** **

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

** **

**FORM 10-Q**

** **

** **

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

 

For the quarterly period ended June 30, 2007

 

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

(Exact name of registrant as specified in its charter)

 

 

Delaware

(State of incorporation or organization)

 

 

001-32389

(Commission File No.)

 

 

41-2111139

(I.R.S. Employer Identification No.)

 

 

10172 Linn Station Road

Louisville, Kentucky 40223

(Address of principal executive offices)

 

 

(502) 426-4800

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

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

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct.  (Check one):
| Large accelerated  filer  o | Accelerated  filer  o | Non-accelerated  filer   x |
|---------------------------------------|---------------------------------|--------------------------------------|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

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

As of July 31, 2007,there were 11,380,760 of the registrant’s limited partnership unitsoutstanding.

 

 

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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 June 30, 2007 and  December 31, 2006                                     |       | 4          |
| Consolidated Statement of Partners’ Equity as of June  30, 2007                                       |       | 4          |
| Consolidated Statements of Operations for the Three  and Six Months Ended June 30, 2007 and 2006           |       | 5          |
| Consolidated Statements of Cash Flows for the Six  Months Ended June 30, 2007 and 2006                     |       | 6          |
| Notes to  Consolidated Financial Statements                                                                |       | 7          |
| Item 2 —  Management’s Discussion and Analysis of Financial Condition and Results of  Operations |       | 20         |
| Item 3 —  Quantitative and Qualitative Disclosures About Market Risk                                  |       | 31         |
| Item 4 — Controls and  Procedures                                                                     |       | 31         |
| Item 4T — Controls  and Procedures                                                                    |       | 31         |
|                                                                                                       |       |       |
| **PART II — OTHER  INFORMATION**                                                                      | ** ** | 32         |
| ** **                                                                                                 | ** ** | ** ** |
| Item 1 — Legal Proceedings                                                                            |       | 32         |
| Item 1A — Risk Factors                                                                                |       | 32         |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                 |       | 32         |
| Item 3 — Defaults Upon Senior Securities                                                              |       | 32         |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                         |       | 32         |
| Item 5 — Other Information                                                                            |       | 32         |
| Item 6 — Exhibits                                                                                     |       | 33         |
| SIGNATURES                                                                                                 |       | 35         |

 

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**INFORMATION REGARDINGFORWARD-LOOKING STATEMENTS**

Some of the statements included in this quarterlyreport on Form 10-Q, particularly those included in Part I, Item 2 — Management’sDiscussion and Analysis of Financial Condition and Results of Operations (“MD&A”),may be considered “forward-looking statements” because the statements relate tomatters which have not yet occurred.  Forexample, phrases such as “we anticipate,” “believe” or “expect” indicate thatit is possible that the event anticipated, believed or expected may notoccur.  If these events do not occur, theresult which we expected also may, or may not, occur in a different manner,which may be more or less favorable to us. We do not undertake any obligation to update these forward-looking statements.

Any forward-looking statements included in MD&A,or elsewhere in this report, reflect our managing general partner’s bestjudgment 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 28, 2007.  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**

## **Item1 — Financial Statements**

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006

| ** **                                                                                                                  | ** ** | **(Unaudited)**             | ** **  | ** **                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                  | ** ** | **June 30, 2007** | ** **  | **December 31, 2006** | ** ** |
| ** **                                                                                                                  | ** ** | ** **                  | ** **  | ** **                      | ** ** |
| **ASSETS:**                                                                                                                 | ** ** | ** **                  |        |                            |       |
| Cash and equivalents                                                                                                        |       | $                           | 95,639      |                            | $          | 28,250 |   |
| Cash and  equivalents - restricted                                                                                          |       | 1,429,794                   |        | 465,517                         |       |
| Accounts  receivable, net of allowance for doubtful accounts of $63,470 at June 30,  2007 and $346,526 at December 31, 2006 |       | 861,719                     |        | 1,216,925                       |       |
| Deposits                                                                                                                    |       | 500,000                     |        | 300,000                         |       |
| Land, buildings  and amenities, net                                                                                         |       | 295,940,323                 |        | 256,605,137                     |       |
| Long-lived  assets held for sale                                                                                            |       | 35,522,821                  |        | 47,585,805                      |       |
| Other assets                                                                                                                |       | 3,165,969                   |        | 3,049,767                       |       |
|                                                                                                                        |       |                        |        |                            |       |
| **Total  assets**                                                                                                           |       | $                           | 337,516,265 |                            | $          | 309,251,401 |   |
|                                                                                                                        |       |                        |        |                            |       |
| **LIABILITIES:**                                                                                                            |       |                        |        |                            |       |
| Mortgages and  note payable                                                                                                 |       | $                           | 236,062,008 |                            | $          | 218,215,007 |   |
| Accounts payable  and accrued expenses                                                                                      |       | 3,084,431                   |        | 3,864,505                       |       |
| Accounts payable  and accrued expenses due to affiliate                                                                     |       | 499,913                     |        | 756,086                         |       |
| Distributions  payable                                                                                                      |       | 1,138,076                   |        | 2,276,322                       |       |
| Security  deposits                                                                                                          |       | 827,903                     |        | 766,344                         |       |
| Long-lived  liabilities held for sale                                                                                       |       | 3,258,671                   |        | 3,229,376                       |       |
| Other  liabilities                                                                                                          |       | 4,890,610                   |        | 2,669,055                       |       |
|                                                                                                                        |       |                        |        |                            |       |
| **Total  liabilities**                                                                                                      |       | 249,761,612                 |        | 231,776,695                     |       |
|                                                                                                                        |       |                        |        |                            |       |
| **MINORITY INTEREST**                                                                                                       |       | 4,282,877                   |        | -                               |       |
|                                                                                                                        |       |                        |        |                            |       |
| COMMITMENTS AND  CONTINGENCIES (NOTE 11)                                                                                    |       |                        |        |                            |       |
|                                                                                                                        |       |                        |        |                            |       |
| **PARTNERS’ EQUITY**                                                                                                   |       | 83,471,776                  |        | 77,474,706                      |       |
|                                                                                                                        |       |                        |        |                            |       |
| **Total liabilities and partners’  equity**                                                                            |       | $                           | 337,516,265 |                            | $          | 309,251,401 |   |

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatement of Partners’ Equity as of June 30, 2007

(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                      |       | -                               |       | -                                |       | 2,446,660            |       | 36,527,829            |       | 38,974,489  |       |
| Net income current year                     |       | -                               |       | -                                |       | 519,398              |       | 7,753,824             |       | 8,273,222   |       |
| Cash distributions declared to date         |       | -                               |       | -                                |       | (857,442             | )          | (12,800,318           | )          | (13,657,760 | )          |
| Retirement of limited partnership interests |       | -                               |       | (848                             | )          | -                    |       | -                     |       | -           |       |
|                                        |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Balances on June 30,  2007                  |       | 714,491                         |       | 10,666,269                       |       | $                    | 5,239,997  |                  | $          | 78,231,779  |       | $ | 83,471,776 |   |

 

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

 

4

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatements of Operations for the Three and Six Months Ended June 30, 2007 and2006

(Unaudited)
| ** **                                                             | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                             | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUE:**                                                           |       |                             |       |                           |       |   |   |   |   |
| Rental income                                                          |       | $                                | 9,879,199  |                           | $          | 8,380,673 |   | $ | 18,618,260 |   | $ | 14,438,058 |   |
| Tenant  reimbursements                                                 |       | 405,610                          |       | 399,185                        |       | 809,249 |   | 760,658 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **Total  revenue**                                                     |       | 10,284,809                       |       | 8,779,858                      |       | 19,427,509 |   | 15,198,716 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **EXPENSES:**                                                          |       |                             |       |                           |       |   |   |   |   |
| Operating  expenses                                                    |       | 2,652,444                        |       | 1,855,986                      |       | 4,435,791 |   | 2,996,033 |   |
| Operating  expenses reimbursed to affiliate                            |       | 1,265,233                        |       | 1,032,294                      |       | 2,373,401 |   | 1,800,913 |   |
| Management fees                                                        |       | 503,154                          |       | 439,184                        |       | 961,187 |   | 778,395 |   |
| Property taxes  and insurance                                          |       | 1,563,485                        |       | 1,103,915                      |       | 2,649,537 |   | 1,868,146 |   |
| Professional and  administrative expenses                              |       | 346,586                          |       | 384,017                        |       | 672,654 |   | 963,552 |   |
| Professional and  administrative expenses reimbursed to affiliate      |       | 402,354                          |       | 402,491                        |       | 909,464 |   | 808,376 |   |
| Depreciation and  amortization                                         |       | 4,039,737                        |       | 3,486,653                      |       | 7,440,133 |   | 5,715,347 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **Total  operating expenses**                                          |       | 10,772,993                       |       | 8,704,540                      |       | 19,442,167 |   | 14,930,762 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **OPERATING (LOSS) INCOME**                                            |       | (488,184                         | )          | 75,318                         |       | (14,658 | ) | 267,954 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| Interest and other  income                                             |       | 13,587                           |       | 37,554                         |       | 62,217 |   | 124,892 |   |
| Interest expense                                                       |       | (3,123,067                       | )          | (2,873,806                     | )          | (5,876,001 | ) | (4,683,600 | ) |
| Loss on disposal of  assets                                            |       | (32,680                          | )          | (24,139                        | )          | (48,919 | ) | (102,123 | ) |
| Minority interest                                                      |       | (284,829                         | )          | -                              |       | (292,296 | ) | - |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **LOSS FROM CONTINUING OPERATIONS**                                    |       | (3,345,515                       | )          | (2,785,073                     | )          | (5,585,065 | ) | (4,392,877 | ) |
| Discontinued  operations, net                                          |       | 277,749                          |       | 325,499                        |       | 375,996 |   | 744,189 |   |
| Gain on sale of  discontinued operations                               |       | -                                |       | 1,679,143                      |       | 13,482,291 |   | 49,950,486 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **NET (LOSS) INCOME**                                                  |       | $                                | (3,067,766 | )                              | $          | (780,431 | ) | $ | 8,273,222 |   | $ | 46,301,798 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **Loss from continuing operations  allocated to limited partners**     |       | $                                | (3,135,482 | )                              | $          | (2,610,237 | ) | $ | (5,234,431 | ) | $ | (4,117,110 | ) |
| Discontinued  operations, net allocated to limited partners            |       | 260,312                          |       | 305,065                        |       | 352,390 |   | 697,472 |   |
| Gain on sale of  discontinued operations allocated to limited partners |       | -                                |       | 1,573,733                      |       | 12,635,865 |   | 46,814,798 |   |
| ** **                                                             |       |                             |       |                           |       |   |   |   |   |
| **NET (LOSS) INCOME ALLOCATED TO  LIMITED PARTNERS**                   |       | $                                | (2,875,170 | )                              | $          | (731,439 | ) | $ | 7,753,824 |   | $ | 43,395,160 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **Loss from continuing operations  per limited partnership unit**      |       | $                                | (0.29      | )                              | $          | (0.24 | ) | $ | (0.49 | ) | $ | (0.39 | ) |
| Discontinued  operations, net per limited partnership unit             |       | 0.02                             |       | 0.03                           |       | 0.03 |   | 0.07 |   |
| Gain on sale of  discontinued operations per limited partnership unit  |       | -                                |       | 0.14                           |       | 1.18 |   | 4.39 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **NET (LOSS) INCOME PER LIMITED  PARTNERSHIP UNIT**                    |       | $                                | (0.27      | )                              | $          | (0.07 | ) | $ | 0.72 |   | $ | 4.07 |   |
|                                                                   |       |                             |       |                           |       |   |   |   |   |
| **Weighted average number of limited partnership  interest**           |       | 10,666,269                       |       | 10,667,117                     |       | 10,666,377 |   | 10,667,117 |   |

 

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

 

5

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatements of Cash Flows for the Six Months Ended June 30, 2007 and 2006

(Unaudited)

 
| ** **                                                                         | ** ** | **2007**    | ** ** | **2006**     | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|
| **OPERATING ACTIVITIES:**                                                          | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Net  income**                                                                    |       | $           | 8,273,222  |         | $          | 46,301,798 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |        |       |         |       |
| Gain from sale  of discontinued assets                                             |       | (13,482,291 | )          | (49,950,486  | )          |
| Loss on disposal  of assets                                                        |       | 93,205      |       | 130,230      |       |
| Depreciation and  amortization                                                     |       | 8,528,245   |       | 7,614,988    |       |
| Minority  interest                                                                 |       | (292,296    | )          | -            |       |
| **Changes  in assets and liabilities:**                                            |       |        |       |         |       |
| Cash and  equivalents — restricted                                            |       | (964,277    | )          | (160,042     | )          |
| Accounts  receivable                                                               |       | 649,937     |       | (6,275       | )          |
| Other assets                                                                       |       | 160,712     |       | (542,964     | )          |
| Accounts payable  and accrued expenses                                             |       | (780,074    | )          | (359,312     | )          |
| Accounts payable  and accrued expenses due to affiliate                            |       | (256,173    | )          | 414,085      |       |
| Distributions  declared payable                                                    |       | (1,138,076  | )          | (1,138,160   | )          |
| Security  deposits                                                                 |       | (65,335     | )          | 160,608      |       |
| Other  liabilities                                                                 |       | 1,291,726   |       | 691,735      |       |
|                                                                               |       |        |       |         |       |
| **Net  cash provided by operating activities**                                     |       | 2,018,525   |       | 3,156,205    |       |
|                                                                               |       |        |       |         |       |
| **INVESTING ACTIVITIES:**                                                          |       |        |       |         |       |
| Additions to  land, buildings and amenities                                        |       | (2,874,956  | )          | (2,200,621   | )          |
| Proceeds from  sale of discontinued operations                                     |       | 26,102,758  |       | 77,483,821   |       |
| Investment in  joint venture by minority interest, net                             |       | 4,575,173   |       | -            |       |
| Acquisitions                                                                       |       | (45,944,506 | )          | (131,111,503 | )          |
| Deposits on  property acquisitions                                                 |       | (200,000    | )          | -            |       |
| Cash and  equivalents — restricted                                            |       | -           |       | 874,079      |       |
|                                                                               |       |        |       |         |       |
| **Net  cash used in investing activities**                                         |       | (18,341,531 | )          | (54,954,224  | )          |
|                                                                               |       |        |       |         |       |
| **FINANCING ACTIVITIES:**                                                          |       |        |       |         |       |
| Proceeds from  mortgages payable                                                   |       | 36,000,000  |       | 42,500,000   |       |
| Proceeds from  revolving note payable                                              |       | 18,755,594  |       | 36,565,552   |       |
| Principal  payments on mortgages payable                                           |       | (15,760,821 | )          | (31,063,387  | )          |
| Additional  payments on mortgage payable                                           |       | (21,200,000 | )          | -            |       |
| Additions to  loan costs                                                           |       | (266,302    | )          | (130,932     | )          |
| Cash  distributions                                                                |       | (1,138,076  | )          | (1,138,160   | )          |
|                                                                               |       |        |       |         |       |
| **Net  cash provided by financing activities**                                     |       | 16,390,395  |       | 46,733,073   |       |
|                                                                               |       |        |       |         |       |
| **NET INCREASE (DECREASE) IN CASH  AND EQUIVALENTS**                               |       | 67,389      |       | (5,064,946   | )          |
|                                                                               |       |        |       |         |       |
| **CASH AND EQUIVALENTS, beginning  of period**                                     |       | 28,250      |       | 5,409,318    |       |
|                                                                               |       |        |       |         |       |
| **CASH AND EQUIVALENTS, end of  period**                                           |       | $           | 95,639     |         | $          | 344,372 |   |
| ** **                                                                         |       |        |       |         |       |
| **NON-CASH INVESTING AND  FINANCING ACTIVITIES:**                                  |       |        |       |         |       |
| Acquisitions of  land, buildings and amenities by debt assumption                  |       | $           | -          |         | $          | (33,377,982 | ) |
| Mortgage payable  assumed in acquisition                                           |       | $           | -          |         | $          | 33,377,982 |   |

 

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

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### Notes toConsolidated Financial Statements

(Unaudited)

The unaudited consolidated financial statementsincluded herein should be read in conjunction with NTS Realty Holdings LimitedPartnership’s (“NTS Realty”) 2006 annual report on Form 10-K as filed with theSecurities and Exchange Commission on March 28, 2007.  In the opinion of NTS Realty Capital, Inc.,our managing general partner, all adjustments, consisting only of normalrecurring accruals, necessary for a fair presentation have been made to theaccompanying consolidated financial statements for the three and six monthsended June 30, 2007 and 2006.  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, may referto NTS Realty or its interests in its properties and joint venture.

**Note 1 — Summary of Significant AccountingPolicies**

***Organization andDistribution Policy***

We are in the business of developing, constructing,owning and operating multifamily properties, commercial and retail real estateand land leases.  At June 30, 2007, weowned wholly or as a tenant in common with an unaffiliated third party,twenty-eight properties, comprised of ten multifamily properties, fourteenoffice and business centers, three retail properties, and one groundlease.  The properties are located in andaround Louisville (16) and Lexington (1), Kentucky, Fort Lauderdale (3),Florida, Indianapolis (4), Indiana, Nashville (2), Tennessee, Richmond (1),Virginia, and Atlanta (1), Georgia.  Ouroffice and business centers aggregate approximately 1.5 million squarefeet.  We own multifamily propertiescontaining approximately 3,020 units, retail properties containingapproximately 210,000 square feet of space and one ground lease associated witha 120-space parking lot attached to one of our properties.

We pay distributions if and when authorized by ourmanaging 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,state or local income tax purposes, we will adjust the amount distributed toreflect our 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 be reduced by theamount 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 per unit tolimited partners on April 13, 2007 and July 13, 2007.

7

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***Consolidation Policy andMinority Interest***

The consolidated financial statements include theaccounts of all wholly-owned properties and our majority-owned jointventure.  Intercompany transactions andbalances have been eliminated.

We include the results of operations, financialposition and cash flows of The Overlook at St. Thomas in our consolidatedfinancial statements.  The minorityinterest in The Overlook at St. Thomas is stated separately in our consolidatedfinancial statements.

**Note 2 — Use of Estimates and Reclassificationsin the Preparation of Financial Statements**

The preparation of financial statements in accordancewith U.S. generally accepted accounting principles requires us to makeestimates 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 to the priorperiod financial statements to conform to the June 30, 2007classifications.  These reclassificationshave no effect on previously reported operating results or partners’ equity.

**Note 3 — Real Estate Transactions**

***Acquisitions***

We account for our acquisitions using the purchasemethod of accounting in accordance with Statement of Financial AccountingStandards (“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 property will be amortized overa period of one year, which approximates the weighted average lease lives.  No above or below market leases 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 capitalizations rates deemed appropriate and available marketinformation.

During the six months ended June 30, 2007, we made thefollowing property acquisition:
| **Property - Multifamily** | ** ** | **Location**   | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------|------------|----------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| The Overlook at  St. Thomas (1)      |       | Louisville, KY |       | 484       |       | March 14, 2007             |       | $                       | 46,000,000 |   |
|                                      |            |                |            |           |            |                            |            |                         |            |  |

----

(1)          Acquired a new mortgage of $36.0 million to purchase the property.  Ownership percentage at June 30, 2007 was60%.  NTS Realty’s liability under thismortgage is limited to its ownership percentage.

On June 19, 2007, we entered into an agreement topurchase, as tenants in common with an unaffiliated third party, a multifamilyproperty located in Richmond, Virginia known as Creek’s Edge at Stony Point (“Creek’sEdge”).  Subject to the terms andconditions of the agreement, we agreed to a purchase price of $32.3 million toacquire Creek’s Edge Apartments.  This isa 202-unit apartment community offering amenities such as a fitness center,cardio theater, resort-style pool with in-pool lounge, electronicallycontrolled access entry gates, and custom home features.

8

----

***Pro Forma Information***

The following table presents our unaudited pro formaresults of operations and per unit amounts as if we had consummated our 2007acquisition as of the beginning of each period presented.

 
| ** **                                                     | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                | ** ** |
|----------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                     | ** ** | **2007**                         | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues                                                       |       | $                                | 10,284,809 |                           | $          | 10,045,792 |   | $ | 20,445,986 |   | $ | 17,730,584 |   |
| Expenses and  other income, net                                |       | 13,630,324                       |       | 13,148,667                     |       | 26,343,061 |   | 22,761,577 |   |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Loss from  continuing operations                               |       | $                                | (3,345,515 | )                              | $          | (3,102,875 | ) | $ | (5,897,075 | ) | $ | (5,030,993 | ) |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Net (loss)  income                                             |       | $                                | (3,067,766 | )                              | $          | (1,098,233 | ) | $ | 7,961,212 |   | $ | 45,663,682 |   |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Loss from  continuing operations allocated to limited partners |       | $                                | (3,135,482 | )                              | $          | (2,908,075 | ) | $ | (5,526,853 | ) | $ | (4,715,168 | ) |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Net (loss)  income allocated to limited partners               |       | $                                | (2,875,170 | )                              | $          | (1,029,291 | ) | $ | 7,461,402 |   | $ | 42,797,102 |   |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Loss from  continuing operations per limited partnership unit  |       | $                                | (0.29      | )                              | $          | (0.27 | ) | $ | (0.52 | ) | $ | (0.44 | ) |
|                                                           |       |                             |       |                           |       |   |   |   |   |
| Net (loss)  income per limited partnership unit                |       | $                                | (0.27      | )                              | $          | (0.10 | ) | $ | 0.70 |   | $ | 4.01 |   |
| ** **                                                     |       |                             |       |                           |       |   |   |   |   |
| Weighted average number  of limited partnership interest       |       | 10,666,269                       |       | 10,667,117                     |       | 10,666,377 |   | 10,667,117 |   |

*** ***

***Dispositions***

During the sixmonths ended June 30, 2007, we made the following property dispositions:
| **Property — Commercial** | ** ** | **Location**   | ** ** | **Square Feet** | ** ** | **Date of Sale** | ** ** | **Sale Price** | ** ** |
|------------------------------------------|------------|----------------|------------|----------------------|------------|----------------------------|------------|---------------------|------------|
| Springs Medical  Office Center (1) (3)   |       | Louisville, KY |       | 100,565              |       | February 12, 2007          |       | $                   | 15,150,000 |   |
| Springs Office  Center(2) (3)            |       | Louisville, KY |       | 125,964              |       | February 12, 2007          |       | 13,750,000          |       |
|                                          |            |                |            |                      |            |                            |            |                     |            |  |

----

(1)          Gain of approximately $8.8 million.

(2)          Gain of approximately $4.6 million.

(3)          We used proceeds from this disposition transaction, intended to qualifyas a Section 1031 like kind exchange, to make additional principal payments of$10.6 million on a mortgage payable to a bank and to acquire a 60% tenant incommon interest in The Overlook at St. Thomas.

 

9

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***Discontinued Operationsand Long-Lived Assets and Liabilities Held for Sale***

On June 12, 2007, the board of directors of NTS RealtyCapital Inc., our managing general partner, authorized the sale of AtriumCenter, Blankenbaker Business Center I, Blankenbaker Business Center II, AnthemOffice Center, NTS Center, Plainview Center, Plainview Point Office CenterPhase I and II, Plainview Point Office Center Phase III, and the ITT ParkingLot (the “Office Portfolio”).  Theseproperties have been classified as held for sale on our balance sheet anddiscontinued operations on our statements of operations at June 30, 2007 andall comparative dates and periods presented.

On August 2, 2007, we announced that we entered intoan agreement to sell 100% of the interests in our wholly-owned subsidiary whichholds title to the Office Portfolio. Pursuant to the agreement, we are scheduled to receive $66,550,000 incash for this portfolio.  We intend touse the proceeds from the sale to repay outstanding debt on the properties andto purchase properties in a manner that would qualify as a tax deferredexchange under Section 1031 of the Internal Revenue Code.

We have presented separately as discontinuedoperations in all periods the results of operations for the following properties:
| **Property**                                 | ** ** | **Location**   | ** ** | **Status**          |
|----------------------------------------------|------------|----------------|------------|---------------------|
| Golf Brook Apartments                        |       | Orlando, FL    |       | Sold 2006           |
| Sabal Park Apartments                        |       | Orlando, FL    |       | Sold 2006           |
| Commonwealth Business Center Phase I         |       | Louisville, KY |       | Sold 2006           |
| Commonwealth Business Center Phases II       |       | Louisville, KY |       | Sold 2006           |
| Springs Medical Office Center                |       | Louisville, KY |       | Sold 2007           |
| Springs Office Center                        |       | Louisville, KY |       | Sold 2007           |
| Atrium Center                                |       | Louisville, KY |       | Asset Held for Sale |
| Blankenbaker Business Center I               |       | Louisville, KY |       | Asset Held for Sale |
| Blankenbaker Business Center II              |       | Louisville, KY |       | Asset Held for Sale |
| Anthem Office Center                         |       | Louisville, KY |       | Asset Held for Sale |
| NTS Center                                   |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Center                             |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Point Office Center Phase I and II |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Point Office Center Phase III      |       | Louisville, KY |       | Asset Held for Sale |
| ITT Parking Lot                              |       | Louisville, KY |       | Asset Held for Sale |

 

These assets and liabilities held for sale have beenseparately identified on our balance sheets at June 30, 2007 and December 31,2006.

10

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The components of discontinued operations are outlinedbelow and include the results of operations for the respective periods in whichwe owned such assets during the three and six months ended June 30, 2007 and2006.

 
| ** **                                                         | ** ** | **(Unaudited)**                                       | ** ** | **(Unaudited)**                               | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  June 30, ** | ** ** | **Six Months Ended  June 30,** | ** ** |
| ** **                                                         | ** ** | **2007**                                              | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUE:**                                                       |       |                                                  |       |                                          |       |   |   |   |   |
| Rental income                                                      |       | $                                                     | 2,005,505  |                                          | $          | 2,794,039 |   | $ | 4,139,801 |   | $ | 6,223,413 |   |
| Tenant reimbursements                                              |       | 104,514                                               |       | 179,659                                       |       | 223,858 |   | 359,148 |   |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| **Total revenue**                                                  |       | 2,110,019                                             |       | 2,973,698                                     |       | 4,363,659 |   | 6,582,561 |   |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| **EXPENSES:**                                                      |       |                                                  |       |                                          |       |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 656,586                                               |       | 866,971                                       |       | 1,458,466 |   | 2,089,166 |   |
| Management fees                                                    |       | 103,815                                               |       | 151,499                                       |       | 225,065 |   | 322,061 |   |
| Property taxes  and insurance                                      |       | 180,108                                               |       | 210,157                                       |       | 358,257 |   | 497,052 |   |
| Depreciation and  amortization                                     |       | 342,465                                               |       | 699,587                                       |       | 683,428 |   | 1,410,596 |   |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| **Total expenses**                                                 |       | 1,282,974                                             |       | 1,928,214                                     |       | 2,725,216 |   | 4,318,875 |   |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| **DISCONTINUED  OPERATING INCOME**                                 |       | 827,045                                               |       | 1,045,484                                     |       | 1,638,443 |   | 2,263,686 |   |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| Interest and  other income                                         |       | 15,781                                                |       | 6,480                                         |       | 29,279 |   | 14,703 |   |
| Interest expense                                                   |       | (561,345                                              | )          | (718,044                                      | )          | (1,247,441 | ) | (1,506,093 | ) |
| Loss on disposal  of assets                                        |       | (3,732                                                | )          | (8,421                                        | )          | (44,285 | ) | (28,107 | ) |
|                                                               |       |                                                  |       |                                          |       |   |   |   |   |
| **Discontinued operations, net**                                   |       | $                                                     | 277,749    |                                          | $          | 325,499 |   | $ | 375,996 |   | $ | 744,189 |   |

 

The components of long-lived assets held for saleconsist primarily of land, buildings and amenities for the properties beingsold.  The components of long-livedliabilities held for sale include the accrued property tax liabilities andsecurity deposit liabilities for the properties being sold. One property in theOffice Portfolio is subject to a stand alone mortgage which has been includedin our long-lived liabilities held for sale.

 

11

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**Note 4 — Concentration of Credit Risk**

We own and operate, either wholly or as a tenant incommon with an unaffiliated third party, multifamily properties, commercial andretail real estate and a land lease in Louisville and Lexington, Kentucky, FortLauderdale, 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 with bankslocated in Kentucky.  The total cashbalances 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 and Equivalents**

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 cash balances.  Under an agreement with a bank, excess cashis invested in a mutual fund for U.S. government and agency securities eachnight.

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

Cash and equivalents - restricted represents cash onhand and short-term, highly liquid investments with initial maturities of threemonths or less which have been escrowed with certain mortgage companies andbanks for property taxes, insurance and tenant improvements in accordance withcertain loan and lease agreements and certain security deposits.

**Note 7 — Property and Depreciation**

Land, buildings and amenities are stated at cost.  Costs directly associated with theacquisition, development and construction of a project are capitalized.  Depreciation is computed using thestraight-line method over the estimated useful lives of the assets which aregenerally 5-30 years for land improvements, 7-30 years for buildings andimprovements 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 June 30, 2007 and 2006 was approximately$3,943,000 and $3,251,000, respectively. Depreciation expense from continuing operations for the six months endedJune 30, 2007 and 2006 was approximately $7,210,000 and $5,360,000,respectively.

SFAS No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets,” specifies circumstances in which certainlong-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 and six months ended June30, 2007 and 2006 did not result in an impairment loss.

12

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**Note 8 — Mortgages and Note Payable**

Mortgages and note payable consist of the following:
| ** **                                                                                                                                                                                                                                                                                                                                             | ** ** | **(Unaudited)**             | ** **  | ** **                      | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                             | ** ** | **June 30, 2007** | ** **  | **December 31, 2006** | ** ** |
| 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 $46,353,164                                                                                                                      |       | $                           | 28,577,368  |                            | $          | 28,907,648 |   |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing interest at a variable rate based on LIBOR  one-month rate plus 2.50%, currently 7.82%, due January 1, 2008, secured by  certain land and buildings, with a carrying value of $16,595,837. The  mortgage is guaranteed by Mr. Nichols (75%) and Mr. Lavin (25%) |       | 13,362,000                  |        | 13,494,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| 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 $157,137,330                                                                                                                      |       | 72,667,813                  |        | 73,178,299                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| 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 $157,137,330                                                                                                                      |       | 32,756,208                  |        | 32,994,574                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| Revolving note payable to a bank for $24.0 million,  with interest payable in monthly installments, unsecured, at a variable rate  based on LIBOR plus 1.75%, currently 7.07%, due August 24, 2007                                                                                                                                                     |       | 21,448,272                  |        | 16,878,031                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| Mortgage payable to a bank in monthly installments  of principal and interest, bearing interest at 9.00%, maturing August 1,  2010, secured by certain land and a building, with a carrying value of  $2,786,734                                                                                                                                       |       | 2,576,800                   |        | 2,626,870                       |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| 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 $2,293,067                                                                                                                       |       | 2,619,280                   |        | 2,723,982                       |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| Mortgage payable to an insurance company in monthly  installments of principal and interest, bearing interest at 8.375%, maturing  December 1, 2010, secured by certain land, a building and amenities, with a  carrying value of $2,623,796                                                                                                           |       | 2,664,954                   |        | 2,717,182                       |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| 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  $14,267,519                                                                                                                                     |       | 11,846,437                  |        | 11,933,706                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| Mortgage payable to a bank, with interest payable in  monthly installments, bearing interest at LIBOR plus 1.75%, currently 7.07%,  maturing November 15, 2007, secured by certain land and buildings, with a  carrying value of $16,543,009                                                                                                           |       | 14,277,897                  |        | 35,477,897                      |       |
|                                                                                                                                                                                                                                                                                                                                                   |       |                        |        |                            |       |
| 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 $45,018,008                                                                                                                                               |       | 35,929,933                  |        | -                               |       |
| ** **                                                                                                                                                                                                                                                                                                                                             |       |                        |        |                            |       |
| ** **                                                                                                                                                                                                                                                                                                                                             |       | $                           | 238,726,962 |                            | $          | 220,932,189 |   |

 

Our mortgage payable to an insurance company, maturingDecember 1, 2010, has been included in our long-lived liabilities held forsale.

Based on the borrowing rates currently available to usfor loans with similar terms and average maturities, the fair value oflong-term debt on June 30, 2007 was approximately $218.2 million.

Our borrowing base limitation on the revolving notepayable was approximately $23,136,000 at June 30, 2007.

On February 13, 2007, we paid down $21.2 million onthe mortgage payable to a bank, maturing November 15, 2007, in connection withthe sale of Springs Medical Office Center and Springs Office Center.

13

----

Interest paid for the six months ended June 30, 2007and 2006 was approximately $6,913,000 and $5,753,000, respectively.

Our mortgages may be prepaid but are generally subjectto a yield-maintenance premium.  Certainmortgages and notes payable contain covenants and requirements that we maintainspecified debt limits and ratios related to our debt balances and propertyvalues.  We complied with all covenantsand requirements at June 30, 2007.  Weintend to renew or refinance our mortgages and revolving note payable comingdue in the next twelve months.

**Note 9 — Accounts Payable and Accrued ExpensesDue to Affiliate**

Accounts payable and accrued expenses due to affiliateincludes amounts owed to NTS Development Company for reimbursement of employeecosts and overhead expenses and fees for services rendered as provided for inour management agreement.

**Note 10 — Related Party Transactions**

Pursuant to our management agreement, NTS DevelopmentCompany receives fees for a variety of services performed for our benefit.  Property management fees are paid in anamount equal to 5% of the gross collected revenue from our properties.  Construction supervision fees are paid in anamount equal to 5% of the costs incurred which relate to capital improvements.  These construction supervision fees arecapitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTSDevelopment Company receives commercial leasing fees equal to 4% of the grossrental amount for new leases and 2% of the gross rental amount for new leasesin which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS DevelopmentCompany in an amount of 1% to 4% of the aggregate sales price of a propertypursuant to our management agreement. NTS Development Company is reimbursed its actual costs for servicesrendered to NTS Realty.

Employee costs are allocated among NTS Realty, otheraffiliates of our managing general partner and for the benefit of thirdparties, so that a full time employee can be shared by multipleproperties.  Each employee’s serviceswhich are dedicated to a particular entity’s operations are allocated as apercentage of each employee’s costs to that entity.  We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company provides its employees to us.  We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.

We were charged the following amounts pursuant to ourmanagement agreement with NTS Development Company for the three and six monthsended June 30, 2007 and 2006.  Thesecharges include items which have been expensed as operating expenses reimbursedto affiliate or professional and administrative expenses reimbursed toaffiliate and items which have been capitalized as other assets or as land,buildings and amenities.  Certain ofthese items are included in our results of discontinued operations.

14

----

 

 
| ** **                                                        | ** ** | **(Unaudited)**                          | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months  Ended June 30,** | ** ** |
| ** **                                                        | ** ** | **2007**                                 | ** ** | **2006** | ** ** |
| Property  management fees                                         | ** ** | $                                        | 606,969    |   | $ | 590,681 |   |
|                                                              |       |                                     |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 952,083                                  |       | 807,103 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 142,993                                  |       | 102,090 |   |
| Operating  expenses reimbursement - Administrative                |       | 355,749                                  |       | 409,698 |   |
| Operating  expenses reimbursement - Other                         |       | 31,121                                   |       | 28,982 |   |
|                                                              |       |                                     |       |   |   |
| Total operating expenses reimbursed to affiliate                  |       | 1,481,946                                |       | 1,347,873 |   |
|                                                              |       |                                     |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 402,354                                  |       | 402,491 |   |
|                                                              |       |                                     |       |   |   |
| Construction  supervision fees                                    |       | 77,024                                   |       | 40,117 |   |
| Commercial  leasing fees                                          |       | 236,632                                  |       | 62,665 |   |
|                                                              |       |                                     |       |   |   |
| **Total  related party transactions**                             |       | $                                        | 2,804,925  |   | $ | 2,443,827 |   |

 
| ** **                                                        | ** ** | **(Unaudited)**                       | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                        | ** ** | **For the Six Months Ended June 30,** | ** ** |
| ** **                                                        | ** ** | **2007**                              | ** ** | **2006** | ** ** |
| Property  management fees                                         | ** ** | $                                     | 1,186,252  |   | $ | 1,100,456 |   |
|                                                              |       |                                  |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 1,808,618                             |       | 1,643,289 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 235,509                               |       | 200,378 |   |
| Operating  expenses reimbursement - Administrative                |       | 727,647                               |       | 773,631 |   |
| Operating  expenses reimbursement - Other                         |       | 63,795                                |       | 54,312 |   |
|                                                              |       |                                  |       |   |   |
| Total operating expenses reimbursed to affiliate                  |       | 2,835,569                             |       | 2,671,610 |   |
|                                                              |       |                                  |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 909,464                               |       | 808,376 |   |
|                                                              |       |                                  |       |   |   |
| Construction  supervision fees                                    |       | 121,910                               |       | 105,573 |   |
| Commercial  leasing fees                                          |       | 273,049                               |       | 145,315 |   |
|                                                              |       |                                  |       |   |   |
| **Total  related party transactions**                             |       | $                                     | 5,326,244  |   | $ | 4,831,330 |   |

 

Property, multifamily leasing, administrative andother operating expenses reimbursed include employee costs charged to us by NTSDevelopment Company and other actual costs incurred by NTS Development Companyon our behalf, which were reimbursed by us.

During the three months ended June 30, 2007 and 2006,we were charged approximately $21,000 and $16,000, respectively, for propertymaintenance fees from affiliates of NTS Development Company.  During the six months ended June 30, 2007 and2006, we were charged approximately $49,000 and $40,000, respectively, forproperty maintenance fees from affiliates of NTS Development Company.

NTS Development Company leased 20,368 square feet inNTS Center at a rental rate of $14.50 per square foot.  We received rental payments from NTSDevelopment Company of approximately $74,000 and $148,000 during each of thethree and six months ended June 30, 2007 and 2006, respectively.  The average per square foot rental rate forsimilar space in NTS Center as of June 30, 2007 was $14.54 per square foot.

NTS Development Company leased 1,604 square feet inCommonwealth Business Center Phase I at a rental rate of $5.50 per squarefoot.  We received rental payments of approximately$1,000 and $4,000 from NTS Development Company during the three and six monthsended June 30, 2006, respectively. Commonwealth Business Center Phase I was sold to an unaffiliated thirdparty on May 18, 2006.

15

----

Pursuant to the agreement with us, NTS DevelopmentCompany received a disposition fee equal to 2%, or $303,000, of the sale priceof Springs Medical Office Center and 2%, or $275,000, of the sale price ofSprings Office Center during the six months ended June 30, 2007.  NTS Development Company received adisposition fee equal to 1%, or $715,000, of the sale price of Golf BrookApartments and Sabal Park Apartments during the six months ended June 30, 2006.These disposition fees are included in our gain on sale of discontinuedoperations on our statement of operations.

**Note 11 — Commitments and Contingencies**

We, as an owner of real estate, are subject to variousenvironmental 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.

 

16

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***Litigation***

We do not believe there is any litigation threatenedagainst us other than routine litigation arising out of the ordinary course ofbusiness, some of which is expected to be covered by insurance, none of whichis expected to have a material effect on our financial position or results ofoperations.

**Note 12 — Segment Reporting**

Our reportable operating segments include — Land,Retail, Commercial and Multifamily Real Estate Operations.  The following unaudited financial informationof the operating segments has been prepared using a management approach, whichis consistent with the basis and manner in which our management internallydisaggregates financial information for the purpose of assisting in makinginternal operating decisions.  Weevaluate performance based on stand-alone operating segment net income or loss.

 
| ** **                                                                                                      | ** ** | **(Unaudited)**                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2007** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                             | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                    | -          |   | $ | 388,960 |   | $ | 1,056,793 |   | $ | 8,658,714 |   | $ | (225,268 | ) | $ | 9,879,199 |   |
| Tenant reimbursements                                                                                           |       | -                                    |       | 21,323 |   | 384,287 |   | - |   | - |   | 405,610 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                    |       | 410,283 |   | 1,441,080 |   | 8,658,714 |   | (225,268 | ) | 10,284,809 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and  operating expenses reimbursed to affiliate                                              |       | -                                    |       | 38,412 |   | 424,694 |   | 3,454,571 |   | - |   | 3,917,677 |   |
| Management fees                                                                                                 |       | -                                    |       | 20,063 |   | 72,163 |   | 410,928 |   | - |   | 503,154 |   |
| Property taxes and  insurance                                                                                   |       | -                                    |       | 16,972 |   | 202,530 |   | 1,310,246 |   | 33,737 |   | 1,563,485 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                    |       | - |   | - |   | - |   | 748,940 |   | 748,940 |   |
| Depreciation and  amortization                                                                                  |       | -                                    |       | 67,802 |   | 381,240 |   | 3,590,695 |   | - |   | 4,039,737 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                    |       | 143,249 |   | 1,080,627 |   | 8,766,440 |   | 782,677 |   | 10,772,993 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | -                                    |       | 267,034 |   | 360,453 |   | (107,726 | ) | (1,007,945 | ) | (488,184 | ) |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                      |       | -                                    |       | - |   | 270 |   | 13,317 |   | - |   | 13,587 |   |
| Interest expense                                                                                                |       | -                                    |       | (113,503 | ) | (353,505 | ) | (2,582,290 | ) | (73,769 | ) | (3,123,067 | ) |
| Loss on disposal of  assets                                                                                     |       | -                                    |       | - |   | (29,632 | ) | (3,048 | ) | - |   | (32,680 | ) |
| Minority interest                                                                                               |       | -                                    |       | - |   | - |   | (284,829 | ) | - |   | (284,829 | ) |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing  operations**                                                                   |       | -                                    |       | 153,531 |   | (22,414 | ) | (2,394,918 | ) | (1,081,714 | ) | (3,345,515 | ) |
| Discontinued  operations, net                                                                                   |       | 7,145                                |       | - |   | 270,604 |   | - |   | - |   | 277,749 |   |
| Gain on sale of  discontinued operations                                                                        |       | -                                    |       | - |   | - |   | - |   | - |   | - |   |
| ** **                                                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                    | 7,145      |   | $ | 153,531 |   | $ | 248,190 |   | $ | (2,394,918 | ) | $ | (1,081,714 | ) | $ | (3,067,766 | ) |
| ** **                                                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                              |       | $                                    | -          |   | $ | 7,561,205 |   | $ | 25,603,097 |   | $ | 262,776,021 |   | $ | - |   | $ | 295,940,323 |   |

 

17

----

 
| ** **                                                                                                      | ** ** | **(Unaudited)**                      | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended June 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                             | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                    | -          |   | $ | 341,818 |   | $ | 1,077,103 |   | $ | 7,035,550 |   | $ | (73,798 | ) | $ | 8,380,673 |   |
| Tenant  reimbursements                                                                                          |       | -                                    |       | 20,366 |   | 378,819 |   | - |   | - |   | 399,185 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | -                                    |       | 362,184 |   | 1,455,922 |   | 7,035,550 |   | (73,798 | ) | 8,779,858 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                    |       | 33,195 |   | 477,161 |   | 2,377,924 |   | - |   | 2,888,280 |   |
| Management fees                                                                                                 |       | -                                    |       | 18,048 |   | 65,260 |   | 355,876 |   | - |   | 439,184 |   |
| Property taxes  and insurance                                                                                   |       | -                                    |       | 10,005 |   | 194,491 |   | 866,344 |   | 33,075 |   | 1,103,915 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                    |       | - |   | - |   | - |   | 786,508 |   | 786,508 |   |
| Depreciation and  amortization                                                                                  |       | -                                    |       | 73,797 |   | 394,298 |   | 3,018,558 |   | - |   | 3,486,653 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | -                                    |       | 135,045 |   | 1,131,210 |   | 6,618,702 |   | 819,583 |   | 8,704,540 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                    |       | 227,139 |   | 324,712 |   | 416,848 |   | (893,381 | ) | 75,318 |   |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                    |       | 6,572 |   | 582 |   | 5,400 |   | 25,000 |   | 37,554 |   |
| Interest expense                                                                                                |       | -                                    |       | (97,574 | ) | (252,462 | ) | (2,276,613 | ) | (247,157 | ) | (2,873,806 | ) |
| Loss on disposal  of assets                                                                                     |       | -                                    |       | - |   | (7,784 | ) | (16,355 | ) | - |   | (24,139 | ) |
|                                                                                                            |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                    |       | 136,137 |   | 65,048 |   | (1,870,720 | ) | (1,115,538 | ) | (2,785,073 | ) |
| Discontinued  operations, net                                                                                   |       | 7,389                                |       | - |   | 316,875 |   | 1,235 |   | - |   | 325,499 |   |
| Gain on sale of  discontinued operations                                                                        |       | -                                    |       | - |   | 1,679,143 |   | - |   | - |   | 1,679,143 |   |
| ** **                                                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| **Net  income (loss)**                                                                                          |       | $                                    | 7,389      |   | $ | 136,137 |   | $ | 2,061,066 |   | $ | (1,869,485 | ) | $ | (1,115,538 | ) | $ | (780,431 | ) |
| ** **                                                                                                      |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and  amenities, net                                                                             |       | $                                    | -          |   | $ | 7,822,974 |   | $ | 26,027,371 |   | $ | 228,438,638 |   | $ | - |   | $ | 262,288,983 |   |

##  

 

18

----

 
| ** **                                                                                                      | ** ** | **(Unaudited)**                    | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2007** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                  | -          |   | $  | 713,935 |   | $ | 2,126,061 |   | $ | 16,074,500 |   | $ | (296,236 | ) | $ | 18,618,260 |   |
| Tenant reimbursements                                                                                           |       | -                                  |       | 39,828 |   | 769,421 |   | - |   | - |   | 809,249 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                  |       | 753,763 |   | 2,895,482 |   | 16,074,500 |   | (296,236 | ) | 19,427,509 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and  operating expenses reimbursed to affiliate                                              |       | -                                  |       | 75,130 |   | 888,615 |   | 5,845,447 |   | - |   | 6,809,192 |   |
| Management fees                                                                                                 |       | -                                  |       | 36,953 |   | 143,871 |   | 780,363 |   | - |   | 961,187 |   |
| Property taxes and  insurance                                                                                   |       | -                                  |       | 27,897 |   | 404,529 |   | 2,149,638 |   | 67,473 |   | 2,649,537 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                  |       | - |   | - |   | - |   | 1,582,118 |   | 1,582,118 |   |
| Depreciation and  amortization                                                                                  |       | -                                  |       | 135,603 |   | 774,666 |   | 6,529,864 |   | - |   | 7,440,133 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                  |       | 275,583 |   | 2,211,681 |   | 15,305,312 |   | 1,649,591 |   | 19,442,167 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | -                                  |       | 478,180 |   | 683,801 |   | 769,188 |   | (1,945,827 | ) | (14,658 | ) |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other  income                                                                                      |       | -                                  |       | - |   | 540 |   | 44,800 |   | 16,877 |   | 62,217 |   |
| Interest expense                                                                                                |       | -                                  |       | (216,403 | ) | (659,480 | ) | (4,783,603 | ) | (216,515 | ) | (5,876,001 | ) |
| Loss on disposal of  assets                                                                                     |       | -                                  |       | - |   | (38,213 | ) | (10,706 | ) | - |   | (48,919 | ) |
| Minority Interest                                                                                               |       | -                                  |       | - |   | - |   | (292,296 | ) | - |   | (292,296 | ) |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing  operations**                                                                   |       | -                                  |       | 261,777 |   | (13,352 | ) | (3,688,025 | ) | (2,145,465 | ) | (5,585,065 | ) |
| Discontinued  operations, net                                                                                   |       | 14,426                             |       | - |   | 361,570 |   | - |   | - |   | 375,996 |   |
| Gain on sale of  discontinued operations                                                                        |       | -                                  |       | - |   | 13,482,291 |   | - |   | - |   | 13,482,291 |   |
| ** **                                                                                                      |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                  | 14,426     |   | $  | 261,777 |   | $ | 13,830,509 |   | $ | (3,688,025 | ) | $ | (2,145,465 | ) | $ | 8,273,222 |   |
| ** **                                                                                                      |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                              |       | $                                  | -          |   | $  | 7,561,205 |   | $ | 25,603,097 |   | $ | 262,776,021 |   | $ | - |   | $ | 295,940,323 |   |

##  

19

----

##  

| ** **                                                                                                      | ** ** | **(Unaudited)**                    | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Six Months Ended June 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                  | -          |   | $ | 687,900 |   | $ | 2,152,504 |   | $ | 11,741,235 |   | $ | (143,581 | ) | $ | 14,438,058 |   |
| Tenant  reimbursements                                                                                          |       | -                                  |       | 40,149 |   | 720,509 |   | - |   | - |   | 760,658 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | -                                  |       | 728,049 |   | 2,873,013 |   | 11,741,235 |   | (143,581 | ) | 15,198,716 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                  |       | 65,037 |   | 924,646 |   | 3,807,263 |   | - |   | 4,796,946 |   |
| Management fees                                                                                                 |       | -                                  |       | 37,016 |   | 138,037 |   | 603,342 |   | - |   | 778,395 |   |
| Property taxes  and insurance                                                                                   |       | -                                  |       | 20,303 |   | 383,523 |   | 1,395,524 |   | 68,796 |   | 1,868,146 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                  |       | - |   | - |   | - |   | 1,771,928 |   | 1,771,928 |   |
| Depreciation and  amortization                                                                                  |       | -                                  |       | 145,258 |   | 814,272 |   | 4,755,817 |   | - |   | 5,715,347 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | -                                  |       | 267,614 |   | 2,260,478 |   | 10,561,946 |   | 1,840,724 |   | 14,930,762 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                  |       | 460,435 |   | 612,535 |   | 1,179,289 |   | (1,984,305 | ) | 267,954 |   |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                  |       | 6,572 |   | 51,503 |   | 12,080 |   | 54,737 |   | 124,892 |   |
| Interest expense                                                                                                |       | -                                  |       | (196,664 | ) | (487,874 | ) | (3,475,363 | ) | (523,699 | ) | (4,683,600 | ) |
| Loss on disposal  of assets                                                                                     |       | -                                  |       | - |   | (23,575 | ) | (78,548 | ) | - |   | (102,123 | ) |
|                                                                                                            |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                  |       | 270,343 |   | 152,589 |   | (2,362,542 | ) | (2,453,267 | ) | (4,392,877 | ) |
| Discontinued  operations, net                                                                                   |       | 14,778                             |       | - |   | 719,644 |   | 9,767 |   | - |   | 744,189 |   |
| Gain on sale of  discontinued operations                                                                        |       | -                                  |       | - |   | 1,679,143 |   | 48,271,343 |   | - |   | 49,950,486 |   |
| ** **                                                                                                      |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net  income (loss)**                                                                                          |       | $                                  | 14,778     |   | $ | 270,343 |   | $ | 2,551,376 |   | $ | 45,918,568 |   | $ | (2,453,267 | ) | $ | 46,301,798 |   |
| ** **                                                                                                      |       |                               |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and  amenities, net                                                                             |       | $                                  | -          |   | $ | 7,822,974 |   | $ | 26,027,371 |   | $ | 228,438,638 |   | $ | - |   | $ | 262,288,983 |   |

##  

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

Management’s Discussion and Analysis of FinancialCondition and Results of Operations should be read in conjunction with thefinancial statements in Item 1 and the cautionary statements below.

**Critical Accounting Policies**

***General***

A critical accounting policy is one that wouldmaterially 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 discussed inthis section are not to be confused with accounting principles and methodsdisclosed in accordance with U.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  The followingdisclosure discusses judgments known to management pertaining to trends, eventsor uncertainties known which were taken into consideration upon the applicationof those policies and the likelihood that materially different amounts would bereported upon taking into consideration different conditions and assumptions.

 

20

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***Impairment and Valuation***

Statement of Financial Accounting Standards (“SFAS”)No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,”specifies circumstances in which certain long-lived assets must be reviewed forimpairment.  If this review indicatesthat the carrying amount of an asset exceeds the sum of its expected futurecash flows, the asset’s carrying value must be written down to fair value.  In determining the value of an investmentproperty and whether the investment property is impaired, management considersseveral factors such as projected rental and vacancy rates, property operatingexpenses, capital expenditures, interest rates and recent appraisals whenavailable.  The capitalization rate usedto determine property valuation is based on among others, the market in whichthe investment property is located, length of leases, tenant financialstrength, the economy in general, demographics, environment, property location,visibility, age and physical condition. All of these factors are considered by management in determining thevalue of any particular investment property. The value of any particular investment property is sensitive to theactual results of any of these factors, either individually or taken as awhole.  If the actual results differ frommanagement’s judgment, the valuation could be negatively or positivelyaffected.

Our property acquisitions were accounted for using thepurchase method of accounting in accordance with SFAS No. 141 “BusinessCombinations.”  Each property’s assetsand liabilities acquired from unaffiliated third parties was adjusted toreflect its fair market value.  Inaccordance with SFAS No. 141, we have allocated the purchase price of eachacquired investment property among land, buildings and improvements, otherintangibles, including acquired above market leases, acquired below marketleases and acquired in-place lease origination cost which is the market costavoidance of executing the acquired leases. Allocation of the purchase price is an area that requires complexjudgments and significant estimates.  Weused the information contained in a third-party appraisal as the primary basisfor allocating the purchase price between land and buildings.  A pro rata portion of the purchase price wasallocated to the value of avoiding a lease-up period for acquired in-placeleases.  The value of in-place leases isamortized to expense over the remaining initial term of the respective leases.  A portion of the purchase price was allocatedto the estimated lease origination cost based on estimated lease executioncosts for similar leases and considered various factors including geographiclocation and size of leased space.  Wethen evaluated acquired leases based upon current market rates at theacquisition date and various other factors including geographic location, sizeand the location of leased space within the property, tenant profile and thecredit risk of the tenant in determining whether the acquired lease is above orbelow market.  After acquired leases weredetermined to be at, above or below market, we allocated a pro rata portion ofthe purchase price to any acquired above or below market lease based upon thepresent value of the difference between the contractual lease rate and theestimated market rate.  We also consideran allocation of purchase price to in-place leases that have a customerrelationship intangible value.  Thecharacteristics we consider in allocating these values include the nature andextent of existing business relationships with the tenant, growth prospects fordeveloping new business with the tenant and the tenant’s credit quality andexpectations of lease renewals.  We didnot have any tenants with whom we have identified a developed relationship thatwe believe had any intangible value.

***Recognition of Rental Income***

Under GAAP, we are required to recognize rental incomebased on the effective monthly rent for each lease.  The effective monthly rent is equal to theaverage monthly rent during the term of the lease, not the stated rent for anyparticular month.  The process, known as “straight-lining”or “stepping” rent, has the effect of increasing rental revenues during theearly phases of a lease and decreasing rental revenues in the latter phases ofa lease if the stated rent progressively increases over the term of thelease.  Due to the impact of “straight-lining,”the cash collected exceeded the rental income for rent by approximately$214,000 and $277,000 for the three and six months ended June 30, 2007,respectively.  For the three and sixmonths ended June 30, 2006, the cash collected exceeded the rental income forrent by approximately $51,000 and $122,000, respectively.  If rental income calculated on astraight-line basis exceeds the cash rent due under the lease, the differenceis recorded as an increase in deferred rent receivable and included as acomponent of accounts receivable on the relevant balance sheet.  If the cash rent due under the lease exceedsrental income calculated on a straight-line basis, the difference is recordedas a decrease in deferred rent receivable and is recorded as a decrease ofaccounts receivable on the relevant balance sheet.  We defer recognition of contingent rentalincome, such as percentage or excess rent, until the breakpoint that triggersthe contingent rental income is achieved. We periodically review the collectability of outstandingreceivables.  Allowances are generallytaken for tenants with outstanding balances due for a period greater thanninety days and tenants with outstanding balances due for a period less thanninety days if we believe these balances may be uncollectible.

21

----

***Recognition of Lease Termination Income***

We recognize lease termination income upon receipt ofthe income.  We accrue lease terminationincome if there is a signed termination agreement, all of the conditions of theagreement have been met and the tenant is no longer occupying the property.

***Cost Capitalization and Depreciation Policies***

We review all expenditures and capitalize any itemexceeding $2,500 deemed to be an upgrade or a tenant improvement with anexpected useful life greater than one year. Land, buildings and amenities are stated at cost.  Depreciation expense is computed using thestraight-line method over the estimated useful lives of the assets.  Generally, buildings and improvements haveestimated useful lives between 7-30 years, land improvements have estimateduseful lives between 5-30 years and amenities have estimated useful livesbetween 5-30 years.  Acquired above andbelow market leases are amortized on a straight-line basis over the life of therelated leases as an adjustment to rental income.  Acquired in-place lease origination cost isamortized over the life of the lease as a component of amortization expense.

**Results of Operations**

At June 30, 2007, we owned wholly or as a tenant incommon with an unaffiliated third party, twenty-eight properties, comprised often multifamily properties, fourteen office and business centers, three retailproperties 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 from continuing operations for the threemonths ended June 30, 2007 and 2006 was approximately $3,346,000 and$2,785,000, respectively.  Net loss fromcontinuing operations for the six months ended June 30, 2007 and 2006 wasapproximately $5,585,000 and $4,393,000, respectively.  The increase in net loss was primarily due toincreased interest expense related to the loans obtained for the acquisition ofCastle Creek Apartments and Lake Clearwater Apartments in 2006.

The following tablesinclude certain selected summarized operating data for the three and six monthsended June 30, 2007 and 2006.  This datashould be read in conjunction with our financial statements, including thenotes attached hereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended June 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                             | -          |   | $ | 410,283 |   | $ | 1,441,080 |   | $ | 8,658,714 |   | $ | (225,268 | ) | $ | 10,284,809 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                             |       | 38,412 |   | 424,694 |   | 3,454,571 |   | - |   | 3,917,677 |   |
| Depreciation and  amortization                                     |       | -                                                             |       | 67,802 |   | 381,240 |   | 3,590,695 |   | - |   | 4,039,737 |   |
| Total interest  expense                                            |       | -                                                             |       | (113,503 | ) | (353,505 | ) | (2,582,290 | ) | (73,769 | ) | (3,123,067 | ) |
| Net income (loss)                                                  |       | 7,145                                                         |       | 153,531 |   | 248,190 |   | (2,394,918 | ) | (1,081,714 | ) | (3,067,766 | ) |
|                                                                    |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                               | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended June 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                             | -          |   | $ | 362,184 |   | $ | 1,455,922 |   | $ | 7,035,550 |   | $ | (73,798 | ) | $ | 8,779,858 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                             |       | 33,195 |   | 477,161 |   | 2,377,924 |   | - |   | 2,888,280 |   |
| Depreciation and  amortization                                     |       | -                                                             |       | 73,797 |   | 394,298 |   | 3,018,558 |   | - |   | 3,486,653 |   |
| Total interest  expense                                            |       | -                                                             |       | (97,574 | ) | (252,462 | ) | (2,276,613 | ) | (247,157 | ) | (2,873,806 | ) |
| Net income (loss)                                                  |       | 7,389                                                         |       | 136,137 |   | 2,061,066 |   | (1,869,485 | ) | (1,115,538 | ) | (780,431 | ) |
|                                                                    |            |                                                               |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

22

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| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | -          |   | $ | 753,763 |   | $ | 2,895,482 |   | $ | 16,074,500 |   | $ | (296,236 | ) | $ | 19,427,509 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                           |       | 75,130 |   | 888,615 |   | 5,845,447 |   | - |   | 6,809,192 |   |
| Depreciation and  amortization                                     |       | -                                                           |       | 135,603 |   | 774,666 |   | 6,529,864 |   | - |   | 7,440,133 |   |
| Total interest  expense                                            |       | -                                                           |       | (216,403 | ) | (659,480 | ) | (4,783,603 | ) | (216,515 | ) | (5,876,001 | ) |
| Net income (loss)                                                  |       | 14,426                                                      |       | 261,777 |   | 13,830,509 |   | (3,688,025 | ) | (2,145,465 | ) | 8,273,222 |   |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                             | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Six Months Ended June 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                                    | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                                           | -          |   | $ | 728,049 |   | $ | 2,873,013 |   | $ | 11,741,235 |   | $ | (143,581 | ) | $ | 15,198,716 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                           |       | 65,037 |   | 924,646 |   | 3,807,263 |   | - |   | 4,796,946 |   |
| Depreciation and  amortization                                     |       | -                                                           |       | 145,258 |   | 814,272 |   | 4,755,817 |   | - |   | 5,715,347 |   |
| Total interest  expense                                            |       | -                                                           |       | (196,664 | ) | (487,874 | ) | (3,475,363 | ) | (523,699 | ) | (4,683,600 | ) |
| Net income (loss)                                                  |       | 14,778                                                      |       | 270,343 |   | 2,551,376 |   | 45,918,568 |   | (2,453,267 | ) | 46,301,798 |   |
|                                                                    |            |                                                             |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing properties by segment as of June 30,2007 and 2006 were as follows:

 
| ** **  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 73.6     | %          | 74.0     | %          |
| Multifamily |       | 95.5     | %          | 94.6     | %          |
| Retail      |       | 98.2     | %          | 99.4     | %          |
| Land        |       | N/A      |       | N/A      |       |

 

We believe the changes in occupancy on June 30 fromyear to year are temporary effects of each property’s specific mix of leasematurities and are not indicative of any known trend or uncertainty.

The average occupancy levels at our continuing properties by segmentfor the three and six months ended June 30, 2007 and 2006 were as follows:

 
| ** **  | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **  | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Commercial  |       | 74.1                                                | %          | 74.2                                              | %          | 74.5 | % | 74.5 | % |
| Multifamily |       | 95.7                                                | %          | 94.7                                              | %          | 95.6 | % | 94.1 | % |
| Retail      |       | 98.2                                                | %          | 99.6                                              | %          | 98.2 | % | 99.8 | % |
| Land        |       | N/A                                                 |       | N/A                                               |       | N/A |   | N/A |   |

 

We believe the changes in average occupancy fromperiod to period are temporary effects of each property’s specific mix of leasematurities 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 are employees ofNTS Development Company, at each of the multifamily properties.  The staff handles all on-site visits frompotential tenants, coordinates local advertising with NTS Development Company’smarketing staff, makes visits to local companies to promote fully furnishedapartments, and negotiates lease renewals with current residents.

The following discussion relating to changes in ourresults of operations includes only material line items within our Statementsof Operations or line items for which there was a material change between thethree and six months ended June 30, 2007 and 2006.

23

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***Rental Income and Tenant Reimbursements***

Rental income andtenant reimbursements from continuing operations for the three months endedJune 30, 2007 and 2006 were approximately $10,285,000 and $8,780,000,respectively.  Rental income and tenantreimbursements from continuing operations for the six months ended June 30,2007 and 2006 were approximately $19,428,000 and $15,199,000,respectively.  The increases of$1,505,000, or 17%, and $4,229,000, or 28%, respectively, were primarily due tothe 2007 acquisition of The Overlook Apartments and the 2006 acquisitions ofCastle Creek Apartments, Lake Clearwater Apartments, The Grove at RichlandApartments, The Grove at Swift Creek Apartments, and The Grove at WhitworthApartments.

***Operating Expenses and Operating Expenses Reimbursedto Affiliate***

Operating expenses from continuing operations for thethree months ended June 30, 2007 and 2006 were approximately $2,652,000 and$1,856,000, respectively.  Operatingexpenses from continuing operations for the six months ended June 30, 2007 and2006 were approximately $4,436,000 and $2,996,000, respectively. The increasesof $796,000, or 43%, and $1,440,000, or 48%, respectively, were primarily dueto the 2007 acquisition of The Overlook Apartments and the 2006 acquisitions ofCastle Creek Apartments, Lake Clearwater Apartments, The Grove at RichlandApartments, The Grove at Swift Creek Apartments, and The Grove at WhitworthApartments.

Operating expenses reimbursed to affiliate fromcontinuing operations for the three months ended June 30, 2007 and 2006 were approximately$1,265,000 and $1,032,000, respectively. Operating expenses reimbursed to affiliate from continuing operationsfor the six months ended June 30, 2007 and 2006 were approximately $2,373,000and $1,801,000, respectively. The increases of $233,000, or 23%, and $572,000,or 32%, respectively, were primarily due to acquiring The Overlook Apartmentsin 2007 and the five apartments in 2006 including Castle Creek Apartments, LakeClearwater Apartments, The Grove at Richland Apartments, The Grove at SwiftCreek Apartments, and The Grove at Whitworth Apartments.

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.  The cost of services provided to us by NTSDevelopment Company’s employees are classified in our consolidated Statementsof Operations as “Operating expenses reimbursed to affiliate”.  The services provided by others areclassified as “Operating expenses”.

Operating expenses reimbursed to affiliate are for theservices performed by employees of NTS Development Company, an affiliate of ourgeneral partners.  These employeeservices include property management, leasing, maintenance, security and otherservices necessary to manage and operate our business.

Operating expenses reimbursed to affiliate consisted approximately ofthe following:

*** ***
| ** **           | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                   | ** ** |
|----------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **           | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **           | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Property             |       | $                                                   | 821,000    |                                              | $          | 631,000 |   | $ | 1,528,000 |   | $ | 1,094,000 |   |
| Multifamily  Leasing |       | 143,000                                             |       | 102,000                                           |       | 236,000 |   | 169,000 |   |
| Administrative       |       | 281,000                                             |       | 289,000                                           |       | 569,000 |   | 519,000 |   |
| Other                |       | 20,000                                              |       | 10,000                                            |       | 40,000 |   | 19,000 |   |
|                 |       |                                                |       |                                              |       |   |   |   |   |
| **Total**            |       | $                                                   | 1,265,000  |                                              | $          | 1,032,000 |   | $ | 2,373,000 |   | $ | 1,801,000 |   |

 

24

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***Management Fees***

Management fees from continuing operations for thethree months ended June 30, 2007 and 2006 were approximately $503,000 and$439,000, respectively.  Management feesfrom continuing operations for the six months ended June 30, 2007 and 2006 wereapproximately $961,000 and $778,000, respectively.  The increases of $64,000, or 15%, and$183,000, or 24%, respectively, were primarily due to the 2007 acquisition ofThe Overlook Apartments and the 2006 acquisitions of Castle Creek Apartments,Lake Clearwater Apartments, The Grove at Richland Apartments, The Grove atSwift Creek Apartments, and The Grove at Whitworth Apartments.

Pursuant to our management agreement, NTS DevelopmentCompany receives property management fees equal to 5% of the gross collectedrevenue from our properties.  Managementfees are calculated as a percentage of cash collections, however, for revenuereporting purposes 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 June 30, 2007 and 2006 were approximately$1,563,000 and $1,104,000, respectively. Property taxes and insurance from continuing operations for the sixmonths ended June 30, 2007 and 2006 were approximately $2,650,000 and$1,868,000, respectively.  The increasesof $459,000, or 42%, and $782,000, or 42%, respectively, were primarily due tothe February 2007 acquisition of The Overlook Apartments, the March 2006acquisitions of Castle Creek Apartments and Lake Clearwater Apartments and theFebruary 2006 acquisitions of The Grove at Richland Apartments, The Grove atSwift Creek Apartments and The Grove at Whitworth Apartments.  In addition, The Lakes Apartments received aproperty tax assessment increase for a prior year in 2007.

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

Professional and administrative expenses fromcontinuing operations for the three months ended June 30, 2007 and 2006 wereapproximately $347,000 and $384,000, respectively.  Professional and administrative expenses fromcontinuing operations for the six months ended June 30, 2007 and 2006 wereapproximately $673,000 and $964,000, respectively.  The decreases of $37,000, or 10%, and$291,000, or 30%, respectively, were primarily due to decreased legal andprofessional fees related to the class action litigation, general legal feesand legal fees associated with the “like kind exchange” of properties.

Professional and administrative expenses reimbursed toaffiliate from continuing operations were approximately $402,000 for each ofthe three months ended June 30, 2007 and 2006. Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for the six months ended June 30, 2007 and 2006 wereapproximately $909,000 and $808,000 respectively.  The increase of $101,000, or 13%, wasprimarily due to increased personnel costs.

We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company employs many of the individuals who provide servicesnecessary to operate 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 is proportionatelycharged out to the entity receiving the services.  The cost of services provided to us by NTSDevelopment Company’s employees are classified in our consolidated Statementsof Operations as “Professional and administrative expenses reimbursed toaffiliate”.  The services provided byothers are classified as “Professional and administrative”.

Professional and administrative expenses reimbursed toaffiliate are for the services performed by employees of NTS DevelopmentCompany, an affiliate of our general partners. These employee services include legal, financial and other servicesnecessary to manage and operate our business.

25

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Professional and administrative expenses reimbursed toaffiliate consisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                                     | ** ** | **(Unaudited)**                                   | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **          | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Finance             |       | $                                                   | 97,000     |                                              | $          | 103,000 |   | $ | 224,000 |   | $ | 211,000 |   |
| Accounting          |       | 197,000                                             |       | 204,000                                           |       | 413,000 |   | 417,000 |   |
| Investor  Relations |       | 69,000                                              |       | 63,000                                            |       | 196,000 |   | 118,000 |   |
| Human Resources     |       | 5,000                                               |       | 5,000                                             |       | 9,000 |   | 9,000 |   |
| Overhead            |       | 34,000                                              |       | 27,000                                            |       | 67,000 |   | 53,000 |   |
|                |       |                                                |       |                                              |       |   |   |   |   |
| **Total**           |       | $                                                   | 402,000    |                                              | $          | 402,000 |   | $ | 909,000 |   | $ | 808,000 |   |

*** ***

***Depreciation and Amortization***

Depreciation and amortization from continuingoperations for the three months ended June 30, 2007 and 2006 was approximately$4,040,000 and $3,487,000, respectively. Depreciation and amortization from continuing operations for the sixmonths ended June 30, 2007 and 2006 was approximately $7,440,000 and$5,715,000, respectively. The increases of $553,000, or 16%, and $1,725,000, or30%, respectively, were primarily due to the 2007 acquisition of The OverlookApartments and the 2006 acquisitions of Castle Creek Apartments, LakeClearwater Apartments, The Grove at Richland Apartments, The Grove at SwiftCreek Apartments, and The Grove at Whitworth Apartments.

***Interest and Other Income***

Interest and other income from continuing operationsfor the three months ended June 30, 2007 and 2006 was approximately $14,000 and$38,000, respectively.  Interest andother income from continuing operations for the six months ended June 30, 2007and 2006 was approximately $62,000 and $125,000, respectively.  The decreases of $24,000, or 63%, and$63,000, or 50%, respectively, were primarily the result of a forfeited depositdue to the cancellation of the sales agreement for the Sears Office Building in2006 and decreased interest earned on investments.

***Interest Expense***

Interest expense from continuing operations for thethree months ended June 30, 2007 and 2006 was approximately $3,123,000 and$2,874,000, respectively.  Interestexpense from continuing operations for the six months ended June 30, 2007 and2006 was approximately $5,876,000 and $4,684,000, respectively.  The increases of $249,000, or 9%, and$1,192,000, or 25%, respectively, are primarily related to the loans obtainedfor the acquisition of The Overlook Apartments in 2007 and Castle CreekApartments, Lake Clearwater Apartments, The Grove at Richland Apartments, TheGrove at Swift Creek Apartments, and The Grove at Whitworth Apartments in 2006.

***Loss on Disposal of Assets***

The loss on disposal of assets from continuingoperations for the three and six months ended June 30, 2007 and 2006 can beattributed to assets that were not fully depreciated at the time ofreplacement, primarily at our commercial and multifamily properties.  These replacements include roof replacements,stairwell upgrades and heating and air conditioning units.

 

26

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***Discontinued Operations***

Discontinued operations, net for the three monthsended June 30, 2007 and 2006 were approximately $278,000 and $325,000,respectively.  Discontinued operations,net for the six months ended June 30, 2007 and 2006 were approximately $376,000and $744,000, respectively.  Thedecreases of $47,000, or 14%, and $368,000, or 49%, respectively, wereprimarily due to the discontinued operations of the following properties:

 
| **Property**                                 | ** ** | **Location**   | ** ** | **Status**          |
|----------------------------------------------|------------|----------------|------------|---------------------|
| Golf Brook Apartments                        |       | Orlando, FL    |       | Sold 2006           |
| Sabal Park Apartments                        |       | Orlando, FL    |       | Sold 2006           |
| Commonwealth Business Center Phase I         |       | Louisville, KY |       | Sold 2006           |
| Commonwealth Business Center Phases II       |       | Louisville, KY |       | Sold 2006           |
| Springs Medical Office Center                |       | Louisville, KY |       | Sold 2007           |
| Springs Office Center                        |       | Louisville, KY |       | Sold 2007           |
| Atrium Center                                |       | Louisville, KY |       | Asset Held for Sale |
| Blankenbaker Business Center I               |       | Louisville, KY |       | Asset Held for Sale |
| Blankenbaker Business Center II              |       | Louisville, KY |       | Asset Held for Sale |
| Anthem Office Center                         |       | Louisville, KY |       | Asset Held for Sale |
| NTS Center                                   |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Center                             |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Point Office Center Phase I and II |       | Louisville, KY |       | Asset Held for Sale |
| Plainview Point Office Center Phase III      |       | Louisville, KY |       | Asset Held for Sale |
| ITT Parking Lot                              |       | Louisville, KY |       | Asset Held for Sale |

*** ***

***Gain on Sale of Discontinued Operations***

There was no gain on sale of discontinued operationsfor the three months ended June 30, 2007. Gain on sale of discontinued operations for the three months ended June30, 2006 was approximately $1,679,000 due to the sale of Commonwealth BusinessCenter Phases I and II on May 18, 2006. Gain on sale of discontinued operations for the six months ended June30, 2007 was approximately $13,482,000 due to the sale of Springs MedicalOffice Center and Springs Office Center on February 12, 2007.  Gain on sale of discontinued operations forthe six months ended June 30, 2006 was approximately $49,950,000 due to thesale of Golf Brook and Sabal Park Apartments on February 2, 2006 andCommonwealth Business Center Phases I and II on May 18, 2006.

**Liquidity and Capital Resources**

Our most liquid asset is our cash and equivalents,which consist of cash and short-term investments, but do not include anyrestricted cash.  Operating incomegenerated by the properties will be the primary source from which we generatecash.  Other sources of cash include theproceeds from mortgage loans and notes payable. Our main uses of cash will relate to capital expenditures, requiredpayments of mortgages and notes payable, distributions and property taxes.

The following table summarizes our approximatesources/uses of cash flow for the six months ended June 30, 2007 and 2006:
| ** **                                           | ** ** | **(Unaudited)**               | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                           | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                           | ** ** | **2007**                      | ** ** | **2006** | ** ** |
| Operating activities                                 |       | $                             | 2,019,000  |   | $ | 3,156,000 |   |
| Investing activities                                 |       | (18,342,000                   | )          | (54,954,000 | ) |
| Financing activities                                 |       | 16,390,000                    |       | 46,733,000 |   |
|                                                 |       |                          |       |   |   |
| **Net increase (decrease) in cash  and equivalents** |       | $                             | 67,000     |   | $ | (5,065,000 | ) |

 

27

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***Cash Flow from Operating Activities***

Net cash provided by operating activities decreasedfrom approximately $3,156,000 to $2,019,000 for the six months ended June 30,2006 and 2007, respectively.  The changewas primarily due to funds restricted from the sale of Springs Medical OfficeCenter and Springs Office Center.

***Cash Flow from Investing Activities***

Net cash used in investing activities decreased fromapproximately $54,954,000 to $18,342,000 for the six months ended June 30, 2006and 2007, respectively.  The decrease wasprimarily due to changes in investing activities from property acquisitions anddispositions.

***Cash Flow from Financing Activities***

Net cash provided by financing activities decreasedfrom approximately $46,733,000 to $16,390,000 for the six months ended June 30,2006 and 2007, respectively.  The changewas primarily the result of additional payments on a mortgage payable of $21.2million and a decrease in proceeds from the revolving note payable.

***Future Liquidity***

Our future liquidity depends significantly on ourproperties’ occupancy and operating results remaining at a level which providesfor debt payments, distributions to our limited partners and adequate workingcapital, currently and in the future.  Ifoccupancy were to fall below that level and remain at or below that level for asignificant period of time, our ability to make payments due under our debtagreements and to continue paying daily operational costs would be greatlyimpaired.  In the next twelve months, weintend to operate the properties in a similar manner to their operation inrecent years.  Cash reserves, whichconsist of unrestricted cash as shown on our balance sheet, were approximately$96,000 on June 30, 2007.

On March 19, 2007, we announced that the board of directorsof our managing general partner approved a quarterly distribution of $0.10 perunit on our limited partnership units. The distribution was paid on April 13, 2007, to limited partners ofrecord at the close of business on March 31, 2007.

On June 12, 2007, we announced that the board ofdirectors of our managing general partner approved a quarterly distribution of$0.10 per unit on our limited partnership units.  The distribution was paid on July 13, 2007,to limited partners of record at the close of business on June 30, 2007.

We expect to incur expenditures of approximately $4.8million funded by borrowings on our debt during the next twelve monthsprimarily for renovations and tenant origination costs necessary to continueleasing our properties.  On April 27,2007, we negotiated a new lease with a sole tenant to lease approximately85,000 square feet at Anthem Office Center. As part of the lease, we estimate that approximately $3.3 million inexpenditures will be required.  Thisdiscussion of future liquidity details our material commitments.  We anticipate seeking renewal or refinancingof our notes payable coming due in the next twelve months.

Our borrowing base limitation on the revolving notepayable was approximately $23,136,000 at June 30, 2007.

***Property Transactions***

During the six months ended June 30, 2007, we made thefollowing property transactions:

***Acquisition***
| **Property**                    | ** ** | **Location**   | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|---------------------------------|------------|----------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| The Overlook at St.  Thomas (1) |       | Louisville, KY |       | 484       |       | March 14, 2007             |       | $                       | 46,000,000 |   |
|                                 |            |                |            |           |            |                            |            |                         |            |  |

----

(1)             Assumeda mortgage of $36.0 million.  Ownershippercentage at June 30, 2007 was 60%.  NTSRealty’s liability under this mortgage is limited to its ownership percentage.

28

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On June 19, 2007, we entered into an agreement topurchase, as tenants in common with an unaffiliated third party, a multifamilyproperty located in Richmond, Virginia known as Creek’s Edge at Stony Point (“Creek’sEdge”).  Subject to the terms andconditions of the agreement, we agreed to a purchase price of $32.3 million toacquire Creek’s Edge Apartments.  This isa 202-unit apartment community offering amenities such as a fitness center,cardio theater, resort-style pool with in-pool lounge, electronicallycontrolled access entry gates, and custom home features.

***Dispositions***
| **Property**                           | ** ** | **Location**   | ** ** | **Square Feet** | ** ** | **Date of Purchase** | ** ** | **Sale Price** | ** ** |
|----------------------------------------|------------|----------------|------------|----------------------|------------|--------------------------------|------------|---------------------|------------|
| Springs Medical Office  Center (1) (3) |       | Louisville, KY |       | 100,565              |       | February 12, 2007              | ** ** | $                   | 15,150,000 | ** ** |
| Springs Office Center (2) (3)          |       | Louisville, KY |       | 125,964              |       | February 12, 2007              |       | 13,750,000          |       |
|                                        |            |                |            |                      |            |                                |            |                     |            |  |

----

(1)             Gain of approximately$8.8 million.

(2)             Gain of approximately$4.6 million.

(3)             Weused proceeds from this disposition transaction, intended to qualify as aSection 1031 like kind exchange, to make additional principal payments of $10.6million on a mortgage payable to a bank and to acquire a 60% tenant in commoninterest in The Overlook at St. Thomas.

On June 12, 2007, the board of directors of NTS RealtyCapital Inc., our managing general partner, authorized the sale of AtriumCenter, Blankenbaker Business Center I, Blankenbaker Business Center II, AnthemOffice Center, NTS Center, Plainview Center, Plainview Point Office CenterPhase I and II, Plainview Point Office Center Phase III, and the ITT ParkingLot (the “Office Portfolio”).  These propertieshave been classified as held for sale on our balance sheet and discontinuedoperations on our statements of operations at June 30, 2007 and all comparativedates and periods presented.

On August 2, 2007, we announced that we entered intoan agreement to sell 100% of the interests in our wholly-owned subsidiary whichholds title to the Office Portfolio. Pursuant to the agreement, we are scheduled to receive $66,550,000 incash for this portfolio.  We intend touse the proceeds from the sale to repay outstanding debt on the properties andto purchase properties in a manner that would qualify as a tax deferredexchange under Section 1031 of the Internal Revenue Code.

We may engage in transactions structured as “like kindexchanges” of property to obtain favorable tax treatment under Section 1031 ofthe 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.

We were unable to use approximately $1.3 million ofthe proceeds from the sale of Springs Medical Office Center and Springs OfficeCenter in the purchase of The Overlook at St. Thomas.  Under Section 1031 of the Internal RevenueCode certain tax consequences may result for the limited partners of record dueto our inability to use these funds in a “like kind exchange”.  The consequences include the recognition ofgain or loss on the transaction and related tax attributes.

29

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**Website Information**

Our website address is www.ntsdevelopment.com.  Our annual reports on Form 10-K, quarterlyreports on Form 10-Q, current reports on Form 8-K and amendments to thosereports filed or furnished pursuant to Section 13(a) of the Securities ExchangeAct are available and may be accessed free of charge through the “About NTS”section of our website as soon as reasonably practicable after we electronicallyfile this material with, or furnish it to, the SEC.  Our website and the information containedtherein or connected thereto are not incorporated into this Quarterly Report onForm 10-Q.

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## **Item3 — Quantitative and Qualitative Disclosures About Market Risk**

Our primary market risk exposure with regard tofinancial 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 bear interestat a fixed rate, with the exception of approximately $49.1 million at variablerates.  We anticipate that a hypothetical100 basis point increase in interest rates would result in an approximate $9.5million decrease in the fair value of our fixed rate debt while increasinginterest expense on our variable rate debt by approximately $491,000 annually.

## **Item4 — 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 Chief Executive Officerand Chief Financial Officer have evaluated the effectiveness of our disclosurecontrols and procedures as of June 30, 2007. Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective as of June 30, 2007.  Therewere no changes in our internal control over financial reporting identified inconnection with their evaluation that occurred during the quarter ended June30, 2007 that materially affected or are reasonably likely to materially affectthe internal control over financial reporting.

## **Item4T — Controls and Procedures**

There were no material changes in our internal controlover financial reporting during the quarter ended June 30, 2007.

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# **PART II — OTHER INFORMATION**

## **Item1 — Legal Proceedings**

None.

## **Item1A — Risk Factors**

There have not been material changes to our RiskFactors as disclosed in our most recent annual report on Form 10-K as filedwith the Securities and Exchange Commission on March 28, 2007.

## **Item2 — Unregistered Sales of Equity Securities and Use of Proceeds**

On May 16, 2007,we announced that Mr. J.D. Nichols, Chairman of our managing general partner,adopted two pre-arranged trading plans to purchase our limited partnershipunits pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, asamended.  The plans authorized theiradministrator, Wells Fargo Investments, to purchase up to $168,000 of ourlimited partnership units from time to time, through no later than December 31,2007, on behalf of two entities controlled or established by Mr. Nichols.  Under the terms of the plans, Mr. Nichols hasno discretion or control over the timing, effectuation or the amount of eachpurchase.  During the three months endedJune 30, 2007, the two entities controlled or established by Mr. Nicholspurchased our limited partnership units as follows:
| **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** | ** ** |
|------------|------------|-----------------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| April 2007 |       | 0                                                   |       | $0                                              |       | 47,841                                                                                                                          |       | (1)                                                                                                                                                                              |       |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| May 2007   |       | 0                                                   |       | $0                                              |       | 47,841                                                                                                                          |       | (1)                                                                                                                                                                              |       |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| June 2007  |       | 2,770                                               |       | $7.21                                           |       | 50,611                                                                                                                          |       | (1)                                                                                                                                                                              |       |
|       |       |                                                |       |                                            |       |                                                                                                                            |       |                                                                                                                                                                             |       |
| Total      |       | 2,770                                               |       | $7.21                                           |       | 50,611                                                                                                                          |       | (1)                                                                                                                                                                              |       |

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(1)                                  Adescription of the maximum number of units that may be purchased under thetrading plans is included in the narrative preceding this table.

## **Item 3 — Defaults Upon Senior Securities**

None.

## **Item4 — Submission of Matters to a Vote of Security Holders**

None.

## **Item5 — Other Information**

None.

 

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## **Item6 — 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 Holdings 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)       |

 

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| **Exhibit No.** | ** ** | ** **                                                                                                                                           | ** ** | ** ** |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 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                   |       | (12)       |
|                 |       |                                                                                                                                                 |       |       |
| 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                   |       | (12)       |
|                 |       |                                                                                                                                                 |       |       |
| 32.1                 |       | Certification of Chief Executive Officer Pursuant to  18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002          |       | (12)       |
|                 |       |                                                                                                                                                 |       |       |
| 32.2                 |       | Certification of Chief Financial Officer Pursuant to  18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002          |       | (12)       |
|                 |       |                                                                                                                                                 |       |       |
| 99.01                |       | Form of Lock-Up Agreement by and between NTS Realty  Holdings Limited Partnership and each of the executive officers of NTS Realty  Capital, Inc.    |       | (1)        |
|                 |       |                                                                                                                                                 |       |       |
| 99.02                |       | Registration Statement on Form S-4/A (Amendment No.  5), as filed by the Registrant with the Securities and Exchange Commission on  October 27, 2004 |       | (3)        |

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(1)             Incorporatedby reference to the Registrant’s Registration Statement on Form S-4, as filedwith the Securities and Exchange Commission on February 4, 2004

(2)             Incorporatedby reference to the Registrant’s Registration Statement on Form S-4/A(Amendment No. 1), as filed with the Securities and Exchange Commission on June18, 2004

(3)             Incorporatedby reference to the Registrant’s Registration Statement on Form S-4/A(Amendment No. 5), as filed with the Securities and Exchange Commission onOctober 27, 2004

(4)             Incorporatedby reference to the Registrant’s Annual Report on Form 10-K for the year endedDecember 31, 2004, as filed with the Securities and Exchange Commission on June30, 2005

(5)             Incorporatedby reference to the Registrant’s Annual Report on Form 10-K for the year endedDecember 31, 2005, as filed with the Securities and Exchange Commission onApril 3, 2006

(6)             Incorporatedby reference to the Registrant’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on April 17, 2006

(7)             Incorporatedby reference to the Registrant’s Information Statement on Form DEF 14C, asfiled with the Securities and Exchange Commission on May 9, 2006

(8)             Incorporatedby reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterended June 30, 2006, as filed with the Securities and Exchange Commission onMay 15, 2006.

(9)             Incorporatedby reference to the Registrant’s Current Report on Form 8-K/A, as filed withthe Securities and Exchange Commission on October 23, 2006

(10)       Incorporatedby reference to the Registrant’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on February 14, 2007

(11)       Incorporatedby reference to the Registrant’s Current Report on Form 8-K, as filed with theSecurities and Exchange Commission on March 16, 2007

(12)       Filedherewith

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## **SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon 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: | August 10, 2007 |
|   |                                        |   |   |
|   | By:                                         | */s/ Gregory A. Wells* |
|   |                                        | Gregory A. Wells |
|   |                                        | Its: | Chief Financial Officer |
|   |                                        | Date: | August 10, 2007 |

 

 

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