $17,337,408 |       | 11,291,881                       |        | 11,390,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $21,915,100 |       | 30,361,183                       |        | 30,625,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $9,463,252  |       | 10,850,715                       |        | 10,945,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable to Federal Home Loan Mortgage  Corporation, in monthly installments of principal and interest, bearing fixed  interest at 5.40%, maturing January 1, 2020, secured by certain land,  buildings and amenities, with a carrying value of $12,549,471 |       | 17,765,629                       |        | 17,920,000                      |       |
|                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| **Total mortgages and notes  payable**                                                                                                                                                                                                                              |       | $                                | 233,638,892 |                            | $          | 246,088,305 |   |
|                                                                                                                                                                                                                                                                     |            |                                  |             |                                 |            |  |  |

 

OnFebruary 1, 2010, we amended our $24.0 million mortgage payable to a bank.  The amendment converted $8.2 million of thebalance to a revolving note payable due June 1, 2011.  On February 12, 2010, we made a principalpayment of $8.2 million from our proceeds from refinancing on December 17,2009, on our $8.2 million revolving note payable to a bank.  The revolver proceeds may be used to fundcapital improvements and were used to payoff our mortgage payable to GECommercial Finance Business Property on April 30, 2010.  Both the $15.2 million mortgage and the $8.2million revolving note payable are secured by our Lakeshore Business Centerproperties.

 

Inaddition to the $8.2 million revolving note payable to a bank due June 1, 2011,we continue to have our $10.0 million revolving note payable to a bank due May31, 2011.  As of September 30, 2010 wedid not have an outstanding balance on either the $8.2 million revolving notepayable or the $10.0 million revolving note payable.

 

Based on the borrowing rates currently available to us for loans withsimilar terms and average maturities, the fair value of long-term debt atSeptember 30, 2010 was approximately $248.9 million.

 

Interest paid for the nine months ended September 30, 2010 and 2009 wasapproximately $8.7 million and $8.9 million, respectively.

 

Our mortgages may be prepaid but are generally subject to ayield-maintenance premium.  Certainmortgages and notes payable contain covenants and requirements that we maintainspecified debt limits and ratios related to our debt balances and propertyvalues, as well as, specified financial performance requirements.  We 

 

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compliedwith all covenants and requirements at September 30, 2010.  We anticipate renewing or refinancing ourmortgages and notes payable coming due within the next twelve months.

 

Mortgagespayable on our properties owned as a tenant in common with an unaffiliatedthird party consist of the following:

 
| ** **                                                                                                                                                                                                                               | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                               | ** ** | **September 30, 2010** | ** ** | **December 31, 2009** | ** ** |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.72%, maturing on April  11, 2017, secured by certain land, buildings and amenities, with a carrying  value of $36,581,981 (1) |       | $                                | 34,410,444 |                            | $          | 34,787,919 |   |
|                                                                                                                                                                                                                                     |       |                             |       |                            |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing fixed interest at 5.99% maturing November  15, 2017, secured by certain land, buildings and amenities, with a carrying  value of $26,397,019 (2)  |       | $                                | 22,517,924 |                            | $          | 22,727,309 |   |

 

----

(1)We are proportionately liable for this mortgage, limited to our 60% interest asa tenant in common.

(2)We are jointly and severally liable under this mortgage.

 

                Based on the borrowing ratescurrently available to us for loans with similar terms and average maturities,the fair value of long-term debt at September 30, 2010, was approximately $64.0million.

 

**Note 10— Accounts Payable and Accrued Expenses Due to Affiliate**

 

Accounts payable and accrued expenses due to affiliate includes amountsowed to NTS Development Company for reimbursement of employee costs andoverhead expenses and fees for services rendered as provided for in ourcollective management agreements.

 

**Note 11— Related Party Transactions**

 

Pursuant to our collective management agreements, NTS DevelopmentCompany receives fees for a variety of services performed for our benefit.  NTS Development Company also receives feesunder separate management agreements for each of our unconsolidated joint ventureproperties owned as a tenant in common with an unaffiliated third party, eachof our consolidated joint venture properties and each of our eight wholly-ownedsubsidiaries financed through Federal Home Loan Mortgage Corporation, or FHLMC.  Property management fees are paid in anamount equal to 5% of the gross collected revenue from our properties.  This includes our wholly-owned properties,consolidated joint venture properties and properties owned by our eight wholly-ownedsubsidiaries financed through FHLMC. Fees are paid in an amount equal to 3.5% of the gross collected revenuefrom our unconsolidated joint venture properties owned as a tenant in commonwith an unaffiliated third party.  Wewere the beneficiary of a preferential ownership interest, disproportionatelygreater than our initial cash investment in each property owned as a tenant incommon with an unaffiliated third party. Construction supervision fees are paid in an amount equal to 5% of thecosts incurred which relate to capital improvements and significantrepairs.  NTS Development Companyreceives commercial leasing fees equal to 4% of the gross rental amount for newleases and 2% of the gross rental amount for new leases in which a broker is usedand for renewals or extensions.  Dispositionfees are paid to NTS Development Company in an amount of 1% to 4% of theaggregate sales price of a property pursuant to our management agreements andup to a 6% fee upon disposition on our properties owned as a tenant in commonwith an unaffiliated third party under their respective managementagreements.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.  NTS Development Companyis reimbursed its actual costs for services rendered to NTS Realty.

 

Employee costs are allocated among NTS Realty, other affiliates of ourmanaging general partner and for the benefit of third parties, so that a fulltime employee can be shared by multiple entities.  Each employee’s services, which are dedicatedto a particular entity’s operations, are allocated as a percentage of eachemployee’s costs to that entity.  We onlyreimburse charges from NTS Development Company for actual costs of employeeservices incurred for our benefit.

 

We were charged the following approximate amounts pursuant to ourmanagement agreements with NTS Development Company for the three and ninemonths ended September 30, 2010 and 2009. These charges include items, which have been expensed as operatingexpenses reimbursed to affiliate or professional and administrative 

 

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expensesreimbursed to affiliate and items, which have been capitalized as other assetsor as land, buildings and amenities. Certain of these items are included in our results of discontinuedoperations.

 
| ** **                                                            | ** ** | **(Unaudited)**                               | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **For the  Three Months Ended September 30,** | ** ** |
| ** **                                                            | ** ** | **2010**                                      | ** ** | **2009** | ** ** |
| Property management fees                                              | ** ** | **$**                                         | 608,000    |   | $ | 583,000 |   |
|                                                                  |       |                                          |       |   |   |
| Operating expenses reimbursement — Property                      |       | 890,000                                       |       | 885,000 |   |
| Operating expenses reimbursement — Multifamily  Leasing          |       | 180,000                                       |       | 184,000 |   |
| Operating expenses reimbursement — Administrative                |       | 202,000                                       |       | 253,000 |   |
| Operating expenses reimbursement — Other                         |       | 21,000                                        |       | 15,000 |   |
|                                                                  |       |                                          |       |   |   |
| Total operating expenses reimbursed to affiliate                      |       | 1,293,000                                     |       | 1,337,000 |   |
|                                                                  |       |                                          |       |   |   |
| Professional and administrative expenses  reimbursed to affiliate     |       | 418,000                                       |       | 367,000 |   |
|                                                                  |       |                                          |       |   |   |
| Construction supervision fees and leasing fees                        |       | 37,000                                        |       | 70,000 |   |
| Disposition fees included in gain on sale of  discontinued operations |       | -                                             |       | 62,000 |   |
|                                                                  |       |                                          |       |   |   |
| **Total related party  transactions**                                 |       | $                                             | 2,356,000  |   | $ | 2,419,000 |   |

 
| ** **                                                            | ** ** | **(Unaudited)**                                                           | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **For the Nine Months Ended September 30,** | ** ** |
| ** **                                                            | ** ** | **2010**                                                                  | ** ** | **2009** | ** ** |
| Property management fees                                              | ** ** | **$**                                                                     | 1,762,000  |   | $ | 1,661,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Operating expenses reimbursement — Property                      |       | 2,689,000                                                                 |       | 2,462,000 |   |
| Operating expenses reimbursement — Multifamily  Leasing          |       | 506,000                                                                   |       | 459,000 |   |
| Operating expenses reimbursement — Administrative                |       | 673,000                                                                   |       | 745,000 |   |
| Operating expenses reimbursement — Other                         |       | 86,000                                                                    |       | 39,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Total operating expenses reimbursed to affiliate                      |       | 3,954,000                                                                 |       | 3,705,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Professional and administrative expenses  reimbursed to affiliate     |       | 1,238,000                                                                 |       | 1,152,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Construction supervision fees and leasing fees                        |       | 127,000                                                                   |       | 208,000 |   |
| Disposition fees included in gain on sale of  discontinued operations |       | 310,000                                                                   |       | - |   |
|                                                                  |       |                                                                      |       |   |   |
| **Total related party transactions**                                  |       | $                                                                         | 7,391,000  |   | $ | 6,726,000 |   |

 

Property, multifamily leasing, administrative and other operatingexpenses reimbursed include employee costs charged to us by NTS DevelopmentCompany and other actual costs incurred by NTS Development Company on ourbehalf, which were reimbursed by us.

 

During the three months ended September 30, 2010 and 2009, we werecharged approximately $11,000 and $13,000, respectively, for propertymaintenance fees from affiliates of NTS Development Company.  During the nine months ended September 30,2010 and 2009, we were charged approximately $37,000 and $55,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 square feet of office space inNTS Center, at a rental rate of $14.50 per square foot and 2,220 square feet ofstorage space at a rental rate of $5.50 per square foot.  We recognized rents of approximately $77,000from NTS Development Company for each of the three months ended September 30,2010 and 2009, respectively.  Werecognized rents of approximately $231,000 and $229,000 from NTS DevelopmentCompany for the nine months ended September 30, 2010 and 2009,respectively.  The average per squarefoot rental rate for similar office space in NTS Center as of September 30,2010 was $14.38 per square foot.

 

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** **

**Note 12— Commitments and Contingencies**

 

We, as an owner of real estate, are subject to various environmentallaws of federal, state and local governments. Our compliance with existing laws has not had a material adverse effecton our financial condition and results of operations.  However, we cannot predict the impact of newor changed laws or regulations on our current properties or on properties thatwe may acquire in the future.

 

***Litigation***

 

From time to time, we are involved in litigation and other legalproceedings arising out of the ordinary course of business.  There are no pending material legalproceedings to which we are subject.

 

**Note 13— Segment Reporting**

 

Our reportable operating segments include — retail, commercial andmultifamily real estate operations.  Thefollowing unaudited financial information of the operating segments has beenprepared using a management approach, which is consistent with the basis andmanner in which our management internally disaggregates financial informationfor the purpose of assisting in making internal operating decisions.  We evaluate performance based on stand-aloneoperating segment net income (loss).  Thenon-segment information necessary to reconcile to our total operating resultsis included in the column labeled “Partnership” in the following information.

 

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| ** **                                                                                                     | ** ** | **(Unaudited)**                                                    | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three Months Ended September 30, 2010** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                                         | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                  | 151,245    |   | $ | 1,361,183 |   | $ | 10,123,333 |   | $ | (8,903 | ) | $ | 11,626,858 |   |
| Tenant reimbursements                                                                                          |       | 24,170                                                             |       | 584,734 |   | - |   | - |   | 608,904 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 175,415                                                            |       | 1,945,917 |   | 10,123,333 |   | (8,903 | ) | 12,235,762 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate                                             |       | 43,393                                                             |       | 665,099 |   | 3,956,845 |   | - |   | 4,665,337 |   |
| Management fees                                                                                                |       | 7,696                                                              |       | 88,964 |   | 510,962 |   | - |   | 607,622 |   |
| Property taxes and insurance                                                                                   |       | 14,397                                                             |       | 263,910 |   | 1,300,723 |   | 31,839 |   | 1,610,869 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                  |       | - |   | - |   | 599,943 |   | 599,943 |   |
| Depreciation and amortization                                                                                  |       | 41,671                                                             |       | 457,137 |   | 3,966,577 |   | - |   | 4,465,385 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 107,157                                                            |       | 1,475,110 |   | 9,735,107 |   | 631,782 |   | 11,949,156 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 68,258                                                             |       | 470,807 |   | 388,226 |   | (640,685 | ) | 286,606 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                  |       | 764 |   | 33,675 |   | 16,073 |   | 50,512 |   |
| Interest expense                                                                                               |       | (24,306                                                            | )          | (153,672 | ) | (2,988,603 | ) | (40,356 | ) | (3,206,937 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                  |       | (7,329 | ) | (81,751 | ) | - |   | (89,080 | ) |
| Loss from investments in tenants in common                                                                     |       | -                                                                  |       | - |   | (493,948 | ) | - |   | (493,948 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing****operations**                                                                |       | 43,952                                                             |       | 310,570 |   | (3,142,401 | ) | (664,968 | ) | (3,452,847 | ) |
| Discontinued operations, net                                                                                   |       | (329                                                               | )          | (3,498 | ) | - |   | - |   | (3,827 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                             |       | 43,623                                                             |       | 307,072 |   | (3,142,401 | ) | (664,968 | ) | (3,456,674 | ) |
| Net loss attributable to noncontrolling interests                                                              |       | -                                                                  |       | - |   | (258,841 | ) | - |   | (258,841 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                  | 43,623     |   | $ | 307,072 |   | $ | (2,883,560 | ) | $ | (664,968 | ) | $ | (3,197,833 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                  | 3,739,875  |   | $ | 26,847,248 |   | $ | 249,679,898 |   | $ | - |   | $ | 280,267,021 |   |

 

 

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| ** **                                                                                                     | ** ** | **(Unaudited)**                                                    | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three Months Ended September 30, 2009** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                                         | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                  | 155,326    |   | $ | 1,269,604 |   | $ | 9,839,388 |   | $ | (7,276 | ) | $ | 11,257,042 |   |
| Tenant reimbursements                                                                                          |       | 26,025                                                             |       | 424,169 |   | - |   | - |   | 450,194 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 181,351                                                            |       | 1,693,773 |   | 9,839,388 |   | (7,276 | ) | 11,707,236 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate                                             |       | 30,919                                                             |       | 677,819 |   | 3,750,472 |   | - |   | 4,459,210 |   |
| Management fees                                                                                                |       | 8,758                                                              |       | 78,746 |   | 486,766 |   | - |   | 574,270 |   |
| Property taxes and insurance                                                                                   |       | 15,617                                                             |       | 230,421 |   | 1,354,078 |   | 31,840 |   | 1,631,956 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                  |       | - |   | - |   | 472,705 |   | 472,705 |   |
| Depreciation and amortization                                                                                  |       | 40,062                                                             |       | 435,490 |   | 4,042,910 |   | - |   | 4,518,462 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 95,356                                                             |       | 1,422,476 |   | 9,634,226 |   | 504,545 |   | 11,656,603 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 85,995                                                             |       | 271,297 |   | 205,162 |   | (511,821 | ) | 50,633 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                  |       | 437 |   | 16,655 |   | 70,119 |   | 87,211 |   |
| Interest expense                                                                                               |       | (89,014                                                            | )          | (501,961 | ) | (2,487,932 | ) | 8,379 |   | (3,070,528 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                  |       | (91,865 | ) | (17,852 | ) | - |   | (109,717 | ) |
| Loss from investments in tenants in common                                                                     |       | -                                                                  |       | - |   | (551,925 | ) | - |   | (551,925 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                            |       | (3,019                                                             | )          | (322,092 | ) | (2,835,892 | ) | (433,323 | ) | (3,594,326 | ) |
| Discontinued operations, net                                                                                   |       | 141,229                                                            |       | 84,337 |   | - |   | - |   | 225,566 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                             |       | 138,210                                                            |       | (237,755 | ) | (2,835,892 | ) | (433,323 | ) | (3,368,760 | ) |
| Net loss attributable to noncontrolling interests                                                              |       | -                                                                  |       | - |   | (228,256 | ) | - |   | (228,256 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                  | 138,210    |   | $ | (237,755 | ) | $ | (2,607,636 | ) | $ | (433,323 | ) | $ | (3,140,504 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                  | 3,893,481  |   | $ | 27,969,523 |   | $ | 262,546,488 |   | $ | - |   | $ | 294,409,492 |   |

 

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| ** **                                                                                                     | ** ** | **(Unaudited)**                                                   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Nine Months Ended September 30, 2010** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                                        | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                 | 459,204    |   | $ | 4,189,438 |   | $ | 29,571,049 |   | $ | (26,708 | ) | $ | 34,192,983 |   |
| Tenant reimbursements                                                                                          |       | 87,645                                                            |       | 1,384,870 |   | - |   | - |   | 1,472,515 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 546,849                                                           |       | 5,574,308 |   | 29,571,049 |   | (26,708 | ) | 35,665,498 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate                                             |       | 136,919                                                           |       | 2,014,471 |   | 11,551,122 |   | - |   | 13,702,512 |   |
| Management fees                                                                                                |       | 24,501                                                            |       | 255,876 |   | 1,477,100 |   | - |   | 1,757,477 |   |
| Property taxes and insurance                                                                                   |       | 40,163                                                            |       | 784,864 |   | 3,772,980 |   | 95,519 |   | 4,693,526 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                 |       | - |   | - |   | 1,841,471 |   | 1,841,471 |   |
| Depreciation and amortization                                                                                  |       | 124,780                                                           |       | 1,390,442 |   | 12,032,691 |   | - |   | 13,547,913 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 326,363                                                           |       | 4,445,653 |   | 28,833,893 |   | 1,936,990 |   | 35,542,899 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 220,486                                                           |       | 1,128,655 |   | 737,156 |   | (1,963,698 | ) | 122,599 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                 |       | 1,594 |   | 56,194 |   | 57,647 |   | 115,435 |   |
| Interest expense                                                                                               |       | (99,079                                                           | )          | (481,511 | ) | (8,888,439 | ) | (194,789 | ) | (9,663,818 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                 |       | (29,816 | ) | (116,712 | ) | - |   | (146,528 | ) |
| Loss from investments in tenants in common                                                                     |       | -                                                                 |       | - |   | (1,432,075 | ) | - |   | (1,432,075 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing  operations**                                                                  |       | 121,407                                                           |       | 618,922 |   | (9,643,876 | ) | (2,100,840 | ) | (11,004,387 | ) |
| Discontinued operations, net                                                                                   |       | 115,173                                                           |       | (90,970 | ) | - |   | - |   | 24,203 |   |
| Gain on sale of discontinued operations                                                                        |       | 534,884                                                           |       | 1,248,398 |   | - |   | - |   | 1,783,282 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                             |       | 771,464                                                           |       | 1,776,350 |   | (9,643,876 | ) | (2,100,840 | ) | (9,196,902 | ) |
| Net loss attributable to noncontrolling interests                                                              |       | -                                                                 |       | - |   | (823,519 | ) | - |   | (823,519 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                 | 771,464    |   | $ | 1,776,350 |   | $ | (8,820,357 | ) | $ | (2,100,840 | ) | $ | (8,373,383 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                 | 3,739,875  |   | $ | 26,847,248 |   | $ | 249,679,898 |   | $ | - |   | $ | 280,267,021 |   |

 

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| ** **                                                                                                     | ** ** | **(Unaudited)**                                                   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Nine Months Ended September 30, 2009** | ** ** |
| ** **                                                                                                     | ** ** | **Retail**                                                        | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                 | 458,855    |   | $ | 3,861,557 |   | $ | 27,301,802 |   | $ | (23,780 | ) | $ | 31,598,434 |   |
| Tenant reimbursements                                                                                          |       | 81,880                                                            |       | 1,271,794 |   | - |   | - |   | 1,353,674 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | 540,735                                                           |       | 5,133,351 |   | 27,301,802 |   | (23,780 | ) | 32,952,108 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses  reimbursed to affiliate                                             |       | 111,157                                                           |       | 1,983,050 |   | 9,455,019 |   | - |   | 11,549,226 |   |
| Management fees                                                                                                |       | 26,953                                                            |       | 251,041 |   | 1,352,993 |   | - |   | 1,630,987 |   |
| Property taxes and insurance                                                                                   |       | 44,248                                                            |       | 662,135 |   | 4,114,188 |   | 95,619 |   | 4,916,190 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                 |       | - |   | - |   | 1,907,059 |   | 1,907,059 |   |
| Depreciation and amortization                                                                                  |       | 124,607                                                           |       | 1,325,855 |   | 11,337,730 |   | - |   | 12,788,192 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | 306,965                                                           |       | 4,222,081 |   | 26,259,930 |   | 2,002,678 |   | 32,791,654 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | 233,770                                                           |       | 911,270 |   | 1,041,872 |   | (2,026,458 | ) | 160,454 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | 155                                                               |       | 2,234 |   | 34,233 |   | 189,737 |   | 226,359 |   |
| Interest expense                                                                                               |       | (268,636                                                          | )          | (1,459,414 | ) | (7,000,656 | ) | 78,807 |   | (8,649,899 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                 |       | (102,423 | ) | (20,455 | ) | - |   | (122,878 | ) |
| Loss from investments in tenants in common                                                                     |       | -                                                                 |       | - |   | (1,654,142 | ) | - |   | (1,654,142 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                            |       | (34,711                                                           | )          | (648,333 | ) | (7,599,148 | ) | (1,757,914 | ) | (10,040,106 | ) |
| Discontinued operations, net                                                                                   |       | 380,217                                                           |       | (114,317 | ) | - |   | - |   | 265,900 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                             |       | 345,506                                                           |       | (762,650 | ) | (7,599,148 | ) | (1,757,914 | ) | (9,774,206 | ) |
| Net loss attributable to noncontrolling interests                                                              |       | -                                                                 |       | - |   | (260,108 | ) | - |   | (260,108 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                 | 345,506    |   | $ | (762,650 | ) | $ | (7,339,040 | ) | $ | (1,757,914 | ) | $ | (9,514,098 | ) |
| ** **                                                                                                     |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                 | 3,893,481  |   | $ | 27,969,523 |   | $ | 262,546,488 |   | $ | - |   | $ | 294,409,492 |   |

 

**Note 14- Subsequent Events**

 

OnOctober 15, 2010, we signed a lease agreement with an unaffiliated thirdparty to lease approximately 75,000 square feet of commercial leasing space atour NTS Center office building.  The lease obligates us to pay anaggregate amount of $1.1 million in lease commissions and tenantallowances.  We expect to fund thisamount from cash on hand, cash generated by operations or borrowings on ourdebt.

 

OnOctober 28, 2010, we entered into a joint venture investment agreementwith an unaffiliated third party to invest in a commercial office buildingtotaling approximately 125,000 square feet.  The building is beingdeveloped by our affiliate, NTS Development Company, with construction expectedto be completed in late 2011 or early 2012.  The building will be managedby an affiliate of NTS Development Company.  We are obligated tocontribute $4.9 million, for a 49% ownership interest.  We intend to fundour share of this investment with proceeds from our recent property sales, cashon hand, cash from operations or borrowings on new or existing debt.  Weanticipate the joint venture entering into a $10.5 million constructionfinancing agreement with a bank.  The joint venture expects to invest atotal of $20.5 million in the construction of the building and completion oftenant space.

 

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**Item 2**—**Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations should be read in conjunction with the financial statements inItem 1 and the cautionary statements below.

 

**CriticalAccounting Policies**

 

A critical accounting policy is one that would materially affect ouroperations or financial condition, and requires management to make estimates orjudgments in certain circumstances. These judgments often result from the need to make estimates about theeffect of matters that are inherently uncertain.  Critical accounting policies are not to beconfused with accounting principles and methods disclosed in accordance withU.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  Our criticalaccounting policies, as previously disclosed in our most recent annual reporton Form 10-K, which was filed on March 29, 2010, discuss judgmentsknown to management pertaining to trends, events or uncertainties known whichwere taken into consideration upon the application of those policies and thelikelihood that materially different amounts would be reported upon taking intoconsideration different conditions and assumptions and remain unchanged duringthe quarter ended September 30, 2010.

 

**Resultsof Operations**

 

As of September 30, 2010, we owned wholly, as a tenant in commonwith an unaffiliated third party or through joint venture investments with anunaffiliated third party, 6 commercial properties, 14 multifamily propertiesand 2 retail properties.  We generatesubstantially all of our operating income from property operations.

 

Netlosses for the three months ended September 30, 2010 and 2009 wereapproximately $3.2 million and $3.1 million, respectively.  Net loss forthe three months ended September 30, 2010 as compared to September 30,2009 was primarily due to a $0.2 million increase in results of operations inthe multifamily segment, a $0.2 million decrease in the retail and commercialdiscontinued operations, net, a $0.1 million increase in overall interestexpense and a $0.1 million increase in professional fees. The decrease wasoffset by a $0.3 million increase in results of operations in the commercialsegment and a $0.1 million decrease in loss from investments in tenants incommon.  There were no other material offsetting changes in net loss forthe three months ended September 30, 2010 and 2009.

 

Netlosses for the nine months ended September 30, 2010 and 2009 wereapproximately $8.4 million and $9.5 million, respectively.  The change in net loss for the nine monthsended September 30, 2010 as compared to September 30, 2009 wasprimarily due to a $1.3 million increase in gain on sale of discontinuedoperations and a $0.3 million increase in results of operations, net of gain,across the commercial segment, a $0.5 million increase in gain on sale of discontinuedoperations offset by a $0.3 million decrease in discontinued operations, net,across the retail segment.  The change isalso due to a $0.1 million decrease in professional fees offset by a $0.1million decrease in interest and other income from the satisfaction of the $2.5million note receivable from an unaffiliated third party.  There was a $1.0 million increase in overallinterest expense which is primarily a $1.9 million increase in the multifamilysegment offset by a $1.0 million decrease in the commercial segment, primarilyrelated to additional borrowings and our acquisitions of Golf Brook Apartmentsand Sabal Park Apartments (June 2009), referred to as our “2009acquisitions”, a $0.2 million increase in results of operations across the multifamilysegment, a $0.2 million decrease in loss from investments in tenants incommon.  There were no other materialoffsetting changes in net loss for the nine months ended September 30,2010 and 2009.

 

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Thefollowing tables include certain selected summarized operating data for thethree and nine months ended September 30, 2010 and 2009.  This data should be read in conjunction withour financial statements, including the notes attached hereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                                                    | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2010** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                         | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                                  | 175,415    |   | $ | 1,945,917 |   | $ | 10,123,333 |   | $ | (8,903 | ) | $ | 12,235,762 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 43,393                                                             |       | 665,099 |   | 3,956,845 |   | - |   | 4,665,337 |   |
| Depreciation and amortization                                      |       | 41,671                                                             |       | 457,137 |   | 3,966,577 |   | - |   | 4,465,385 |   |
| Total interest expense                                             |       | (24,306                                                            | )          | (153,672 | ) | (2,988,603 | ) | (40,356 | ) | (3,206,937 | ) |
| Net income (loss)                                                  |       | 43,623                                                             |       | 307,072 |   | (2,883,560 | ) | (664,968 | ) | (3,197,833 | ) |
|                                                                    |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                    | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2009** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                         | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                                  | 181,351    |   | $ | 1,693,773 |   | $ | 9,839,388 |   | $ | (7,276 | ) | $ | 11,707,236 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 30,919                                                             |       | 677,819 |   | 3,750,472 |   | - |   | 4,459,210 |   |
| Depreciation and amortization                                      |       | 40,062                                                             |       | 435,490 |   | 4,042,910 |   | - |   | 4,518,462 |   |
| Total interest expense                                             |       | (89,014                                                            | )          | (501,961 | ) | (2,487,932 | ) | 8,379 |   | (3,070,528 | ) |
| Net income (loss)                                                  |       | 138,210                                                            |       | (237,755 | ) | (2,607,636 | ) | (433,323 | ) | (3,140,504 | ) |
|                                                                    |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                   | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2010** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                        | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                                 | 546,849    |   | $ | 5,574,308 |   | $ | 29,571,049 |   | $ | (26,708 | ) | $ | 35,665,498 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 136,919                                                           |       | 2,014,471 |   | 11,551,122 |   | - |   | 13,702,512 |   |
| Depreciation and amortization                                      |       | 124,780                                                           |       | 1,390,442 |   | 12,032,691 |   | - |   | 13,547,913 |   |
| Total interest expense                                             |       | (99,079                                                           | )          | (481,511 | ) | (8,888,439 | ) | (194,789 | ) | (9,663,818 | ) |
| Net income (loss)                                                  |       | 771,464                                                           |       | 1,776,350 |   | (8,820,357 | ) | (2,100,840 | ) | (8,373,383 | ) |
|                                                                    |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                   | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2009** | ** ** |
| ** **                                                         | ** ** | **Retail**                                                        | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                                 | 540,735    |   | $ | 5,133,351 |   | $ | 27,301,802 |   | $ | (23,780 | ) | $ | 32,952,108 |   |
| Operating expenses and operating expenses  reimbursed to affiliate |       | 111,157                                                           |       | 1,983,050 |   | 9,455,019 |   | - |   | 11,549,226 |   |
| Depreciation and amortization                                      |       | 124,607                                                           |       | 1,325,855 |   | 11,337,730 |   | - |   | 12,788,192 |   |
| Total interest expense                                             |       | (268,636                                                          | )          | (1,459,414 | ) | (7,000,656 | ) | 78,807 |   | (8,649,899 | ) |
| Net income (loss)                                                  |       | 345,506                                                           |       | (762,650 | ) | (7,339,040 | ) | (1,757,914 | ) | (9,514,098 | ) |
|                                                                    |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing properties by segment as of September 30,2010 and 2009 were as follows:

 
| ** **  | ** ** | **2010** | ** ** | **2009** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 75       | %          | 76       | %          |
| Multifamily |       | 97       | %          | 95       | %          |
| Retail      |       | 100      | %          | 100      | %          |

 

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The average occupancy levels at our continuing properties by segmentfor the three and nine months ended September 30, 2010 and 2009 were asfollows:

 
| ** **  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **  | ** ** | **2010**                                                 | ** ** | **2009**                                                | ** ** | **2010** | ** ** | **2009** | ** ** |
| Commercial  |       | 75                                                       | %          | 75                                                      | %          | 76 | % | 75 | % |
| Multifamily |       | 97                                                       | %          | 95                                                      | %          | 96 | % | 93 | % |
| Retail      |       | 100                                                      | %          | 98                                                      | %          | 100 | % | 98 | % |

 

We believe the remaining changes in occupancy on September 30 andin average occupancy from period to period are temporary effects of eachproperty’s specific mix of lease maturities and are not indicative of any knowntrend or uncertainty.

 

We have on-site leasing staff, who are employees of NTS DevelopmentCompany, at each of the multifamily properties. The staff handles all on-site visits from potential tenants, coordinateslocal advertising with NTS Development Company’s marketing staff, makes visitsto local companies to promote fully furnished apartments and negotiates leaserenewals with current residents.

 

The leasing and renewal negotiations for our commercial and retailproperties are primarily handled by leasing agents that are employees of NTSDevelopment Company.  All advertising forthe commercial and retail properties is coordinated by NTS Development Company’smarketing staff located in Louisville, Kentucky.

 

The following discussion relating to changes in our results ofoperations includes only material line items within our unaudited condensedconsolidated statements of operations or line items for which there was amaterial change between the three and nine months ended September 30, 2010and 2009.

 

***Rental Income and Tenant Reimbursements***

 

Rentalincome and tenant reimbursements from continuing operations for the threemonths ended September 30, 2010 and 2009 were approximately $12.2 millionand $11.7 million, respectively. Rental income and tenant reimbursements fromcontinuing operations for the nine months ended September 30, 2010 and2009 were approximately $35.7 million and $33.0 million, respectively. Theincrease of $0.5 million, or 4%, for the three months ended September 30,2010 and 2009 was primarily the result of a $0.3 million increase in rentalincome across the multifamily segment primarily related to an overall increasein occupancy and a $0.3 million increase in rental income and tenantreimbursements across the commercial segment primarily related to an increasein tenant reimbursements.  The increaseof $2.7 million, or 8%, for the nine months ended September 30, 2010 and2009 was primarily the result of a $2.3 million increase in rental incomeacross the multifamily segment primarily related to our 2009 acquisitions and a$0.4 million increase in rental income and tenant reimbursements across thecommercial segment primarily related to an increase in occupancy at LakeshoreBusiness Center Phase II.  There were noother material offsetting changes in rental income and tenant reimbursementsfrom continuing operations for the three and nine months ended September 30,2010 and 2009.

 

***Operating Expenses and Operating ExpensesReimbursed to Affiliate***

 

Operatingexpenses from continuing operations for the three months ended September 30,2010 and 2009 were approximately $3.4 million and $3.1 million,respectively.  Operating expenses fromcontinuing operations for the nine months ended September 30, 2010 and2009 were approximately $9.8 million and $7.9 million, respectively.  The increase of $0.3 million, or 10%, for thethree months ended September 30, 2010 and 2009 was primarily the result ofa $0.2 million increase in operating expenses across the multifamily segmentprimarily related to an increase in repairs and maintenance.  The increase of $1.9 million, or 24%, for thenine months ended September 30, 2010 and 2009 was primarily the result ofa $1.2 million increase in operating expenses from our 2009 acquisitions and a$0.7 million increase in operating expenses across the remaining multifamilysegment primarily related to an increase in repairs and maintenance.  There were no other material offsetting changesin operating expenses from continuing operations for the three and nine monthsended September 30, 2010 and 2009.

 

Operatingexpenses reimbursed to affiliate from continuing operations for each of thethree months ended September 30, 2010 and 2009 were approximately $1.3million.  Operating expenses reimbursedto affiliate from continuing operations for the nine months ended September 30,2010 and 2009 were approximately $3.9 million 

 

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and$3.6 million, respectively.  The increaseof $0.3 million, or 8%, for the nine months ended September 30, 2010 and2009 was primarily the result of a $0.3 million increase in operating expensesreimbursed to affiliate from our 2009 acquisitions.  There were no other material offsettingchanges in operating expenses reimbursed to affiliate from continuingoperations for the nine months ended September 30, 2010 and 2009.

 

We do not have any employees. Pursuant to our collective management agreements, NTS DevelopmentCompany employs the individuals who provide services necessary to operate ourproperties and conduct our business.  NTSDevelopment Company provides employees that may also perform services for otherproperties and business enterprises.  Inthe situation where a particular employee benefits multiple operations, theemployee’s cost is proportionately charged out to the entity receiving theservices.  We only reimburse charges fromNTS Development Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our condensedconsolidated statements of operations as operating expenses reimbursed toaffiliate.  The services provided byothers are classified as operating expenses.

 

Operating expenses reimbursed to affiliate are for services performedby employees of NTS Development Company, an affiliate of our general partner.  These employee services include propertymanagement, leasing, maintenance, security and other services necessary tomanage and operate our business.

 

Operating expenses reimbursed to affiliate from continuing operationsconsisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                            | ** ** | **(Unaudited)**                           | ** ** |
|---------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
| ** **          | ** ** | **2010**                                   | ** ** | **2009**                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Property            |       | $                                          | 890,000    |                                      | $          | 879,000 |   | $ | 2,675,000 |   | $ | 2,436,000 |   |
| Multifamily Leasing |       | 180,000                                    |       | 184,000                                   |       | 506,000 |   | 459,000 |   |
| Administrative      |       | 201,000                                    |       | 238,000                                   |       | 650,000 |   | 701,000 |   |
| Other               |       | 21,000                                     |       | 13,000                                    |       | 82,000 |   | 33,000 |   |
|                |       |                                       |       |                                      |       |   |   |   |   |
| **Total**           |       | $                                          | 1,292,000  |                                      | $          | 1,314,000 |   | $ | 3,913,000 |   | $ | 3,629,000 |   |

 

***Management Fees***

 

Management fees from continuing operations for each of the three monthsended September 30, 2010 and 2009 were approximately $0.6 million.  Management fees from continuing operationsfor the nine months ended September 30, 2010 and 2009 were approximately$1.8 million and $1.6 million, respectively. The increase of $0.2 million, or 13%, for the nine months ended September 30,2010 and 2009 was primarily the result of our 2009 acquisitions.  There were no other material offsettingchanges in management fees from continuing operations for the nine months endedSeptember 30, 2010 and 2009.

 

Pursuant to our collective management agreements, NTS DevelopmentCompany receives property management fees equal to 5% of the gross collectedrevenue from our properties.  Thisincludes our wholly-owned properties, our consolidated joint venture propertiesand properties owned by our eight wholly-owned subsidiaries financed throughFederal Home Loan Mortgage Corporation, or FHLMC.  NTS Development Company receives propertymanagement fees from our unconsolidated joint venture properties owned as atenant in common with an unaffiliated third party equal to 3.5% of their grosscollected revenue under separate management agreements.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.  Disposition fees of upto 6% of the gross sales price may be paid to NTS Development Company for thesale of one of our properties owned as a tenant in common with an unaffiliatedthird party.  Management fees arecalculated as a percentage of cash collections and are recorded on the accrualbasis.  As a result, the fluctuations inrevenue between years will differ from the fluctuations of management feeexpense.

 

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***Property Taxes and Insurance***

 

Property taxes and insurance from continuing operations for each of thethree months ended September 30, 2010 and 2009 were approximately $1.6 million.  Property taxes and insurance from continuingoperations for the nine months ended September 30, 2010 and 2009 wereapproximately $4.7 million and $4.9 million, respectively.  The decrease of $0.2 million, or 4%, for thenine months ended September 30, 2010 and 2009 was primarily the result ofa $0.4 million decrease in property taxes at Willow Lake Apartments, LakeClearwater Apartments and Castle Creek Apartments due to tax rate reductionsduring the nine months ended September 30, 2010.  The decrease was partially offset by a $0.2million increase in property taxes and insurance from our 2009 acquisitions andan increase in insurance of approximately $0.1 million at our LakeshoreBusiness Center properties.  There wereno other material offsetting changes in property taxes and insurance fromcontinuing operations for the nine months ended September 30, 2010 and2009.

 

***Professional and Administrative Expenses andProfessional and Administrative Expenses Reimbursed******to Affiliate***

 

Professional and administrative expenses from continuing operations forthe three months ended September 30, 2010 and 2009 were approximately $0.2million and $0.1 million, respectively. Professional and administrative expenses from continuing operations forthe nine months ended September 30, 2010 and 2009 were approximately $0.6million and $0.8 million, respectively. The increase of $0.1 million for the three months ended September 30,2010 and 2009 was primarily due to an overall increase in professionalfees.  The decrease of $0.2 million, or25%, for the nine months ended September 30, 2010 and 2009 was primarilydue to an overall decrease in legal and professional fees.  There were no other material offsettingchanges in professional and administrative expenses from continuing operationsfor the three and nine months ended September 30, 2010 and 2009.

 

Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for each of the three months ended September 30,2010 and 2009 were approximately $0.4 million. Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for each of the nine months ended September 30, 2010and 2009 were approximately $1.2 million. There were no material offsetting changes in professional andadministrative expenses reimbursed to affiliate from continuing operations forthe three and nine months ended September 30, 2010 and 2009.

 

We do not have any employees. Pursuant to our collective management agreements, NTS DevelopmentCompany employs the individuals who provide services necessary to operate ourproperties and conduct our business.  NTSDevelopment Company provides employees that may also perform services for otherproperties and business enterprises.  Inthe situation where a particular employee benefits multiple operations, theemployee’s cost is proportionately charged out to the entity receiving theservices.  We only reimburse charges fromNTS Development Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our condensedconsolidated statements of operations as professional and administrativeexpenses reimbursed to affiliate.  Theservices provided by others are classified as professional and administrative.

 

Professional and administrative expenses reimbursed to affiliate arefor the services performed by employees of NTS Development Company, anaffiliate of our general partner.  Theseemployee services include legal, financial and other services necessary tomanage and operate our business.

 

Professional and administrative expenses reimbursed to affiliate fromcontinuing operations consisted approximately of the following:

 
| ** **         | ** ** | **(Unaudited)**                            | ** ** | **(Unaudited)**                           | ** ** |
|--------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **         | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
| ** **         | ** ** | **2010**                                   | ** ** | **2009**                                  | ** ** | **2010** | ** ** | **2009** | ** ** |
| Finance            |       | $                                          | 107,000    |                                      | $          | 84,000 |   | $ | 315,000 |   | $ | 277,000 |   |
| Accounting         |       | 187,000                                    |       | 183,000                                   |       | 580,000 |   | 546,000 |   |
| Investor Relations |       | 68,000                                     |       | 64,000                                    |       | 201,000 |   | 217,000 |   |
| Human Resources    |       | 4,000                                      |       | 4,000                                     |       | 11,000 |   | 12,000 |   |
| Overhead           |       | 52,000                                     |       | 32,000                                    |       | 131,000 |   | 100,000 |   |
|               |       |                                       |       |                                      |       |   |   |   |   |
| **Total**          |       | $                                          | 418,000    |                                      | $          | 367,000 |   | $ | 1,238,000 |   | $ | 1,152,000 |   |

 

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***Depreciation and Amortization***

 

Depreciation and amortization expense from continuing operations foreach of the three months ended September 30, 2010 and 2009 wasapproximately $4.5 million.  Depreciationand amortization expense from continuing operations for the nine months ended September 30,2010 and 2009 was approximately $13.5 million and $12.8 million,respectively.  The increase of $0.7million, or 5%, was primarily due to our 2009 acquisitions of approximately $0.9million partially offset by a decrease in intangible amortization at ShelbyFarms Apartments of approximately $0.2 million. There were no other material offsetting changes in depreciation andamortization from continuing operations for the three and nine months ended September 30,2010 and 2009.

 

***Interest and Other Income***

 

Interest and other income from continuing operations for the threemonths ended September 30, 2010 and 2009 were approximately $0.1million.  Interest and other income fromcontinuing operations for the nine months ended September 30, 2010 and2009 was approximately $0.1 million and $0.2 million, respectively.  The decrease of $0.1 million, or 50%, wasprimarily due to a decrease in interest income earned on our unaffiliated notesreceivable.  There were no other materialoffsetting changes in interest and other income from continuing operations forthe three and nine months ended September 30, 2010 and 2009.

 

***Interest Expense***

 

Interestexpense from continuing operations for the three months ended September 30,2010 and 2009 was approximately $3.2 million and $3.1 million,respectively.  Interest expense fromcontinuing operations for the nine months ended September 30, 2010 and2009 was approximately $9.7 million and $8.6 million, respectively.  The increase of $0.1 million, or 3%, for thethree months ended September 30, 2010 and 2009 was primarily due toincreased interest expense of $0.3 million related to our increased level ofborrowings over the periods partially offset by decreased interest expense of$0.2 million primarily due to the repayment of our revolving notes payable andthe payoff of a mortgage payable to a bank. The increase of $1.1 million, or 13%, for the nine months ended September 30,2010 and 2009 was primarily due to increased interest expense of $0.9 millionrelated to our increased level of borrowings over the periods and $0.4 millionfor our 2009 acquisitions.  In addition,there was an increase of approximately $0.1 million of loan cost amortizationexpense.  The increase was partiallyoffset by decreased interest expense of $0.3 million for the interest rate swapthat expired in September 2009, revolving note payable and mortgagespayable to a bank.  There were no othermaterial offsetting changes in interest expense from continuing operations forthe three and nine months ended September 30, 2010 and 2009.

 

***Loss on Disposal of Assets***

 

Theloss on disposal of assets from continuing operations for the three and ninemonths ended September 30, 2010 and 2009 can be attributed to assets thatwere not fully depreciated at the time of replacement, spread primarily amongstthe commercial and multifamily properties. The 2010 loss on disposal of assets was due to the retirement of mailboxes,roofs, microwaves, jacuzzis, lights, exterior signs, and heating and airconditioning units.  The 2009 loss ondisposal of assets was due to the retirement of exterior lighting, HVAC unitsand property handrails.

 

***Loss From Investment in Tenants in Common***

 

Loss from investment in tenants in common for the three and nine monthsended September 30, 2010 and 2009 includes the net operating lossesattributable to our investments in tenants in common with an unaffiliated thirdparty.  The properties are The Overlookat St. Thomas Apartments and Creek’s Edge at Stony Point Apartments.

 

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***Discontinued Operations***

 

Net loss from discontinued operations for the three months ended September 30,2010 was approximately $4,000 and net income from discontinued operations forthe three months ended September 30, 2009 was approximately $0.2million.  Net income from discontinuedoperations for the nine months ended September 30, 2010 and 2009 wasapproximately $24,000 and $0.3 million, respectively.  Discontinued operations, net for the threeand nine months ended September 30, 2010 and 2009 include the netoperating results for the properties previously sold as listed below.

 
| **Property**          | ** ** | **Location**   | ** ** | **Date of Sale** | ** ** |
|-----------------------|------------|----------------|------------|----------------------------|------------|
| Outlet Mall           |       | Louisville, KY |       | March, 2010                |       |
| Sears Office Building |       | Louisville, KY |       | June, 2010                 |       |

 

**Gain on Sale of Discontinued Operations**

 

Gainon sale of discontinued operations for the nine months ended September 30,2010 was approximately $1.8 million due to the sale of the Sears OfficeBuilding in June 2010 and the sale of the Outlet Mall in March 2010.

 

**Liquidity and Capital Resources**

 

Our most liquid asset is our cash and equivalents, which consist ofcash and short-term investments, but do not include any restricted cash.  Operating income generated by the propertieswill be the primary source from which we generate cash.  Other sources of cash include the proceedsfrom our revolving notes payable.  Ourmain uses of cash relate to capital expenditures, required payments ofmortgages and notes payable, distributions and property taxes.

 

The following table summarizes our approximate sources/uses of cashflow for the nine months ended September 30, 2010 and 2009.

 
| ** **                                           | ** ** | **(Unaudited)**                                         | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                                           | ** ** | **2010**                                                | ** ** | **2009** | ** ** |
| Operating activities                                 | ** ** | **$**                                                   | 1,767,000  |   | $ | 5,904,000 |   |
| Investing activities                                 |       | 4,455,000                                               |       | (33,926,000 | ) |
| Financing activities                                 |       | (14,131,000                                             | )          | 29,359,000 |   |
|                                                 |       |                                                    |       |   |   |
| **Net (decrease) increase in cash  and equivalents** |       | $                                                       | (7,909,000 | ) | $ | 1,337,000 |   |

 

***Cash Flow from Operating Activities***

 

Net cash provided byoperating activities was approximately $1.8 million and $5.9 million for thenine months ended September 30, 2010 and 2009, respectively.  The change of $4.1 million was primarily dueto reserving restricted cash from the proceeds of our sale of our Sears OfficeBuilding (June 2010) to be used to satisfy the requirements of Section 1031of the Internal Revenue Code in purchasing “like-kind” replacement property inorder to defer recognition of gain for federal tax purposes.  We also had an increase in cash used of $1.2million to satisfy accounts payable and accounts payable due to affiliate and$0.7 million used to fund operations. Our cash used is partially offset by a decrease of approximately $0.6million to fund lender-held cash escrows and an aggregate of approximately $0.7million due to decreases in prepaid insurance, intangible amortization, leasingcommissions and refundable deposits and $0.2 million provided by a decrease inaccounts receivable.

 

***Cash Flow from Investing Activities***

 

Netcash provided by investing activities was approximately $4.5 million for thenine months ended September 30, 2010 as compared to cash used in investingactivities of approximately $33.9 million for the nine months ended September 30,2009.  The change of $38.4 million wasprimarily due to our 2009 acquisitions of approximately $32.2 million, proceedsfrom the sale of our Outlet Mall retail property (March 2010) and the saleof our Sears Office Building (June 2010) of $7.3 million, which waspartially offset by an increase in cash used of 

 

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approximately$0.9 million for additions to land, buildings and amenities and a $0.2 millionincrease in cash used to fund joint venture operations.

 

***Cash Flow from Financing Activities***

 

Netcash used in financing activities was approximately $14.1 million for the ninemonths ended September 30, 2010 as compared to cash provided by financingactivities of approximately $29.4 million for the nine months ended September 30,2009.  The change of $43.5 million wasprimarily due to a decrease in cash provided of $24.2 million to fund 2009acquisitions, the change in cash used of $12.5 million on our revolving notespayable, the change in cash contributed, net of distributions, of approximately$5.5 million from our noncontrolling interest holders, cash used of $2.2million in additional principal payments on our mortgages payable, partiallyoffset by a decrease in principal payments on our mortgages payable of $0.5million and a decrease in loan cost additions of $0.6 million.  The remaining increases and decreases in cashwere individually immaterial.

 

***Future Liquidity***

 

Our future liquidity depends significantly on our properties’ occupancyremaining at a level which allows us to make debt payments and have adequateworking capital, currently and in the future. If occupancy were to fall below that level and remain at or below thatlevel for a significant period of time, our ability to make payments due underour debt agreements and to continue paying daily operational costs would begreatly impaired.  In the next twelvemonths, we intend to operate the properties in a similar manner to theiroperation in recent years.  Cashreserves, which consist of unrestricted cash as shown on our balance sheet,were approximately $3.3 million on September 30, 2010.

 

At September 30, 2010, proceeds of approximately $3.6 million fromthe sale of our Sears Office Building were held by a third party qualifiedintermediary to be invested in replacement “like-kind” property.  These funds are included in cash and equivalents- restricted at September 30, 2010. Our ability to successfully invest the proceeds in accordance with Section 1031of the Internal Revenue Code and qualify the proceeds for deferral of gainrecognition for federal income tax purposes is dependent on many factors andthere can be no assurance that we will be successful in doing so.  We are required to complete the purchase ofreplacement property by December 27, 2010 to qualify the Sears OfficeBuilding proceeds for deferral of gain recognition.

 

We expect to meet our short-term liquidity requirements for normaloperating expenses from cash generated by operations.  In addition, we anticipate generatingproceeds from borrowing activities, property sales and/or equity offerings toprovide funds for payment of certain debts and obligations.  We expect to incur capital costs related toleasing space and making improvements to properties and expect to meet theseobligations with the use of funds held in escrow by lenders, proceeds fromproperty sales and/or borrowing activities.

 

We have approximately $15.1 million of consolidated and unconsolidatedsecured debt maturing during the next 12 months.  It is our intention to extend, repay orrefinance this debt at market terms available at the time of the maturities.  We are in active discussions with severallenders to address this maturing debt. We believe that we will be able to refinance this debt; however, thereis no assurance that we will obtain terms similar to those of the expiring debtand we may have to incur interest rates that are higher than the rates on theexpiring debt.  The result of higherinterest rates would have a negative impact on our results of operations andability to pay distributions.  Further,as part of any refinancing, we may be required to pledge additional assets ascollateral and may not be able to achieve the same loan to value ratios on oursecured indebtedness.  If we are unableto refinance this debt for any reason we must either pay the remaining balanceor borrow additional money to pay off the maturing loan.  We may not, however, be able to obtain a newloan, or the terms of the new loan, such as the interest rate or paymentschedule, may not be as favorable as the terms of the maturing loan.  Additionally, due to the amount of availablecash on hand, expected cash generated by operating activities and fundsavailable to us from existing sources of borrowings, there can be no assuranceas to our ability to obtain funds necessary to repay the amounts due during thenext 12 months.  Thus, we may be forcedto sell a property at an unfavorable price to pay off the maturing loan oragree to less favorable loan terms.

 

On March 16, 2010, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.05 per unit onour limited partnership units.  Thedistribution was paid on April 16, 2010, to limited partners of record atthe close of business on March 31, 2010.

 

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On June 15, 2010, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.05 per unit onour limited partnership units.  Thedistribution was paid on July 16, 2010, to limited partners of record atthe close of business on June 30, 2010.

 

On September 14, 2010, we announced that the board of directors ofour managing general partner approved a quarterly distribution of $0.05 perunit on our limited partnership units. The distribution was paid on October 15, 2010, to limited partnersof record at the close of business on September 30, 2010.

 

We pay distributions, if and when, authorized by our managing generalpartner using proceeds from advances drawn on our revolving note payable to abank.

 

Pursuant to leasing agreements signed on or before September 30,2010, we are obligated to incur expenditures of approximately $1.8 millionwhich we expect to be funded by cash on hand, cash generated by operations orborrowings on our debt during the next twelve months primarily for renovationsand tenant origination costs necessary to continue leasing our properties.  This discussion of future liquidity detailsour material commitments.  We anticipaterepaying, seeking renewal or refinancing of our note and mortgage payablecoming due in the next twelve months.

 

Inaddition to the $8.2 million revolving note payable to a bank due June 1,2011, we continue to have our $10.0 million revolving note payable to a bankdue May 31, 2011.  As of September 30,2010, we did not have a balance on either the $8.2 million revolving notepayable or the $10.0 million revolving note payable.

 

The aggregate availability on our revolving notes payable was approximately$18.2 million as of September 30, 2010.

 

We intend to seek a renewal of our expiring $10.0 million and $8.2million revolving notes payable to a bank due in the next twelve months, butcan offer no assurance that we will be successful in doing so, or thatfavorable terms of renewal can be obtained.

 

We expect to receive $1.0 million on May 1, 2011 to satisfy ourunaffiliated note receivable.

 

OnOctober 15, 2010, we signed a lease agreement with an unaffiliated thirdparty to lease approximately 75,000 square feet of commercial leasing space atour NTS Center office building.  The lease obligates us to pay anaggregate amount of $1.1 million in lease commissions and tenantallowances.  We expect to fund thisamount from cash on hand, cash generated by operations or borrowings on ourdebt.

 

OnOctober 28, 2010, we entered into a joint venture investment agreementwith an unaffiliated third party to invest in a commercial office buildingtotaling approximately 125,000 square feet.  The building is beingdeveloped by our affiliate, NTS Development Company, with construction expectedto be completed in late 2011 or early 2012.  The building will be managedby an affiliate of NTS Development Company.  We are obligated tocontribute $4.9 million, for a 49% ownership interest.  We intend to fundour share of this investment with proceeds from our recent property sales, cashon hand, cash from operations or borrowings on new or existing debt.  Weanticipate the joint venture entering into a $10.5 million constructionfinancing agreement with a bank.  Thejoint venture expects to invest a total of $20.5 million in the construction ofthe building and completion of tenant space.

 

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*** ***

***Property Transactions***

 

***Acquisitions***

 

Duringthe nine months ended September 30, 2010, we did not acquire anyproperties.  During the nine months endedSeptember 30, 2009, we made the following property acquisitions:

 
| **Property — Multifamily** | ** ** | **Location** | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|-------------------------------------------|------------|--------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| Sabal Park Apartments (1)                 |       | Longwood, FL |       | 162       |       | June 11, 2009         |       | $                       | 13,000,000 |   |
| Golf Brook Apartments (2)                 |       | Longwood, FL |       | 195       |       | June 11, 2009         |       | 19,500,000              |       |
|                                           |            |              |            |           |            |                            |            |                         |            |  |

 

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(1)         Financed by a mortgagepayable to a bank of $9.6 million.  Weown a 51% joint venture interest in this property.

(2)         Financed by a mortgagepayable to a bank of $14.6 million.  Weown a 51% joint venture interest in this property.

 

***Dispositions***

 

During the nine months ended September 30, 2010, we made thefollowing property dispositions:

 
| **Wholly-Owned Properties** | ** ** | **Square Feet** | ** ** | **Our Ownership** | ** ** | **Date of Sale** | ** ** |
|----------------------------------|------------|----------------------|------------|------------------------|------------|----------------------------|------------|
| Outlet Mall (1)                  |       | 162,600              |       | 100%                   |       | March, 2010                |       |
| Sears Office Building (2)        |       | 66,900               |       | 100%                   |       | June, 2010                 |       |

 

----

(1)         Gain of approximately $0.5million.

(2)         Gain of approximately $1.2million.

 

Duringthe nine months ended September 30, 2009, we did not dispose of anyproperties.

 

We may engage in transactions structured as “like kind exchanges” ofproperty to obtain favorable tax treatment under Section 1031 of theInternal Revenue Code.  If we are able tostructure an exchange of properties as a “like kind exchange,” then any gain werealize from the exchange would not be recognized for federal income taxpurposes.  The test for determiningwhether exchanged properties are of “like kind” is whether the properties areof the same nature or character.

 

**Off-BalanceSheet Arrangements**

 

Wehave no off-balance sheet arrangements that are reasonably likely to have acurrent effect on our financial condition, changes in our financial condition,revenues or expenses, results of operations, liquidity, capital expenditures orcapital resources.

 

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** **

**WebsiteInformation**

 

Information concerning NTS Realty Holdings Limited Partnership isavailable through the NTS Development Company website (www.ntsdevelopment.com).  Our annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-K andamendments to those reports filed or furnished pursuant to Section 13(a) ofthe Securities Exchange Act are available and may be accessed free of chargethrough the “Investor Services” section of our website as soon as reasonablypracticable after we electronically file this material with, or furnish it to,the SEC.  Our website and the informationcontained therein or connected thereto are not incorporated into this QuarterlyReport on Form 10-Q.

 

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**Item 3 — Quantitative andQualitative Disclosures About Market Risk**

 

Our primary market risk exposure, with regard to financial instrumentsis expected to be our exposure to changes in interest rates.  Substantially all of our debt bears interestat a fixed rate, with the exception of approximately $39.3 million at variablerates.  We anticipate that a hypothetical100 basis point increase in interest rates would increase interest expense onour variable rate debt by approximately $0.4 million annually.  The average variable interest rate at September 30,2010 was 3.70%.

 

**Item 4 — Controls andProcedures**

 

**Evaluationof Disclosure Controls and Procedures**

 

Asrequired by Rule 13a-15(b) and Rule 15d-15(b) under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), ourmanagement, including our Chief Executive Officer and Chief Financial Officer,evaluated as of September 30, 2010, the effectiveness of our disclosurecontrols and procedures as defined in Exchange Act Rule 13a-15(e) andRule 15d-15(e).  Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat our disclosure controls and procedures, as of September 30, 2010,were effective for the purpose of ensuring that information required to bedisclosed by us in this report is recorded, processed, summarized and reportedwithin the time periods specified by the rules and forms of the ExchangeAct and is accumulated and communicated to our management, including the ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosures.

 

**Changesin Internal Control over Financial Reporting**

 

Therehave been no changes in internal control over financial reporting that occurredduring the quarter ended September 30, 2010 that have materially affected,or are reasonably likely to materially affect, our internal control overfinancial reporting.

 

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**PART II —OTHER INFORMATION**

 

**Item 1 — Legal Proceedings**

 

None.

 

**Item 1A — Risk Factors**

 

There have not been material changes to our Risk Factors as disclosedin our most recent annual report on Form 10-K as filed with the Securitiesand Exchange Commission on March 29, 2010.

 

**Item 2 — Unregistered Sales of Equity Securities andUse of Proceeds**

 

OnDecember 1, 2009, three entities created or controlled by Mr. Nicholscommenced pre-arranged trading plans to purchase limited partnership units ofNTS Realty pursuant to Rule 10b5-1 under the Act.  Each of the plans authorize itsadministrator, Wells Fargo Investments, LLC, to purchase approximately$225,000, $52,000 and $26,000, respectively, of NTS Realty’s limitedpartnership units from time to time through no later than November 2010.  Under the terms of the plans, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

Duringthe nine months ended September 30, 2010, 66,600 units were purchased bythe entities created or controlled by Mr. Nichols pursuant to the tradingplans announced on December 1, 2009. The table below summarizes activity pursuant to these plans for thequarterly period ended September 30, 2010.

 
| **Period**          | ** ** | **Total Number of  Units Purchased** | ** ** | **Average Price Paid  Per Unit** | ** ** | **Total Number of  Units Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of Units  That May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| July 2010      |       | 1,000                                               |       | $                                               | 3.70       |                                                                                                                            | 469,091    | (2)                                                                                                                                                                              |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| August 2010    |       | 6,000                                               |       | $                                               | 3.85       |                                                                                                                            | 475,091    | (2)                                                                                                                                                                              |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| September 2010 |       | -                                                   |       | $                                               | N/A        |                                                                                                                            | 475,091    | (2)                                                                                                                                                                              |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| Total               |       | 7,000                                               |       | $                                               | 3.83       |                                                                                                                            | 475,091    | (2)                                                                                                                                                                              |       | (1) |

 

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(1)         A description of the maximumamount that may be used to purchase our units under the trading plans isincluded in the narrative preceding this table.

(2)         Represents the total numberof our limited partnership units that have been purchased to the trading plansby entities created or controlled by  Mr. Nichols,pursuant to the current or any previous publicly announced plan or program bytrading plans.

 

**Item 3 — Defaults Upon Senior Securities**

 

None.

 

**Item 4 — RESERVED**

 

**Item 5 — Other Information**

 

None.

 

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**Item 6 — Exhibits**

 
| **Exhibit No.** |   |                                                                                                                                                                                                                                                                                             |   |   |
|----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 2.01                 |   | Agreement  and Plan of Merger by and among NTS Realty Holdings Limited Partnership,  NTS-Properties III, NTS-Properties IV, NTS-Properties V, a Maryland limited  partnership, NTS-Properties VI, a Maryland limited partnership and  NTS-Properties VII, Ltd., dated February 3, 2004 |   | (3)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 2.02                 |   | Contribution  Agreement by and between NTS Realty Holdings Limited Partnership and ORIG,  LLC, dated February 3, 2004                                                                                                                                                                       |   | (3)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 3.01                 |   | Certificate  of Limited Partnership of NTS Realty Holdings Limited Partnership                                                                                                                                                                                                                   |   | (1)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 3.02                 |   | Amended  and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited  Partnership, dated as of December 29, 2005                                                                                                                                                           |   | (7)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 3.03                 |   | Certificate  of Incorporation of NTS Realty Capital, Inc.                                                                                                                                                                                                                                   |   | (8)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 3.04                 |   | By-Laws  of NTS Realty Capital, Inc.                                                                                                                                                                                                                                                        |   | (2)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.01                |   | Amended  and Restated Management Agreement between NTS Realty Holdings Limited  Partnership and NTS Development Company, dated as of December 29, 2005                                                                                                                                      |   | (6)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.02                |   | Form of  Lease Agreement between NTS Realty Holdings Limited Partnership and  SHPS, Inc.                                                                                                                                                                                               |   | (4)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.03                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30, 2005  (Golf Brook Apartments)                                                                                                             |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.04                |   | Purchase and Sale Agreement between NTS  Realty Holdings Limited Partnership and Investors Capital Mortgage Group, Inc., dated September 30,  2005 (Sabal Park Apartments)                                                                                                             |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.05                |   | Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P.  and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Richland and The Grove at  Whitworth)                                                                                 |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.06                |   | Agreement for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P.  and NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at Swift Creek)                                                                                                          |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.07                |   | Purchase and Sale Agreement between AMLI  at Castle Creek, L.P. and AMLI Residential Properties, L.P. and NTS Realty Holdings Limited Partnership, dated February 7, 2006 (Castle Creek  and Lake Clearwater)                                                                               |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.08                |   | Unconditional  and Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor  of National City Bank, dated March 23, 2006                                                                                                                                                     |   | (5)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.09                |   | Amended  and Restated Master Loan Agreements between NTS Realty Holding Limited  Partnership and The Northwestern Mutual Life Insurance Company and between  NTS Realty Holdings Limited Partnership and National City Bank, dated  October 4, 2006                                         |   | (9)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.10                |   | Purchase and Sale Agreement between NTS Realty  Holdings Limited Partnership and Meridian Realty Investments, LLC, dated  November 10, 2006 (Springs Medical Office Center)                                                                                                                 |   | (10)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.11                |   | Purchase and Sale Agreement between NTS Realty  Holdings Limited Partnership and Meridian Realty Investments, LLC, dated  November 10, 2006 (Springs Office Center)                                                                                                                         |   | (10)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.12                |   | Purchase and Sale Agreement between NTS Realty  Holdings Limited Partnership together with Overlook Associates, LLC and The  Northwestern Mutual Life Insurance Company, dated December 8, 2006 (The  Overlook at St. Thomas)                                                               |   | (11)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.13                |   | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership together  with Creek’s Edge Investors, LLC and CG Stony Point, LLC, dated June 20,  2007 (Creek’s Edge at Stony Point)                                                                               |   | (12)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.14                |   | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and Ascent  Properties, LLC, dated August 1, 2007 (The Office Portfolio)                                                                                                                                       |   | (13)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.15                |   | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and  Colonial Realty Limited Partnership and Colonial Properties  Services, Inc., dated June 11, 2008 (Shelby Farms)                                                                                      |   | (14)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 10.16                |   | Purchase  and Sale Agreeement between NTS Realty Holdings Limited Partnership and 302  Sabal Park Place Longwood, LLC and 385 Golf Brook Circle Longwood, LLC, dated  April 10, 2009 (Sabal Park and Golf Brook)                                                                            |   | (15)   |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 14.01                |   | Code  of Conduct and Ethics of NTS Realty Holdings Limited Partnership, adopted as  of December 28, 2004                                                                                                                                                                                    |   | (4)    |
|                 |   |                                                                                                                                                                                                                                                                                             |   |   |
| 31.1                 |   | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act, as amended                                                                                                                                          |   | (16)   |

 

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| **Exhibit No.** | ** ** | ** **                                                                                                                                                          | ** ** | ** ** |
|----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 31.2                 |       | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(a) and  Rule 15d-14(a) of the Securities Exchange Act, as amended             |       | (16)       |
|                 |       |                                                                                                                                                                |       |       |
| 32.1                 |       | Certification  of Chief Executive Officer Pursuant to U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                       |       | (16)       |
|                 |       |                                                                                                                                                                |       |       |
| 32.2                 |       | Certification  of Chief Financial Officer Pursuant to U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                       |       | (16)       |
|                 |       |                                                                                                                                                                |       |       |
| 99.01                |       | Form of  Lock-Up Agreement by and between NTS Realty Holdings Limited Partnership and  each of the executive officers of NTS Realty Capital, Inc.         |       | (1)        |
|                 |       |                                                                                                                                                                |       |       |
| 99.02                |       | Registration  Statement on Form S-4/A (Amendment No. 5), as filed by the Registrant  with the Securities and Exchange Commission on October 27, 2004 |       | (3)        |

 

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| (1)  | Incorporated  by reference to the Registrant’s Registration Statement on Form S-4, as  filed with the Securities and Exchange Commission on February 4, 2004                                   |
|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | Incorporated  by reference to the Registrant’s Registration Statement on Form S-4/A  (Amendment No. 1), as filed with the Securities and Exchange Commission  on June 18, 2004            |
| (3)  | Incorporated  by reference to the Registrant’s Registration Statement on Form S-4/A  (Amendment No. 5), as filed with the Securities and Exchange Commission  on October 27, 2004         |
| (4)  | Incorporated  by reference to the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2004, as filed with the Securities and Exchange  Commission on March 31, 2005  |
| (5)  | Incorporated  by reference to the Registrant’s Annual Report on Form 10-K for the year  ended December 31, 2005, as filed with the Securities and Exchange  Commission on April 3, 2006   |
| (6)  | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on April 17, 2006                                             |
| (7)  | Incorporated  by reference to the Registrant’s Information Statement on Form DEF 14C,  as filed with the Securities and Exchange Commission on May 9, 2006                                     |
| (8)  | Incorporated  by reference to the Registrant’s Quarterly Report on Form 10-Q for the  quarter ended March 31, 2006, as filed with the Securities and Exchange  Commission on May 15, 2006 |
| (9)  | Incorporated  by reference to the Registrant’s Current Report on Form 8-K/A, as filed  with the Securities and Exchange Commission on October 23, 2006                                         |
| (10) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on February 14, 2007                                          |
| (11) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on March 16, 2007                                             |
| (12) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on August 17, 2007                                            |
| (13) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on May 1, 2008                                                |
| (14) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on June 27, 2008                                              |
| (15) | Incorporated  by reference to the Registrant’s Current Report on Form 8-K, as filed  with the Securities and Exchange Commission on June 16, 2009                                              |
| (16) | Filed  herewith                                                                                                                                                                                               |

 

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Table ofContents

 

**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
| ** ** | ** ** | **NTS  REALTY HOLDINGS LIMITED PARTNERSHIP** |
|------------|------------|----------------------------------------------|
| ** ** | ** ** | ** **                                   |
|       |       | By:                                          | NTS  REALTY CAPITAL, INC. |
|       |       | Its:                                         | Managing  General Partner |
|       |       |                                         |   |
|       |       |                                         | By: | */s/  Brian F. Lavin* |
|       |       |                                         |   | Brian  F. Lavin |
|       |       |                                         |   | Its: | President  and Chief Executive Officer |
|       |       |                                         |   | Date: | November 3,  2010 |
|       |       |                                         |   |   |
|       |       |                                         | By: | */s/  Gregory A. Wells* |
|       |       |                                         |   | Gregory  A. Wells |
|       |       |                                         |   | Its: | Chief  Financial Officer and Principal Accounting Officer |
|       |       |                                         |   | Date: | November 3,  2010 |

 

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