**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

(Mark One)

 
| **x**                                                                                                                                                       | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                  | ** **                                                                                              |
| **For the  quarterly period ended March 31, 2008**                                                                                                     |
|                                                                                                                                                        |                                                                                                    |
| **OR**                                                                                                                                                      |
|                                                                                                                                                        |                                                                                                    |
| **o**                                                                                                                                                       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                  | ** **                                                                                              |
| **For the transition  period from                       to** |
|                                                                                                                                                             |                                                                                                         |  |

 

**Commissionfile number 001-32389**

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

(Exactname 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 telephone number, including area code)

** **

**Not applicable**

(Former name, former address and former fiscal year, if changed sincelast report)

 

Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

**Yes**x     **No**o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of theExchange Act.  (Check one):

 
| Large  accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer o  (Do not check if a smaller reporting company) |   | Smaller  reporting company x |
|----------------------------|--------|----------------------|--------|-------------------------------------------------------------------------|--------|------------------------------|

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act).

**Yes**£**No**x

 

** **

**APPLICABLEONLY TO CORPORATE ISSUERS**

** **

As of May 6, 2008, there were 11,380,760 of the registrant’slimited partnership units outstanding.

 

 

 

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** **

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

** **

**FORM 10-Q**

** **

**TABLE OF CONTENTS**

** **

** **
| **PART I —  FINANCIAL INFORMATION** | ** ** | **4**                                                                                          |
|-----------------------------------------------|------------|------------------------------------------------------------------------------------------------|
| ** **                                    | ** ** | ** **                                                                                     |
|                                          | Item 1     | Financial Statements                                                                           | 4 |
|                                          |       | Consolidated Balance Sheets as of March 31, 2008 and  December 31, 2007              | 4 |
|                                          |       | Consolidated Statement of Partners’ Equity as of  March 31, 2008                     | 4 |
|                                          |       | Consolidated Statements of Operations for the Three Months  Ended March 31, 2008 and 2007 | 5 |
|                                          |       | Consolidated Statements of Cash Flows for the Three Months  Ended March 31, 2008 and 2007 | 6 |
|                                          |       | Notes to Consolidated Financial Statements                                                     | 7 |
|                                          | Item 2     | Management’s Discussion and Analysis of Financial Condition  and Results of Operations    | 16 |
|                                          | Item 3     | Quantitative and Qualitative Disclosures About Market Risk                                     | 25 |
|                                          | Item 4     | Controls and Procedures                                                                        | 25 |
|                                          | Item 4T    | Controls and Procedures                                                                        | 25 |
|                                          |       |                                                                                           |
| **PART II —  OTHER INFORMATION**    | ** ** | **26**                                                                                         |
| ** **                                    | ** ** | ** **                                                                                     |
|                                          | Item 1     | Legal Proceedings                                                                              | 26 |
|                                          | Item 1A    | Risk Factors                                                                                   | 26 |
|                                          | Item 2     | Unregistered Sales of Equity Securities and Use of Proceeds                                    | 26 |
|                                          | Item 3     | Defaults Upon Senior Securities                                                                | 26 |
|                                          | Item 4     | Submission of Matters to a Vote of Security Holders                                            | 26 |
|                                          | Item 5     | Other Information                                                                              | 26 |
|                                          | Item 6     | Exhibits                                                                                       | 27 |
|                                          | SIGNATURES | 29                                                                                             |
|                                               |            |                                                                                                |  |  |  |  |  |

 

 

2

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**INFORMATION REGARDINGFORWARD-LOOKING STATEMENTS**

** **

Some of the statements included in thisquarterly report on Form 10-Q, particularly those included in Part I,Item 2 — Management’s Discussion and Analysis of Financial Condition andResults of Operations (“MD&A”), may be considered “forward-lookingstatements” because the statements relate to matters which have not yetoccurred.  For example, phrases such as “weanticipate,” “believe” or “expect” indicate that it is possible that the eventanticipated, believed or expected may not occur.  If these events do not occur, the result,which we expected, also may, or may not, occur in a different manner, which maybe more or less favorable to us.  We donot undertake any obligation to update these forward-looking statements.

 

Any forward-looking statements included inMD&A, or elsewhere in this report, reflect our managing general partner’sbest judgment based on known factors, but involve risks and uncertainties.  Actual results could differ materially fromthose anticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on March 25, 2008.  Any forward-looking information provided byus pursuant to the safe harbor established by the Private Securities LitigationReform Act of 1995 should be evaluated in the context of these factors.

 

3

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# ** **

# **PART I— FINANCIAL INFORMATION**

## **Item 1 — Financial Statements**

## ** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Consolidated BalanceSheets as of March 31, 2008 and December 31, 2007

 
| ** **                                                                                                                              | ** ** | **(Unaudited)**         | ** **  | ** **                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-------------|----------------------------|------------|
| ** **                                                                                                                              | ** ** | **March 31, 2008** | ** **  | **December 31, 2007** | ** ** |
| **ASSETS:**                                                                                                                             | ** ** | ** **              | ** **  | ** **                 | ** ** |
| Cash and equivalents                                                                                                                    |       | $                       | 2,428,983   |                       | $          | 1,577,082 |   |
| Cash and equivalents -  restricted                                                                                                      |       | 1,084,679               |        | 965,862                    |       |
| Accounts receivable, net  of allowance for doubtful accounts of $115,470 at March 31, 2008 and  $100,028 at December 31, 2007 |       | 783,527                 |        | 818,430                    |       |
| Land, buildings and  amenities, net                                                                                                     |       | 317,074,257             |        | 320,312,690                |       |
| Long-lived assets held for  sale                                                                                                        |       | 38,881,492              |        | 38,615,919                 |       |
| Other assets                                                                                                                            |       | 3,129,179               |        | 3,331,886                  |       |
|                                                                                                                                    |       |                    |        |                       |       |
| **Total assets**                                                                                                                        |       | $                       | 363,382,117 |                       | $          | 365,621,869 |   |
|                                                                                                                                    |       |                    |        |                       |       |
| **LIABILITIES:**                                                                                                                        |       |                    |        |                       |       |
| Mortgages and notes payable                                                                                                             |       | $                       | 265,615,702 |                       | $          | 265,176,332 |   |
| Accounts payable and  accrued expenses                                                                                                  |       | 3,120,770               |        | 4,080,205                  |       |
| Accounts payable and  accrued expenses due to affiliate                                                                                 |       | 409,191                 |        | 640,102                    |       |
| Distributions payable                                                                                                                   |       | 1,138,076               |        | 1,138,076                  |       |
| Security deposits                                                                                                                       |       | 873,373                 |        | 871,225                    |       |
| Long-lived liabilities  held for sale                                                                                                   |       | 3,830,630               |        | 3,131,383                  |       |
| Other liabilities                                                                                                                       |       | 5,727,648               |        | 4,714,616                  |       |
|                                                                                                                                    |       |                    |        |                       |       |
| **Total liabilities**                                                                                                                   |       | 280,715,390             |        | 279,751,939                |       |
|                                                                                                                                    |       |                    |        |                       |       |
| **MINORITY  INTEREST**                                                                                                                  |       | 8,502,455               |        | 9,002,023                  |       |
|                                                                                                                                    |       |                    |        |                       |       |
| COMMITMENTS  AND CONTINGENCIES (NOTE 11)                                                                                                |       |                    |        |                       |       |
|                                                                                                                                    |       |                    |        |                       |       |
| **PARTNERS’  EQUITY**                                                                                                              |       | 74,164,272              |        | 76,867,907                 |       |
|                                                                                                                                    |       |                    |        |                       |       |
| **Total liabilities and partners’  equity**                                                                                        |       | $                       | 363,382,117 |                       | $          | 365,621,869 |   |

 

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Consolidated Statementof Partners’ Equity as of March 31, 2008

(Unaudited)

 
| ** **                                           | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**   | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|-----------------------|------------|-------------|------------|
| **PARTNERS’  EQUITY:**                          | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** **            | ** ** | ** **  | ** ** |
| Initial equity                                       |       | 714,491                         |       | 10,667,117                       |       | $                    | 3,131,381  |                  | $          | 46,750,444  |       | $ | 49,881,825 |   |
| Net income prior years                               |       | —                          |       | —                           |       | 2,694,543            |       | 40,225,451            |       | 42,919,994  |       |
| Net loss current year                                |       | —                          |       | —                           |       | (98,287              | )          | (1,467,272            | )          | (1,565,559  | )          |
| Cash distributions  declared to date                 |       | —                          |       | —                           |       | (1,071,790           | )          | (16,000,198           | )          | (17,071,988 | )          |
| Retirement of limited  partnership interests to date |       | —                          |       | (848                             | )          | —               |       | —                |       | —      |       |
|                                                 |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Balances on March 31,  2008                     |       | 714,491                         |       | 10,666,269                       |       | $                    | 4,655,847  |                  | $          | 69,508,425  |       | $ | 74,164,272 |   |

 

The accompanying notes to consolidated financialstatements are an integral part of these statements.

 

 

 

4

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Consolidated Statementsof Operations for the Three Months Ended March 31, 2008 and 2007

(Unaudited)

 
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                             | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| **REVENUE:**                                                           | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Rental income                                                          |       | $                                      | 11,011,869 |   | $ | 8,739,062 |   |
| Tenant reimbursements                                                  |       | 377,144                                |       | 403,638 |   |
|                                                                   |       |                                   |       |   |   |
| **Total revenue**                                                      |       | 11,389,013                             |       | 9,142,700 |   |
|                                                                   |       |                                   |       |   |   |
| **EXPENSES:**                                                          | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Operating expenses                                                     |       | 1,998,561                              |       | 1,783,347 |   |
| Operating expenses  reimbursed to affiliate                            |       | 1,270,478                              |       | 1,108,167 |   |
| Management fees                                                        |       | 546,256                                |       | 458,034 |   |
| Property taxes and  insurance                                          |       | 1,348,186                              |       | 1,086,054 |   |
| Professional and  administrative expenses                              |       | 299,867                                |       | 326,068 |   |
| Professional and  administrative expenses reimbursed to affiliate.     |       | 438,822                                |       | 507,109 |   |
| Depreciation and  amortization                                         |       | 4,565,366                              |       | 3,400,397 |   |
|                                                                   |       |                                   |       |   |   |
| **Total operating expenses**                                           |       | 10,467,536                             |       | 8,669,176 |   |
|                                                                   |       |                                   |       |   |   |
| **OPERATING  INCOME**                                                  |       | 921,477                                |       | 473,524 |   |
|                                                                   |       |                                   |       |   |   |
| Interest  and other income                                             |       | 10,348                                 |       | 48,630 |   |
| Interest  expense                                                      |       | (3,679,574                             | )          | (2,752,933 | ) |
| Loss  on disposal of assets                                            |       | (53,193                                | )          | (16,239 | ) |
| Minority  interest                                                     |       | (499,568                               | )          | (7,468 | ) |
|                                                                   |       |                                   |       |   |   |
| **LOSS  FROM CONTINUING OPERATIONS**                                   |       | (2,301,374                             | )          | (2,239,550 | ) |
| Discontinued  operations, net                                          |       | 735,815                                |       | 98,247 |   |
| Gain  on sale of discontinued operations                               |       | —                                 |       | 13,482,291 |   |
|                                                                   |       |                                   |       |   |   |
| **NET  (LOSS) INCOME**                                                 |       | $                                      | (1,565,559 | ) | $ | 11,340,988 |   |
|                                                                   |       |                                   |       |   |   |
| **Loss  from continuing operations allocated to limited partners**     |       | $                                      | (2,156,892 | ) | $ | (2,098,952 | ) |
| Discontinued  operations, net allocated to limited partners            |       | 689,620                                |       | 92,079 |   |
| Gain  on sale of discontinued operations allocated to limited partners |       | —                                 |       | 12,635,880 |   |
| ** **                                                             | ** ** | ** **                             | ** ** | ** ** | ** ** |
| **NET  (LOSS) INCOME ALLOCATED TO LIMITED PARTNERS**                   |       | $                                      | (1,467,272 | ) | $ | 10,629,007 |   |
|                                                                   |       |                                   |       |   |   |
| **Loss  from continuing operations per limited partnership unit**      |       | $                                      | (0.20      | ) | $ | (0.20 | ) |
| Discontinued  operations, net per limited partnership unit             |       | 0.06                                   |       | 0.01 |   |
| Gain  on sale of discontinued operations per limited partnership unit  |       | —                                 |       | 1.19 |   |
|                                                                   |       |                                   |       |   |   |
| **NET  (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT**                    |       | $                                      | (0.14      | ) | $ | 1.00 |   |
|                                                                   |       |                                   |       |   |   |
| **Weighted  average number of limited partnership interests**          |       | 10,666,269                             |       | 10,666,486 |   |

 

The accompanying notes to consolidated financialstatements are an integral part of these statements.

 

5

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Consolidated Statementsof Cash Flows for the Three Months Ended March 31, 2008 and 2007

(Unaudited)

 
| ** **                                                                                | ** ** | **2008**   | ** ** | **2007**    | ** ** |
|-------------------------------------------------------------------------------------------|------------|------------|------------|-------------|------------|
| **OPERATING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** **  | ** ** |
| **Net (loss) income**                                                                     |       | $          | (1,565,559 | )           | $          | 11,340,988 |   |
| Adjustments to reconcile  net (loss) income to net cash provided by operating activities: |       |       |       |        |       |
| Gain from sale of  discontinued assets                                                    |       | —     |       | (13,482,291 | )          |
| Loss on disposal of assets                                                                |       | 53,193     |       | 56,792      |       |
| Depreciation and  amortization                                                            |       | 4,748,838  |       | 3,933,423   |       |
| Minority interest                                                                         |       | (499,568   | )          | (7,468      | )          |
| **Changes in assets and  liabilities:**                                                   | ** ** | ** ** | ** ** | ** **  | ** ** |
| Cash and equivalents -  restricted                                                        |       | (118,817   | )          | (1,483,225  | )          |
| Accounts receivable                                                                       |       | 8,137      |       | 510,989     |       |
| Other assets                                                                              |       | (109,881   | )          | 516,350     |       |
| Accounts payable and  accrued expenses                                                    |       | (959,435   | )          | (1,087,164  | )          |
| Accounts payable and  accrued expenses due to affiliate                                   |       | (230,911   | )          | (335,768    | )          |
| Security deposits                                                                         |       | 47         |       | (55,998     | )          |
| Other liabilities                                                                         |       | 1,742,471  |       | 2,019,153   |       |
|                                                                                      |       |       |       |        |       |
| **Net cash provided by operating  activities**                                            |       | 3,068,515  |       | 1,925,781   |       |
|                                                                                      |       |       |       |        |       |
| **INVESTING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** **  | ** ** |
| Additions to land,  buildings and amenities                                               |       | (1,470,447 | )          | (1,172,284  | )          |
| Proceeds from sale of  discontinued operations                                            |       | —     |       | 26,102,758  |       |
| Investment in joint  venture by minority interest, net                                    |       | —     |       | 4,575,173   |       |
| Acquisitions                                                                              |       | —     |       | (45,944,506 | )          |
| Deposits on property  acquisitions                                                        |       | —     |       | 300,000     |       |
|                                                                                      |       |       |       |        |       |
| **Net cash used in investing  activities**                                                |       | (1,470,447 | )          | (16,138,859 | )          |
|                                                                                      |       |       |       |        |       |
| **FINANCING  ACTIVITIES:**                                                                | ** ** | ** ** | ** ** | ** **  | ** ** |
| Proceeds from mortgages  payable                                                          |       | 6,182,000  |       | 36,000,000  |       |
| Revolving note payable,  net                                                              |       | (4,934,927 | )          | 2,813,115   |       |
| Principal payments on  mortgages payable                                                  |       | (835,794   | )          | (749,245    | )          |
| Additional payments on  mortgage payable                                                  |       | —     |       | (21,200,000 | )          |
| Additions to loan costs                                                                   |       | (19,370    | )          | (261,788    | )          |
| Cash distributions.                                                                       |       | (1,138,076 | )          | (2,276,322  | )          |
|                                                                                      |       |       |       |        |       |
| **Net cash (used in) provided by  financing activities**                                  |       | (746,167   | )          | 14,325,760  |       |
|                                                                                      |       |       |       |        |       |
| **NET  INCREASE IN CASH AND EQUIVALENTS**                                                 |       | 851,901    |       | 112,682     |       |
|                                                                                      |       |       |       |        |       |
| **CASH  AND EQUIVALENTS, beginning of period**                                            |       | 1,577,082  |       | 28,250      |       |
|                                                                                      |       |       |       |        |       |
| **CASH  AND EQUIVALENTS, end of period**                                                  |       | $          | 2,428,983  |        | $          | 140,932 |   |

 

The accompanying notes to consolidated financialstatements are an integral part of these statements.

 

 

6

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** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Notes to ConsolidatedFinancial Statements

(Unaudited)

 

The unaudited consolidated financialstatements included herein should be read in conjunction with NTS RealtyHoldings Limited Partnership’s (“NTS Realty”) 2007 annual report on Form 10-Kas filed with the Securities and Exchange Commission on March 25,2008.  In the opinion of NTS RealtyCapital, Inc., our managing general partner, all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation have beenmade to the accompanying consolidated financial statements for the three monthsended March 31, 2008 and 2007.  Theresults of operations for the interim periods are not necessarily indicative ofthe results that may be expected for the full year or any other interimperiod.  As used in this quarterly reporton Form 10-Q, the terms “we,” “us” or “our,” as the context requires, mayrefer to NTS Realty or its interests in its properties and joint ventures.

 

**Note 1 — Summary ofSignificant Accounting Policies**

** **

***Organization and Distribution Policy***

*** ***

We are in the business of developing,constructing, owning and operating multifamily properties, commercial andretail real estate and land leases.  At March 31,2008, we owned wholly or as a tenant in common with an unaffiliated thirdparty, 29 properties, comprised of 11 multifamily properties, 14 office andbusiness centers, three retail properties and one ground lease.  The properties are located in and aroundLouisville (16) and Lexington (1), Kentucky, Fort Lauderdale (3), Florida,Indianapolis (4), Indiana, Nashville (2), Tennessee, Richmond (2), Virginia andAtlanta (1), Georgia.  Our office andbusiness centers aggregate approximately 1.3 million square feet.  We own multifamily properties containingapproximately 3,222 units and retail properties containing approximately210,000 square feet of space, as well as one ground lease associated with a120-space parking lot attached to one of our properties.

 

We pay distributions if and when authorizedby our managing general partner.  We arerequired to pay distributions on a quarterly basis, equal to sixty-five percent(65%) of our “net cash flow from operations” as this term is defined inregulations promulgated by the Treasury Department under the Internal RevenueCode of 1986, as amended; provided that if a law is enacted or existing law ismodified or interpreted in a manner that subjects us to taxation as acorporation or otherwise subjects us to entity level taxation for federal, stateor local income tax purposes, we will adjust the amount distributed to reflectour obligation to pay tax.  Anydistribution other than a distribution with respect to the final quarter of acalendar year will be made no later than forty-five (45) days after the lastday of such quarter based on our estimate of “net cash flow from operations”for the year.  Any distribution withrespect to the final quarter of a calendar year will be made no later thanninety (90) days after the last day of such quarter based on actual “net cashflow from operations” for the year, adjusted for any excess or insufficientdistributions made with respect to the first three quarters of the calendaryear.

 

“Net cash flow from operations” may bereduced by the amount of reserves as determined by us each quarter.  Our managing general partner will establishthese reserves for, among other things, working capital or capital improvementneeds.  Therefore, there is no assurancethat we will have “net cash flow from operations” from which to paydistributions in the future.  Forexample, our partnership agreement permits our managing general partner toreinvest sales or refinancing proceeds in new and existing properties or tocreate reserves to fund future capital expenditures.  Because “net cash flow from operations” iscalculated after reinvesting sales or refinancing proceeds or establishingreserves, we may not have any “net cash flow from operations” from which to paydistributions.

 

We paid quarterly distributions of $0.10 perunit to limited partners on April 16, 2008.

 

***Consolidation Policy and Minority Interest***

*** ***

The consolidated financial statements includethe accounts of all wholly-owned properties and properties owned as a tenant incommon with an unaffiliated third party where we are the majority owner.  Intercompany transactions and balances havebeen eliminated.

 

7

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We include the results of operations,financial position and cash flows of The Overlook at St. Thomas and Creek’sEdge at Stony Point in our consolidated financial statements.  The minority interest in The Overlook at St.Thomas and Creek’s Edge at Stony Point is stated separately in ourconsolidated financial statements.

 

***Recent Accounting Pronouncements***

*** ***

SFAS No. 157, *Fair ValueMeasurements*

 

In September 2006, the FinancialAccounting Standards Board (“FASB”) issued Statement of Financial AccountingStandards (“SFAS”) No. 157, *Fair Value Measurements*.  SFAS No. 157 requires companies todetermine fair value based on the price that would be received to sell theasset or paid to transfer the liability to a market participant.  SFAS No. 157 emphasizes that fair valueis a market-based measurement, not an entity-specific measurement.  The provisions of SFAS No. 157 wereeffective as of January 1, 2008; however, FASB Staff Position No. 157-2defers the effective date for certain non-financial assets and liabilities notre-measured at fair value on a recurring basis to fiscal years beginning after November 15,2008 or our first quarter of 2009.

 

SFAS No. 157 requires that assets andliabilities carried at fair value be classified and disclosed in one of thefollowing categories:

 

·                  Level1:  Quoted market prices in activemarkets for identical assets or liabilities.

 

·                  Level2:  Observable market based inputs orunobservable inputs that are corroborated by market data.

 

·                  Level3:  Unobservable inputs that are notcorroborated by market data.

 

Our financial assets and liabilities that aremeasured at fair value on a recurring basis as of March 31, 2008 areapproximately as follows:

 

| ** **                  | ** ** | ** **           | ** ** | **Fair Value Measurements** | ** ** |
|-----------------------------|------------|----------------------|------------|-----------------------------|------------|
| ** **                  | ** ** | **Carrying   Value** | ** ** | **Level 1**                 | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Financial  liabilities:** | ** ** | ** **           | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest rate swap          |       | $                    | 707,000    |                        | $          | — |   | $ | 707,000 |   | $ | — |   |
|                             |            |                      |            |                             |            |  |  |  |  |  |  |  |  |

** **

**Note 2 — Use ofEstimates and Reclassifications in the Preparation of Financial Statements**

** **

The preparation of financial statements inaccordance with U.S. generally accepted accounting principles requires us tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period.  Actualresults could differ from those estimates.

 

Certain reclassifications have been made tothe prior period financial statements to conform to the March 31, 2008classifications.  These reclassificationshave no effect on previously reported operating results or partners’ equity.

 

**Note 3 — Real EstateTransactions**

** **

***Acquisitions***

*** ***

We account for our acquisitions using thepurchase method of accounting in accordance with Statement of FinancialAccounting Standards (“SFAS”) No. 141 “Business Combinations”.  The assets and liabilities purchased arerecorded at their fair market value at the date of the acquisition.  We allocate the purchase price for each ofthe properties to net tangible and identified intangible assets acquired basedon fair values (including land, buildings, tenant improvements, acquired aboveand below market leases and the origination cost of acquired in-place leases)and acquired liabilities.  The intangibleassets recorded in relation to our multifamily properties will be amortizedover a period of one year, which approximates the weighted average lease lives.  No above or below market leases 

 

8

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exist. No customer relationship intangibles exist.  At the date of the acquisition, the carryingvalue of mortgages and other liabilities approximated fair market value.  We retained an independent appraiser toassess fair value based on estimated cash flow projections that utilizediscount and capitalization rates deemed appropriate and available marketinformation.

 

On March 14, 2007, we completed thepurchase of The Overlook, a multifamily property located in Louisville,Kentucky, with an unaffiliated co-owner.  On August 14, 2007, we completedthe purchase of Creek’s Edge at Stony Point, a multifamily property located inRichmond, Virginia, with an unaffiliated co-owner.

 

During the three months ended March 31,2008, we did not acquire any properties.

 

***Dispositions***

*** ***

During the three months ended March 31,2008, we did not dispose of any properties.

 

***Discontinued Operations and Long Lived Assets and Liabilities Held forSale***

*** ***

On June 12, 2007, the board of directorsof NTS Realty Capital, Inc., our managing general partner, authorized thesale of Atrium Center, Blankenbaker Business Center I, Blankenbaker BusinessCenter II, Anthem Office Center, NTS Center, Plainview Center, Plainview PointOffice Center Phase I and II, Plainview Point Office Center Phase III, and theITT Parking Lot (the “Office Portfolio”). These properties have been classified as held for sale on our balancesheet and discontinued operations on our statements of operations at March 31,2008 and all comparative dates and periods presented.

 

On August 2, 2007, we announced that weentered into an agreement to sell the Office Portfolio.  On February 1, 2008, we announced thatwe entered into an amended agreement to sell the Office Portfolio.  The amended agreement removed NTS Center fromthe Office Portfolio.

 

On May 1, 2008, wecompleted the sale of the Office Portfolio to Ascent Properties, LLC, anunaffiliated Kentucky limited liability company.  We received approximately $56.0 million inconnection with the sale. We intend to use the net sale proceeds afterrepayment of debt on the properties to purchase properties in a manner thatwould qualify as a tax deferred exchange under Section 1031 of theInternal Revenue Code.

 

We have presented separately as discontinuedoperations in all periods the results of operations for the followingproperties:

 
| **Property**                                 | ** ** | **Location**   | ** ** | **Status**    |
|----------------------------------------------|------------|----------------|------------|---------------|
| Springs Medical Office Center                |       | Louisville, KY |       | Sold 2007     |
| Springs Office Center                        |       | Louisville, KY |       | Sold 2007     |
| Atrium Center                                |       | Louisville, KY |       | Held for Sale |
| Blankenbaker Business Center I               |       | Louisville, KY |       | Held for Sale |
| Blankenbaker Business Center II              |       | Louisville, KY |       | Held for Sale |
| Anthem Office Center                         |       | Louisville, KY |       | Held for Sale |
| NTS Center                                   |       | Louisville, KY |       | Held for Sale |
| Plainview Center                             |       | Louisville, KY |       | Held for Sale |
| Plainview Point Office Center Phase I and II |       | Louisville, KY |       | Held for Sale |
| Plainview Point Office Center Phase III      |       | Louisville, KY |       | Held for Sale |
| ITT Parking Lot                              |       | Louisville, KY |       | Held for Sale |

 

The assets and liabilities held for sale havebeen separately identified on our balance sheets at March 31, 2008 and December 31,2007.

 

9

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The components of discontinued operations areoutlined below and include the results of operations for the respective periodsin which we owned such assets during the three months ended March 31, 2008and 2007.

 
| ** **                                                         | ** ** | **(Unaudited)**                        | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
| ** **                                                         | ** ** | **2008**                               | ** ** | **2007** | ** ** |
| **REVENUE:**                                                       | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Rental income                                                      |       | $                                      | 2,143,769  |   | $ | 2,134,296 |   |
| Tenant reimbursements                                              |       | 166,654                                |       | 119,344 |   |
|                                                               |       |                                   |       |   |   |
| **Total revenue**                                                  |       | 2,310,423                              |       | 2,253,640 |   |
|                                                               |       |                                   |       |   |   |
| **EXPENSES:**                                                      | ** ** | ** **                             | ** ** | ** ** | ** ** |
| Operating expenses and  operating expenses reimbursed to affiliate |       | 723,354                                |       | 821,260 |   |
| Management fees                                                    |       | 111,861                                |       | 121,249 |   |
| Property taxes and  insurance                                      |       | 164,637                                |       | 178,150 |   |
| Depreciation and  amortization                                     |       | —                                 |       | 321,583 |   |
|                                                               |       |                                   |       |   |   |
| **Total operating expenses**                                       |       | 999,852                                |       | 1,442,242 |   |
|                                                               |       |                                   |       |   |   |
| **DISCONTINUED  OPERATING INCOME**                                 |       | 1,310,571                              |       | 811,398 |   |
|                                                               |       |                                   |       |   |   |
| Interest  and other income                                         |       | 5,889                                  |       | 13,498 |   |
| Interest  expense                                                  |       | (580,645                               | )          | (686,096 | ) |
| Loss  on disposal of assets                                        |       | —                                 |       | (40,553 | ) |
| ** **                                                         | ** ** | ** **                             | ** ** | ** ** | ** ** |
| **Discontinued  operations, net**                                  |       | $                                      | 735,815    |   | $ | 98,247 |   |

 

The components of long-lived assets held forsale consist primarily of land, buildings and amenities for the propertiesbeing sold.  The components of long-livedliabilities held for sale include the accrued property tax liabilities andsecurity deposit liabilities for the properties being sold.  One property being sold in the OfficePortfolio is subject to a stand-alone mortgage, which has been included in ourlong-lived liabilities held for sale.

 

**Note 4 — Concentrationof Credit Risk**

** **

We own and operate, either wholly or as atenant in common with an unaffiliated third party, multifamily properties,commercial and retail real estate and a land lease in Louisville and Lexington,Kentucky, Fort Lauderdale, Florida, Indianapolis, Indiana, Nashville,Tennessee, Richmond, Virginia and Atlanta, Georgia.

 

Our financial instruments that are exposed toconcentrations of credit risk consist of cash and equivalents.  We maintain our cash accounts primarily withbanks located in Kentucky.  The totalcash balances are insured by the FDIC up to $100,000 per bank account.  We may at times, in certain accounts, havedeposits in excess of $100,000.

 

**Note 5 — Cash andEquivalents**

** **

Cash and equivalents include cash on hand andshort-term, highly liquid investments with initial maturities of three monthsor less.  We have a cash managementprogram, which provides for the overnight investment of excess cashbalances.  Under an agreement with abank, excess cash is invested in a mutual fund for U.S. government and agencysecurities each night.

 

**Note 6 — Cash andEquivalents - Restricted**

** **

Cash and equivalents - restricted representscash on hand and short-term, highly liquid investments with initial maturitiesof three months or less which have been escrowed with certain mortgagecompanies and banks for property taxes, insurance and tenant improvements inaccordance with certain loan and lease agreements and certain securitydeposits.

 

10

----

 

**Note 7 — Property andDepreciation**

** **

Land, buildings and amenitiesare stated at cost.  Costs directlyassociated with the acquisition, development and construction of a project arecapitalized.  Depreciation is computedusing the straight-line method over the estimated useful lives of the assets,which are generally 5-30 years for land improvements, 7-30 years for buildingsand improvements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of theinitial or renewal term of the respective tenant lease.  Depreciation expense from continuingoperations for the three months ended March 31, 2008 and 2007 wasapproximately $4,447,000 and $3,267,000, respectively.

 

SFAS No. 144 “Accountingfor the Impairment or Disposal of Long-Lived Assets,” specifies circumstancesin which certain long-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceedsthe sum of its expected future cash flows, the asset’s carrying value must bewritten down to fair value.  Indetermining the value of an investment property and whether the investmentproperty is impaired, management considers several factors such as projectedrental and vacancy rates, property operating expenses, capital expenditures andinterest rates.  The capitalization rateused to determine property valuation is based on the market in which theinvestment property is located, length of leases, tenant financial strength,the economy in general, demographics, environment, property location,visibility, age and physical condition among others.  All of these factors are considered bymanagement in determining the value of any particular investment property.  The value of any particular investmentproperty is sensitive to the actual results of any of these factors, eitherindividually or taken as a whole.  If theactual results differ from management’s judgment, the valuation could benegatively or positively affected. Application of this standard during the three months ended March 31,2008 and 2007 did not result in an impairment loss.

 

11

----

 

** **

**Note 8 — Mortgages andNote Payable**

** **

Mortgages and note payable consist of thefollowing:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **(Unaudited)**         | ** **  | ** **                 | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-------------|----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **March 31, 2008** | ** **  | **December 31, 2007** | ** ** |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.07%, maturing on March 15, 2015, secured  by certain land and buildings, with a carrying value of $44,328,386                                                                                                                                                                                      |       | $                       | 28,066,014  |                       | $          | 28,238,625 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank for $24.0 million with monthly installments of principal  and interest, bearing interest at a variable rate based on LIBOR one-month  rate plus 1.8%, currently 4.92%, due June 1, 2009, secured by certain  land and buildings, with a carrying value of $16,738,163 and a $1.9 million  letter of credit. The mortgage is guaranteed by Mr. Nichols (75%) and  Mr. Lavin (25%) |       | 24,000,000              |        | 17,818,000                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.98%, maturing January 15, 2015, secured  by certain land and buildings, with a carrying value of $151,940,042                                                                                                                                                                                      |       | 71,872,960              |        | 72,141,872                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.35%, maturing January 15, 2015, secured  by certain land and buildings, with a carrying value of $151,940,042                                                                                                                                                                                      |       | 32,386,515              |        | 32,511,394                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Revolving  note payable to a bank for $28.0 million, with interest payable in monthly  installments, unsecured, at a variable rate based on LIBOR plus 1.75%,  currently 4.45%, due May 31, 2008                                                                                                                                                                                                                       |       | 19,994,833              |        | 24,929,760                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at 9.0%, maturing August 1, 2010, secured by certain land and a  building, with a carrying value of $2,715,221                                                                                                                                                                                                        |       | 2,497,356               |        | 2,524,433                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 8.45%, maturing November 1, 2015, secured  by certain land and a building, with a carrying value of $2,174,703                                                                                                                                                                                       |       | 2,453,725               |        | 2,510,076                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 8.38%, maturing December 1, 2010, secured  by certain land, a building and amenities, with a carrying value of  $2,677,737 (1)                                                                                                                                                                       |       | 2,582,410               |        | 2,610,501                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at 5.11%, maturing December 1, 2014, secured by certain land  and buildings, with a carrying value of $13,557,510                                                                                                                                                                                                     |       | 11,712,983              |        | 11,758,589                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank, with interest payable in monthly installments, bearing  interest at LIBOR plus 1.75%, currently 4.45%, maturing July 1, 2008,  secured by certain land and buildings, with a carrying value of $16,566,264                                                                                                                                                                                |       | 14,277,897              |        | 14,277,897                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank in monthly installments of principal and interest at 5.72%,  maturing April 11, 2017, secured by certain land, buildings and  amenities, with a carrying value of $43,045,729                                                                                                                                                                                                              |       | 35,603,419              |        | 35,715,686                 |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                        |       |                    |        |                       |       |
| Mortgage  payable to a bank, with interest payble in monthly installments, bearing interest  at 5.99% maturing October 15, 2017, secured by certain land, buildings  and amenities, with a carrying value of $31,173,426                                                                                                                                                                                               |       | 22,750,000              |        | 22,750,000                 |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | ** **              | ** **  | ** **                 | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                  |       | $                       | 268,198,112 |                       | $          | 267,786,833 |   |

----

(1)          Our mortgage payable has beenincluded in our long-lived liabilities held for sale.

 

Based on the borrowing rates currentlyavailable to us for loans with similar terms and average maturities, the fairvalue of long-term debt on March 31, 2008 was approximately $262.8million.

 

On May 1, 2008, we paid down $19.4million on our revolving note payable in connection with the sale of the OfficePortfolio.  As a result of completing thesale of our Office Portfolio, on May 2, 2008 our total availability to 

 

12

----

 

draw on our revolving note payable wasreduced from $28.0 million to $20.0 million. We anticipate renewing our revolving note payable due May 31, 2008,with the existing lender.

 

Interest paid for the three months ended March 31,2008 and 2007 was approximately $3,878,000 and $3,406,000, respectively.

 

Our mortgages may be prepaid but aregenerally subject to a yield-maintenance premium.  Certain mortgages and notes payable containcovenants and requirements that we maintain specified debt limits and ratiosrelated to our debt balances and property values.  We complied with all covenants andrequirements at March 31, 2008.  On May 1,2008 we re-paid our mortgage payable to a bank maturing July 1, 2008.

 

We entered into an interest rate swapagreement beginning in September 2007 that effectively converted $18.0million of our variable-rate debt bearing interest at the LIBOR one month rateto a fixed rate basis through September 2009, thus reducing the impact ofinterest rate changes on future interest expense.  

 

The fair value of the interest rate swapagreement at March 31, 2008, was approximately $707,000 and is included inother liabilities on our Consolidated Balance Sheets.  During the three months ended March 31,2008, we recognized a net loss of approximately $321,000 and made net paymentsof approximately $60,000 for a total expense of approximately $381,000.

 

**Note 9 — AccountsPayable and Accrued Expenses Due to Affiliate**

** **

Accounts payable and accrued expenses due toaffiliate includes amounts owed to NTS Development Company for reimbursement ofemployee costs and overhead expenses and fees for services rendered as providedfor in our management agreement.

 

**Note 10 — RelatedParty Transactions**

** **

Pursuant to our management agreement, NTSDevelopment Company receives fees for a variety of services performed for ourbenefit.  NTS Development Company alsoreceives fees under separate management agreements for each of our propertiesowned as a tenant in common with an unaffiliated third party.  Property management fees are paid in anamount equal to 5% of the gross collected revenue from our wholly-ownedproperties and 3.5% of the gross collected revenue from our properties owned asa tenant in common with an unaffiliated third party.  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.  Construction supervision fees arepaid in an amount equal to 5% of the costs incurred which relate to capitalimprovements.  These constructionsupervision fees are capitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTS DevelopmentCompany receives commercial leasing fees equal to 4% of the gross rental amountfor new leases and 2% of the gross rental amount for new leases in which abroker is used and for renewals or extensions. Disposition fees are paid to NTS Development Company in an amount of 1%to 4% of the aggregate sales price of a property pursuant to our managementagreement and up to a 6% fee upon disposition on our properties owned as atenant in common with an unaffiliated third party under separate managementagreements.  NTS Development Company isreimbursed its actual costs for services rendered to NTS Realty.  NTS Development Company has agreed to accepta lower management fee and no construction supervision fees for the propertieswe own as a tenant in common with an unaffiliated third party in exchange for alarger potential disposition fee.

 

Employee costs are allocated among NTSRealty, other affiliates of our managing general partner and for the benefit ofthird parties, so that a full time employee can be shared by multipleentities.  Each employee’s services,which are dedicated to a particular entity’s operations, are allocated as apercentage of each employee’s costs to that entity.  We only reimburse charges from NTS DevelopmentCompany for actual costs of employee services incurred for our benefit.

 

We were charged the following amountspursuant to our management agreement with NTS Development Company for the threemonths ended March 31, 2008 and 2007. These charges include items, which have been 

 

13

----

 

expensed as operating expenses reimbursed toaffiliate or professional and administrative expenses reimbursed to affiliateand items, which have been capitalized as other assets or as land, buildingsand amenities.  Certain of these itemsare included in our results of discontinued operations.

 

On March 26, 2008, we and anunaffiliated third party entered into an agreement to purchase a parcel of landtotaling approximately 11 acres for an aggregate purchase price of $5.3 millionfrom an affiliate, Orlando Lake Forest Joint Venture.  The transaction is expected to closewithin 150 days of the date of the sale agreement.

** **
| ** **                                                        | ** ** | **(Unaudited)**                               | ** ** |
|-------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months Ended March 31,** | ** ** |
| * *                                                          | ** ** | **2008**                                      | ** ** | **2007** | ** ** |
| Property  management fees                                         | ** ** | $                                             | 658,117    |   | $ | 579,283 |   |
|                                                              |       |                                          |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 966,000                                       |       | 856,535 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 154,425                                       |       | 92,517 |   |
| Operating  expenses reimbursement - Administrative                |       | 350,282                                       |       | 371,898 |   |
| Operating  expenses reimbursement - Other                         |       | 28,577                                        |       | 32,674 |   |
|                                                              |       |                                          |       |   |   |
| Total operating expenses  reimbursed to affiliate                 |       | 1,499,284                                     |       | 1,353,624 |   |
|                                                              |       |                                          |       |   |   |
| Professional  and administrative expenses reimbursed to affiliate |       | 438,822                                       |       | 507,109 |   |
|                                                              |       |                                          |       |   |   |
| Construction  supervision fees                                    |       | 54,521                                        |       | 44,886 |   |
| Commercial  leasing fees                                          |       | 5,563                                         |       | 36,417 |   |
|                                                              |       |                                          |       |   |   |
| **Total related party  transactions**                             |       | $                                             | 2,656,307  |   | $ | 2,521,319 |   |

 

Property, multifamily leasing, administrativeand other operating expenses reimbursed include employee costs charged to us byNTS Development Company and other actual costs incurred by NTS DevelopmentCompany on our behalf, which were reimbursed by us.

 

During the three months ended March 31,2008 and 2007, we were charged approximately $22,000 and $23,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 squarefeet in NTS Center at a rental rate of $14.50 per square foot.  We received rental payments from NTSDevelopment Company of approximately $74,000 during each of the three monthsended March 31, 2008 and 2007.  Theaverage per square foot rental rate for similar space in NTS Center as of March 31,2008 was $13.80 per square foot.

 

Pursuant to our management agreement, NTSDevelopment Company received a disposition fee equal to 2%, or $303,000, of thesale price of Springs Medical Office Center and 2%, or $275,000, of the saleprice of Springs Office Center during the three months ended March 31,2007.

 

**Note 11 — Commitmentsand Contingencies**

** **

We, as an owner of real estate, are subjectto various environmental laws of federal, state and local governments.  Our compliance with existing laws has not hada material adverse effect on our financial condition and results ofoperations.  However, we cannot predictthe impact of new or changed laws or regulations on our current properties oron properties that we may acquire in the future.

 

14

----

 

***Litigation***

*** ***

We do not believe there is any litigationthreatened against us other than routine litigation arising out of the ordinarycourse of business, some of which is expected to be covered by insurance, noneof which is expected to have a material effect on our financial position orresults of operations.

 

**Note 12 — SegmentReporting**

** **

Our reportable operating segments include —Land, Retail, Commercial and Multifamily Real Estate Operations.  The following unaudited financialinformation of the operating segments has been prepared using a managementapproach, which is consistent with the basis and manner in which our managementinternally disaggregates financial information for the purpose of assisting inmaking internal operating decisions.  Weevaluate performance based on stand-alone operating segment net income or loss.

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                             | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three  Months Ended March 31, 2008** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                           | —     |   | $ | 325,075 |   | $ | 1,331,671 |   | $ | 9,386,113 |   | $ | (30,990 | ) | $ | 11,011,869 |   |
| Tenant reimbursements                                                                                          |       | —                                      |       | 20,099 |   | 357,045 |   | — |   | — |   | 377,144 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | —                                      |       | 345,174 |   | 1,688,716 |   | 9,386,113 |   | (30,990 | ) | 11,389,013 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | —                                      |       | 32,399 |   | 470,149 |   | 2,766,491 |   | — |   | 3,269,039 |   |
| Management fees                                                                                                |       | —                                      |       | 15,303 |   | 80,811 |   | 450,142 |   | — |   | 546,256 |   |
| Property taxes and  insurance                                                                                  |       | —                                      |       | 14,542 |   | 188,305 |   | 1,114,104 |   | 31,235 |   | 1,348,186 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | —                                      |       | — |   | — |   | — |   | 738,689 |   | 738,689 |   |
| Depreciation and  amortization                                                                                 |       | —                                      |       | 67,677 |   | 392,438 |   | 4,105,251 |   | — |   | 4,565,366 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | —                                      |       | 129,921 |   | 1,131,703 |   | 8,435,988 |   | 769,924 |   | 10,467,536 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | —                                      |       | 215,253 |   | 557,013 |   | 950,125 |   | (800,914 | ) | 921,477 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                     |       | —                                      |       | — |   | 349 |   | 9,999 |   | — |   | 10,348 |   |
| Interest expense                                                                                               |       | —                                      |       | (111,466 | ) | (341,237 | ) | (2,832,029 | ) | (394,842 | ) | (3,679,574 | ) |
| Loss on disposal of  assets                                                                                    |       | —                                      |       | — |   | (36,070 | ) | (17,123 | ) | — |   | (53,193 | ) |
| Minority interest                                                                                              |       | —                                      |       | — |   | — |   | (499,568 | ) | — |   | (499,568 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | —                                      |       | 103,787 |   | 180,055 |   | (1,389,460 | ) | (1,195,756 | ) | (2,301,374 | ) |
| Discontinued operations,  net                                                                                  |       | 8,070                                       |       | — |   | 727,745 |   | — |   | — |   | 735,815 |   |
| ** **                                                                                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                          |       | $                                           | 8,070      |   | $ | 103,787 |   | $ | 907,800 |   | $ | (1,389,460 | ) | $ | (1,195,756 | ) | $ | (1,565,559 | ) |
| ** **                                                                                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land, buildings and  amenities, net                                                                            |       | $                                           | —     |   | $ | 7,364,879 |   | $ | 25,664,284 |   | $ | 284,045,094 |   | $ | — |   | $ | 317,074,257 |   |

 

15

----

 

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                             | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three  Months Ended March 31, 2007** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                           | —     |   | $ | 324,976 |   | $ | 1,069,268 |   | $ | 7,415,786 |   | $ | (70,968 | ) | $ | 8,739,062 |   |
| Tenant reimbursements                                                                                          |       | —                                      |       | 18,504 |   | 385,134 |   | — |   | — |   | 403,638 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | —                                      |       | 343,480 |   | 1,454,402 |   | 7,415,786 |   | (70,968 | ) | 9,142,700 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | —                                      |       | 36,716 |   | 463,922 |   | 2,390,876 |   | — |   | 2,891,514 |   |
| Management fees                                                                                                |       | —                                      |       | 16,891 |   | 71,708 |   | 369,435 |   | — |   | 458,034 |   |
| Property taxes and  insurance                                                                                  |       | —                                      |       | 10,925 |   | 202,000 |   | 839,392 |   | 33,737 |   | 1,086,054 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | —                                      |       | — |   | — |   | — |   | 833,177 |   | 833,177 |   |
| Depreciation and  amortization                                                                                 |       | —                                      |       | 67,802 |   | 393,426 |   | 2,939,169 |   | — |   | 3,400,397 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | —                                      |       | 132,334 |   | 1,131,056 |   | 6,538,872 |   | 866,914 |   | 8,669,176 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | —                                      |       | 211,146 |   | 323,346 |   | 876,914 |   | (937,882 | ) | 473,524 |   |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                     |       | —                                      |       | — |   | 270 |   | 31,483 |   | 16,877 |   | 48,630 |   |
| Interest expense                                                                                               |       | —                                      |       | (102,900 | ) | (305,974 | ) | (2,201,314 | ) | (142,745 | ) | (2,752,933 | ) |
| Loss on disposal of  assets                                                                                    |       | —                                      |       | — |   | (8,581 | ) | (7,658 | ) | — |   | (16,239 | ) |
| Minority interest                                                                                              |       | —                                      |       | — |   | — |   | (7,468 | ) | — |   | (7,468 | ) |
|                                                                                                           |       |                                        |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | —                                      |       | 108,246 |   | 9,061 |   | (1,293,107 | ) | (1,063,750 | ) | (2,239,550 | ) |
| Discontinued operations,  net                                                                                  |       | 7,280                                       |       | — |   | 90,967 |   | — |   | — |   | 98,247 |   |
| Gain on sale of  discontinued operations                                                                       |       | —                                      |       | — |   | 13,482,291 |   | — |   | — |   | 13,482,291 |   |
| ** **                                                                                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income (loss)**                                                                                          |       | $                                           | 7,280      |   | $ | 108,246 |   | $ | 13,582,319 |   | $ | (1,293,107 | ) | $ | (1,063,750 | ) | $ | 11,340,988 |   |
| ** **                                                                                                     | ** ** | ** **                                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land, buildings and  amenities, net                                                                            |       | $                                           | —     |   | $ | 7,626,648 |   | $ | 25,895,609 |   | $ | 266,217,416 |   | $ | — |   | $ | 299,739,673 |   |

## ** **

## **Item 2**— Management’s Discussion and Analysis of FinancialCondition and Results of Operations

## ** **

Management’s Discussion and Analysis ofFinancial Condition and Results of Operations should be read in conjunctionwith the financial statements in Item 1 and the cautionary statements below.

 

**Critical AccountingPolicies**

** **

A critical accounting policy is one thatwould materially affect our operations or financial condition, and requiresmanagement to make estimates or judgments in certain circumstances.  These judgments often result from the need tomake estimates about the effect 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 25, 2008, discuss judgments knownto management pertaining to trends, events or uncertainties known which weretaken 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 March 31, 2008.

 

16

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**Results of Operations**

** **

As of March 31, 2008, we owned wholly oras a tenant in common with an unaffiliated third party, 29 properties,comprised of 11 multifamily properties, 14 office and business centers, 3retail properties and one ground lease. Discontinued operations consisted of eight office and business centersand one ground lease.  We generatesubstantially all of our operating income from property operations.

 

Net (loss) income for the three months ended March 31,2008 and 2007 was approximately ($1,566,000) and $11,341,000,respectively.  The net income for thethree months ended March 31, 2007, includes a net gain of $13,482,000related to the sale of Springs Medical Office Center and Springs Office Centerin February 2007.

 

The following tables include certain selectedsummarized operating data for the three months ended March 31, 2008 and2007.  This data should be read inconjunction with our financial statements, including the notes attached hereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                            | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended March 31, 2008** | ** ** |
| ** **                                                         | ** ** | **Land**                                   | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                          | —     |   | $ | 345,174 |   | $ | 1,688,716 |   | $ | 9,386,113 |   | $ | (30,990 | ) | $ | 11,389,013 |   |
| Operating expenses and  operating expenses reimbursed to affiliate |       | —                                     |       | 32,399 |   | 470,149 |   | 2,766,491 |   | — |   | 3,269,039 |   |
| Depreciation  and amortization                                     |       | —                                     |       | 67,677 |   | 392,438 |   | 4,105,251 |   | — |   | 4,565,366 |   |
| Total  interest expense                                            |       | —                                     |       | (111,466 | ) | (341,237 | ) | (2,832,029 | ) | (394,842 | ) | (3,679,574 | ) |
| Net  income (loss)                                                 |       | 8,070                                      |       | 103,787 |   | 907,800 |   | (1,389,460 | ) | (1,195,756 | ) | (1,565,559 | ) |
|                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                            | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended March 31, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                   | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                          | —     |   | $ | 343,480 |   | $ | 1,454,402 |   | $ | 7,415,786 |   | $ | (70,968 | ) | $ | 9,142,700 |   |
| Operating expenses and  operating expenses reimbursed to affiliate |       | —                                     |       | 36,716 |   | 463,922 |   | 2,390,876 |   | — |   | 2,891,514 |   |
| Depreciation  and amortization                                     |       | —                                     |       | 67,802 |   | 393,426 |   | 2,939,169 |   | — |   | 3,400,397 |   |
| Total  interest expense                                            |       | —                                     |       | (102,900 | ) | (305,974 | ) | (2,201,314 | ) | (142,745 | ) | (2,752,933 | ) |
| Net  income (loss)                                                 |       | 7,280                                      |       | 108,246 |   | 13,582,319 |   | (1,293,107 | ) | (1,063,750 | ) | 11,340,988 |   |
|                                                                    |            |                                            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

17

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Occupancy levels at our continuing propertiesby segment as of March 31, 2008 and 2007 were as follows:

 
| ** **  | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 69.9     | %          | 75.1     | %          |
| Multifamily |       | 92.7     | %          | 95.7     | %          |
| Retail      |       | 98.2     | %          | 98.2     | %          |
| Land        |       | N/A      |       | N/A      |       |

 

We believe the changes in occupancy on March 31from year to year are temporary effects of each property’s specific mix oflease maturities and are not indicative of any known trend or uncertainty.

 

The average occupancy levels at ourcontinuing properties by segment for the three months ended March 31, 2008and 2007 were as follows:

 
| ** **  | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------|------------|---------------------------------------|------------|
| ** **  | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| Commercial  |       | 70.1                                  | %          | 74.8 | % |
| Multifamily |       | 93.0                                  | %          | 95.4 | % |
| Retail      |       | 98.2                                  | %          | 98.2 | % |
| Land        |       | N/A                                   |       | N/A |   |

 

We believe the changes in average occupancyfrom period to period are temporary effects of each property’s specific mix oflease maturities and are not indicative of any known trend or uncertainty.

 

The leasing and renewal negotiations for ourcommercial and retail properties are primarily handled by leasing agents thatare employees of NTS Development Company. All advertising for the commercial and retail properties is coordinatedby NTS Development Company’s marketing staff located in Louisville, Kentucky.

 

We have on-site leasing staff, who areemployees of NTS Development Company, at each of the multifamilyproperties.  The staff handles allon-site visits from potential tenants, coordinates local advertising with NTSDevelopment Company’s marketing staff, makes visits to local companies topromote fully furnished apartments and negotiates lease renewals with currentresidents.

 

The following discussion relating to changesin our results of operations includes only material line items within ourStatements of Operations or line items for which there was a material changebetween the three months ended March 31, 2008 and 2007.

 

***Rental Income and TenantReimbursements***

*** ***

Rental income and tenant reimbursements fromcontinuing operations for the three months ended March 31, 2008 and 2007were approximately $11,389,000 and $9,143,000, respectively.  The increase of $2,246,000, or 25%, wasprimarily the result of acquiring The Overlook at St. Thomas (March 2007)and Creek’s Edge at Stony Point (August 2007) along with an overallincrease in average rent per unit across properties in the multifamily segment.

 

***Operating Expenses andOperating Expenses Reimbursed to Affiliate***

*** ***

Operating expenses from continuing operationsfor the three months ended March 31, 2008 and 2007 were approximately$1,999,000 and $1,783,000, respectively. The increase of $216,000, or 12%, was primarily due to the acquisitionof The Overlook at St. Thomas (March 2007) and Creek’s Edge at Stony Point(August 2007).

 

Operating expenses reimbursed to affiliatefrom continuing operations for the three months ended March 31, 2008 and2007 were approximately $1,270,000 and $1,108,000, respectively.  The increase of $162,000, or 15%, wasprimarily due to the acquisition of The Overlook at St. Thomas (March 2007)and Creek’s Edge at Stony Point (August 2007).

 

18

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We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company employs the individuals who provide services necessary tooperate our properties and conduct our business.  NTS Development Company provides employeesthat may also perform services for other properties and business enterprises.  In the situation where a particular employeebenefits multiple operations, the employee’s cost is proportionately chargedout to the entity receiving the services.   We only reimburse charges from NTS Development Company for actual costsof employee services incurred for our benefit. The cost of services provided to us by NTS Development Company’semployees are classified in our consolidated Statements of Operations as “Operatingexpenses reimbursed to affiliate”.  Theservices provided by others are classified as “Operating expenses”.

 

Operating expenses reimbursed to affiliateare for services performed by employees of NTS Development Company, anaffiliate of our general partners.  Theseemployee services include property management, leasing, maintenance, securityand other services necessary to manage and operate our business.

 

Operating expenses reimbursed to affiliateconsisted approximately of the following:

*** ***
| ** **           | ** ** | **(Unaudited)**                       | ** ** |
|----------------------|------------|---------------------------------------|------------|
| ** **           | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **           | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| Property             |       | $                                     | 823,000    |   | $ | 707,000 |   |
| Multifamily  Leasing |       | 154,000                               |       | 93,000 |   |
| Administrative       |       | 275,000                               |       | 288,000 |   |
| Other                |       | 18,000                                |       | 20,000 |   |
| ** **           | ** ** | ** **                            | ** ** | ** ** | ** ** |
| **Total**            |       | $                                     | 1,270,000  |   | $ | 1,108,000 |   |

 

***Management Fees***

*** ***

Management fees from continuing operationsfor the three months ended March 31, 2008 and 2007 were approximately$546,000 and $458,000, respectively.  Theincrease of $88,000, or 19%, was primarily due to the acquisition of TheOverlook at St. Thomas (March 2007) and Creek’s Edge at Stony Point (August 2007)along with an overall increase in gross cash receipts across properties in themultifamily segment.

 

Pursuant to our management agreement, NTSDevelopment Company receives property management fees equal to 5% of the grosscollected revenue from our wholly-owned properties.  NTS Development Company receives property managementfees from our properties owned as a tenant in common with an unaffiliated thirdparty equal to 3.5% of their gross collected revenue under separate managementagreements.  We were the beneficiary of apreferential ownership interest, disproportionately greater than our initial cashinvestment in each property owned as a tenant in common with an unaffiliatedthird party.  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 are calculatedas a percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenuebetween years will differ from the fluctuations of management fee expense.

 

***Property Taxes and Insurance***

*** ***

Property taxes and insurance from continuingoperations for the three months ended March 31, 2008 and 2007 wereapproximately $1,348,000 and $1,086,000, respectively.  The increase of $262,000, or 24%, wasprimarily the result of the acquisition of The Overlook at St. Thomas (March 2007)and Creek’s Edge at Stony Point (August 2007).

 

19

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***Professional andAdministrative Expenses and Professional and Administrative Expenses Reimbursedto Affiliate***

*** ***

Professional and administrative expenses fromcontinuing operations for the three months ended March 31, 2008 and 2007were approximately $300,000 and $326,000, respectively.  The decrease of $26,000, or 8%, was primarilydue to a decrease in local taxes and a decrease in information processingservices.

 

Professional and administrative expensesreimbursed to affiliate from continuing operations for the three months ended March 31,2008 and 2007 were $439,000 and $507,000, respectively.  The decrease of $68,000, or 13%, wasprimarily due to lower personnel costs reimbursed to NTS Development Company.

 

We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company employs the individuals who provide services necessary tooperate our properties and conduct our business.  NTS Development Company provides employeesthat may also perform services for other properties and businessenterprises.  In the situation where aparticular employee benefits multiple operations, the employee’s cost isproportionately charged out to the entity receiving the services.  We only reimburse charges from NTSDevelopment 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 consolidatedStatements of Operations as “Professional and Administrative expensesreimbursed to affiliate”.  The servicesprovided by others are classified as “Professional and Administrative”.

 

Professional and administrative expensesreimbursed to affiliate are for the services performed by employees of NTSDevelopment Company, an affiliate of our general partners.  These employee services include legal,financial and other services necessary to manage and operate our business.

 

                                                Professionaland administrative expenses reimbursed to affiliate consisted approximately ofthe following:

 
| ** **          | ** ** | **(Unaudited)**                       | ** ** |
|---------------------|------------|---------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **          | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| Finance             |       | $                                     | 103,000    |   | $ | 127,000 |   |
| Accounting          |       | 216,000                               |       | 215,000 |   |
| Investor  Relations |       | 78,000                                |       | 127,000 |   |
| Human  Resources    |       | 5,000                                 |       | 5,000 |   |
| Overhead            |       | 37,000                                |       | 33,000 |   |
|                |       |                                  |       |   |   |
| **Total**           |       | $                                     | 439,000    |   | $ | 507,000 |   |

*** ***

***Depreciation andAmortization***

*** ***

Depreciation and amortization expense fromcontinuing operations for the three months ended March 31, 2008 and 2007was approximately $4,565,000 and $3,400,000, respectively.  The increase of $1,165,000, or 34%, wasprimarily due to the acquisition of The Overlook at St. Thomas (March 2007)and Creek’s Edge at Stony Point (August 2007).

 

***Interest and Other Income***

*** ***

Interest and other income from continuingoperations for the three months ended March 31, 2008 and 2007 wasapproximately $10,000 and $49,000, respectively.  The decrease of $39,000, or 80%, wasprimarily due to a $17,000 decrease in interest income earned on the proceedsfrom the sale of Springs Medical Office Center and Springs Office Center in2007.

 

***Interest Expense***

*** ***

Interest expense from continuing operationsfor the three months ended March 31, 2008 and 2007 was approximately$3,680,000 and $2,753,000, respectively. The increase of $927,000, or 34%, was primarily due to an increase of$631,000 in the multifamily segment and the $381,000 effect from the interestrate swap agreement.

 

20

----

 

*** ***

***Loss on Disposal of Assets***

*** ***

The loss on disposal of assets fromcontinuing operations for the three months ended March 31, 2008 and 2007can be attributed to assets that were not fully depreciated at the time ofreplacement, spread primarily amongst the commercial and multifamilyproperties.  These replacements includeheating and air conditioning units, tenant finish renovations and signage.

 

***Minority Interest***

*** ***

Minority interest for the three months ended March 31,2008 and 2007 includes the net operating loss attributable to the minorityholder of the tenant in common interests in our properties acquired in 2007 asa tenant in common with an unaffiliated third party.  The properties are The Overlook Apartmentsand Creek’s Edge at Stony Point Apartments.

 

***Discontinued Operations***

*** ***

Discontinued operations, net for the threemonths ended March 31, 2008 and 2007 were approximately $736,000 and$98,000, respectively.  Discontinuedoperations for the three months ended March 31, 2008 includes the netoperating results for the properties previously sold and currently held forsale listed below.  The increase of$638,000, for the three months ended March 31, 2008 was primarily due toincreased rental income due to increased occupancy at the following commercialproperties: Anthem Office Center, NTS Center and Plainview Point Office CenterPhase I and II.  The increase is also dueto decreased operating expenses across all discontinued operations.

 
| **Property**                                 | ** ** | **Location**   | ** ** | **Status**    |
|----------------------------------------------|------------|----------------|------------|---------------|
| Springs Medical Office Center                |       | Louisville, KY |       | Sold 2007     |
| Springs Office Center                        |       | Louisville, KY |       | Sold 2007     |
| Atrium Center                                |       | Louisville, KY |       | Held for Sale |
| Blankenbaker Business Center I               |       | Louisville, KY |       | Held for Sale |
| Blankenbaker Business Center II              |       | Louisville, KY |       | Held for Sale |
| Anthem Office Center                         |       | Louisville, KY |       | Held for Sale |
| NTS Center                                   |       | Louisville, KY |       | Held for Sale |
| Plainview Center                             |       | Louisville, KY |       | Held for Sale |
| Plainview Point Office Center Phase I and II |       | Louisville, KY |       | Held for Sale |
| Plainview Point Office Center Phase III      |       | Louisville, KY |       | Held for Sale |
| ITT Parking Lot                              |       | Louisville, KY |       | Held for Sale |

 

***Gain on Sale of DiscontinuedOperations***

*** ***

Gain on sale of discontinued operations forthe three months ended March 31, 2007 was approximately $13,482,000 due tothe sale of Springs Medical Office Center and Springs Office Center in February 2007.

 

**Liquidity and CapitalResources**

** **

Our most liquid asset is our cash andequivalents, which consist of cash and short-term investments, but do notinclude any restricted cash.  Operatingincome generated by the properties will be the primary source from which wegenerate cash.  Other sources of cashinclude the proceeds from mortgage loans and notes payable.  Our main uses of cash will relate to capitalexpenditures, required payments of mortgages and notes payable, distributionsand property taxes.

 

21

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The following table summarizes ourapproximate sources/uses of cash flow for the three months ended March 31,2008 and 2007:

 
| ** **                                | ** ** | **(Unaudited)**                       | ** ** |
|-------------------------------------------|------------|---------------------------------------|------------|
| ** **                                | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **                                | ** ** | **2008**                              | ** ** | **2007** | ** ** |
| Operating  activities                     | ** ** | $                                     | 3,068,000  |   | $ | 1,926,000 |   |
| Investing  activities                     |       | (1,470,000                            | )          | (16,139,000 | ) |
| Financing  activities                     |       | (746,000                              | )          | 14,326,000 |   |
|                                      |       |                                  |       |   |   |
| **Net increase in cash and  equivalents** |       | $                                     | 852,000    |   | $ | 113,000 |   |

 

 

***Cash Flow from OperatingActivities***

*** ***

Net cash provided by operating activitiesincreased to approximately $3,068,000 from $1,926,000 for the three monthsended March 31, 2008 and 2007, respectively.  The increase was primarily due to using lessrestricted cash than in the comparable prior period.

 

***Cash Flow from InvestingActivities***

*** ***

Net cash used in investing activitiesdecreased to approximately $1,470,000 from $16,139,000 for the three monthsended March 31, 2008 and 2007, respectively.  The decrease was primarily due to lessactivity related to property acquisitions and dispositions than in thecomparable prior period.

 

***Cash Flow from FinancingActivities***

*** ***

Net cash used in financing activities wasapproximately $746,000 compared to cash provided by financing activities of$14,326,000 for the three months ended March 31, 2008 and 2007,respectively.  The change was primarilydue to $30.0 million less in proceeds from mortgages payable in 2008 ascompared to 2007 and  increasedborrowings on our revolving note payable in 2008.  This change is partially offset by additionalpayments on mortgages payable in 2007.

 

***Future Liquidity***

*** ***

Our future liquidity depends significantly onour properties’ occupancy and operating results remaining at a level whichprovides for debt payments, distributions to our limited partners and 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 $2,429,000 on March 31, 2008.

 

On March 21, 2008, we announced that theboard of directors of our managing general partner approved a quarterlydistribution of $0.10 per unit on our limited partnership units.  The distribution was paid on April 16,2008, to limited partners of record at the close of business on April 1,2008.

 

Pursuant to leasing agreements signed by March 31,2008, we are obligated to incur expenditures of approximately $1.9 millionfunded by borrowings on our debt during the next twelve months primarily forrenovations and tenant origination costs necessary to continue leasing ourproperties.  This discussion of futureliquidity details our material commitments. We anticipate seeking renewal or refinancing of our note payable comingdue in the next twelve months.

 

Our availability on the revolving notepayable was approximately $8.0 million as of March 31, 2008.

 

22

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***Property Transactions***

*** ***

On March 26, 2008, we and anunaffiliated third party entered into an agreement to purchase a parcel of landtotaling approximately 11 acres for an aggregate purchase price of $5.3 millionfrom an affiliate, Orlando Lake Forest Joint Venture.  The transaction is expected to close within150 days of the date of the sale agreement.

 

On May 1, 2008, we announced that wecompleted the sale of the Office Portfolio to Ascent Properties, LLC, anunaffiliated Kentucky limited liability company.  We received approximately $56.0 million inconnection with the sale.

 

We may engage in transactions structured as “likekind exchanges” of property to obtain favorable tax treatment under Section 1031of the Internal Revenue Code.  If we areable to structure an exchange of properties as a “like kind exchange,” then anygain we realize from the exchange would not be recognized for federal incometax purposes.  The test for determiningwhether exchanged properties are of “like kind” is whether the properties areof the same nature or character.

 

23

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**Website Information**

** **

Our website address is 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.

 

24

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## **Item 3 — Quantitative and Qualitative Disclosures AboutMarket Risk**

## ** **

Our primary market risk exposure, with regardto financial instruments is expected to be our exposure to changes in interestrates.  We refinanced substantially allof our debt acquired at the time of our merger with instruments, which bearinterest at a fixed rate, with the exception of approximately $58.3 million atvariable rates.  We anticipate that ahypothetical 100 basis point increase in interest rates would increase interestexpense on our variable rate debt by approximately $583,000 annually.

 

We entered into an interest rate swapagreement beginning in September 2007 that effectively converts $18.0million of our variable-rate debt bearing interest at the LIBOR one month rateto a 5.05% fixed rate basis for the next two years, thus reducing the impact ofinterest rate changes on future interest expense.  Approximately $18.0 million or 7% of ouroutstanding debt had its interest payments converted to the interest rate swapagreement at September 30, 2007.

 

The fair value of the interest rate swapagreement at March 31, 2008, was approximately $707,000 and is included inother liabilities on our Consolidated Balance Sheets.  During the three months ended March 31,2008, we recognized a net loss of approximately $321,000 and made net paymentsof approximately $60,000 for a total expense of approximately $381,000.

 

## **Item 4 — Controls and Procedures**

## ** **

Our managing general partner has establisheddisclosure controls and procedures to ensure that our material information ismade known to the officers of our managing general partner who certify ourfinancial reports, to our management and to the board of directors of ourmanaging partner.

 

Our managing general partner’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof our disclosure controls and procedures as of March 31, 2008.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of March 31, 2008.  There were no changes in our internal controlover financial reporting during the quarter ended March 31, 2008 thatmaterially affected or are reasonably likely to materially affect the internalcontrol over financial reporting.

 

## **Item 4T — Controls and Procedures**

## ** **

There were no material changes in ourinternal control over financial reporting during the quarter ended March 31,2008.

 

25

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# **PART II— OTHER INFORMATION**

# ** **

## **Item 1 — LegalProceedings**

## ** **

None.

 

## **Item 1A — RiskFactors**

## ** **

There have not been material changes to ourRisk Factors as disclosed in our most recent annual report on Form 10-K asfiled with the Securities and Exchange Commission on March 25, 2008.

 

## **Item 2 — UnregisteredSales of Equity Securities and Use of Proceeds**

## ** **

On March 14, 2008, we announced that anentity controlled by Mr. J.D. Nichols, Chairman of NTS Realty Capital, Inc.,the managing general partner of NTS Realty Holdings Limited Partnership (the “Company”),commenced a pre-arranged trading plan to purchase limited partnership units ofthe Company pursuant to Rule 10b5-1 under the Securities Exchange Act of1934, as amended.  The plan authorizesits administrator, Wells Fargo Investments, LLC, to purchase up to $600,000 ofthe Company’s limited partnership units from time to time through no later thanDecember 2008.  Under the terms ofthe plan, Mr. Nichols has no discretion or control over the timing,effectuation or the amount of each purchase. During the three months ended March 31, 2008, 5,000 units werepurchased under the entity controlled or established by Mr. Nicholspursuant to the trading plan announced on March 14, 2008.

 
| **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** | ** ** |
|--------------------|------------|--------------------------------------|------------|----------------------------------|------------|----------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------|------------|
| January 2008  |       | —                               |       | $                                | —     |                                                                                         | —     |                                                                                                                      |       | (1) |
|               |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| February 2008 |       | —                               |       | $                                | —     |                                                                                         | —     |                                                                                                                      |       | (1) |
|               |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| March 2008    |       | 5,000                                |       | $                                | 4.92       |                                                                                         | 87,850     | (2)                                                                                                                       |       | (1) |
|               |       |                                 |       |                             |       |                                                                                         |       |                                                                                                                      |       |
| Total              |       | 5,000                                |       | $                                | 4.92       |                                                                                         | 87,850     | (2)                                                                                                                       |       | (1) |

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(1)                          A description ofthe maximum amount that may be used to purchase our units under the tradingplans is included in the narrative preceding this table.

(2)                          Represents the total number of ourlimited partnership units that have been purchased by Ocean Ridge Investments,Ltd., controlled by Mr. Nichols, pursuant to the current or any previouspublicly announced plan or program by Ocean Ridge Investments, Ltd. 

 

## **Item 3 — DefaultsUpon Senior Securities**

## ** **

None.

 

## **Item 4 — Submissionof Matters to a Vote of Security Holders**

## ** **

None.

 

## **Item 5 — OtherInformation**

## ** **

None.

 

 

26

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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)       |
|                 |       |                                                                                                                                                                                                                                                                                       |       |       |
| 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                                                                                                                                    |       | (13)       |
|                 |       |                                                                                                                                                                                                                                                                                       |       |       |
| 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                                                                                                                                    |       | (13)       |
|                 |       |                                                                                                                                                                                                                                                                                       |       |       |
| 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                                                                                                                                               |       | (13)       |
|                 |       |                                                                                                                                                                                                                                                                                       |       |       |
| 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                                                                                                                                               |       | (13)       |

 

27

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| **Exhibit No.** |   |                                                                                                                                                                |   |   |
|----------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| 99.01                |   | 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)    |

 

----

| (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) |   | Filed herewith                                                                                                                                                                                               |

 

28

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## **SIGNATURES**

## ** **

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned 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: | May 8, 2008 |
|       |                                        |   |   |
|       |                                        | By: | */s/ Gregory A. Wells* |
|       |                                        |   | Gregory A. Wells |
|       |                                        |   | Its: | Chief Financial Officer |
|       |                                        |   | Date: | May 8, 2008 |

 

29

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