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** **

** **

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 

**x**      QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the quarterly period ended September 30,2009**

 

**OR**

 

**o**         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the transition period from              to               **

 

**Commissionfile number 001-32389**

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

(Exactname of registrant as specified in its charter)

 

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

 

**(502) 426-4800**

(Registrant’s telephone number, including area code)

** **

**Not applicable**

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

 

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

 

Indicate by check mark whether the registranthas submitted electronically and posted on its corporate Web site, if any,every Interactive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).  **Yes**o**No**o

 

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

 

| Large  accelerated filer o |   | Accelerated  filer o         |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-accelerated  filer o   |   | Smaller  reporting company 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

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

** **

As of November 6, 2009, there were11,380,760 of the registrant’s limited partnership units outstanding.

 

 

 

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**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

** **

**FORM 10-Q**

** **

**TABLE OF CONTENTS**

** **
| **PART I —  FINANCIAL INFORMATION**                                                                         | **4**                                                                                       |
|-----------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------|
| Item 1                                                                                                                | Financial  Statements                                                                       | 4 |
| Condensed  Consolidated Balance Sheets as of September 30, 2009 and  December 31, 2008                      | 4                                                                                           |
| Condensed  Consolidated Statement of Partners’ Equity as of September 30, 2009                              | 4                                                                                           |
| Condensed  Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008 | 5                                                                                           |
| Condensed  Consolidated Statements of Cash Flows for the Nine Months Ended  September 30, 2009 and 2008          | 6                                                                                           |
| Notes to Condensed Consolidated Financial Statements                                                                  | 7                                                                                           |
| Item 2                                                                                                                | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 23 |
| Item 3                                                                                                                | Quantitative  and Qualitative Disclosures About Market Risk                                 | 33 |
| Item 4                                                                                                                | Controls and  Procedures                                                                    | 33 |
|                                                                                                                  |                                                                                        |   |
| **PART II  — OTHER INFORMATION**                                                                            | **34**                                                                                      |
| ** **                                                                                                            |                                                                                        | ** ** |
| Item  1                                                                                                               | Legal  Proceedings                                                                          | 34 |
| Item  1A                                                                                                              | Risk  Factors                                                                               | 34 |
| Item 2                                                                                                                | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 34 |
| Item 3                                                                                                                | Defaults Upon  Senior Securities                                                            | 35 |
| Item 4                                                                                                                | Submission of  Matters to a Vote of Security Holders                                        | 35 |
| Item  5                                                                                                               | Other  Information                                                                          | 35 |
| Item 6                                                                                                                | Exhibits                                                                                    | 36 |
| SIGNATURES                                                                                                            | 38                                                                                          |

 

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**INFORMATION REGARDINGFORWARD-LOOKING STATEMENTS**

** **

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

 

Any forward-looking statements included inMD&A, or elsewhere in this report, reflect our managing general partner’sbest judgment based on known factors, but involve risks and uncertainties.  Actual results could differ materially fromthose anticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on March 31, 2009.  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.

 

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# ** **

# **PART I— FINANCIAL INFORMATION**

# ** **

## **Item 1 — Financial Statements**

## ** **

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedBalance Sheets as of September 30, 2009 and December 31, 2008

 
| ** **                                                                                                                                | ** ** | **(Unaudited)**              | ** **  | ** **                  | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                | ** ** | **September 30,  2009** | ** **  | **December 31,  2008** | ** ** |
| **ASSETS:**                                                                                                                               |       |                         |        |                        |       |
| Cash and equivalents                                                                                                                      |       | $                            | 1,337,284   |                        | $          | — |   |
| Cash and equivalents -  restricted                                                                                                        |       | 1,892,362                    |        | 460,571                     |       |
| Accounts receivable, net of  allowance for doubtful accounts of $188,743 atSeptember 30,  2009 and $90,932 at December 31, 2008 |       | 1,780,303                    |        | 1,642,253                   |       |
| Notes receivable                                                                                                                          |       | 3,500,000                    |        | 3,500,000                   |       |
| Land, buildings and  amenities, net                                                                                                       |       | 296,698,979                  |        | 275,492,668                 |       |
| Long-lived assets held for  sale                                                                                                          |       | 3,300,867                    |        | 3,467,653                   |       |
| Investments in and advances  to tenants in common                                                                                         |       | 4,658,023                    |        | 6,432,165                   |       |
| Other assets                                                                                                                              |       | 3,552,234                    |        | 3,119,869                   |       |
|                                                                                                                                      |       |                         |        |                        |       |
| **Total assets**                                                                                                                          |       | $                            | 316,720,052 |                        | $          | 294,115,179 |   |
|                                                                                                                                      |       |                         |        |                        |       |
| **LIABILITIES:**                                                                                                                          |       |                         |        |                        |       |
| Mortgages and note payable                                                                                                                |       | $                            | 229,572,365 |                        | $          | 203,561,669 |   |
| Accounts payable and accrued  expenses                                                                                                    |       | 3,144,524                    |        | 2,617,446                   |       |
| Accounts payable and  accrued expenses due to affiliate                                                                                   |       | 704,286                      |        | 264,338                     |       |
| Distributions payable                                                                                                                     |       | 569,038                      |        | 569,038                     |       |
| Security deposits                                                                                                                         |       | 866,354                      |        | 821,999                     |       |
| Long-lived liabilities held  for sale                                                                                                     |       | 67,939                       |        | 165,425                     |       |
| Other liabilities                                                                                                                         |       | 6,598,983                    |        | 5,025,807                   |       |
|                                                                                                                                      |       |                         |        |                        |       |
| **Total liabilities**                                                                                                                     |       | 241,523,489                  |        | 213,025,722                 |       |
|                                                                                                                                      |       |                         |        |                        |       |
| COMMITMENTS AND  CONTINGENCIES (NOTE 12)                                                                                                  |       |                         |        |                        |       |
|                                                                                                                                      |       |                         |        |                        |       |
| **EQUITY:**                                                                                                                               |       |                         |        |                        |       |
| Partners’ equity                                                                                                                     |       | 69,868,245                   |        | 81,089,457                  |       |
| Noncontrolling interest                                                                                                                   |       | 5,328,318                    |        | —                      |       |
|                                                                                                                                      |       |                         |        |                        |       |
| **Total equity**                                                                                                                          |       | 75,196,563                   |        | 81,089,457                  |       |
|                                                                                                                                      |       |                         |        |                        |       |
| **Total liabilities and  equity**                                                                                                         |       | $                            | 316,720,052 |                        | $          | 294,115,179 |   |

 

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatement of Partners’ Equity as of September 30, 2009

(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                              |       | —                                      |       | —                                             |       | 3,181,067                  |       | 47,488,513                  |       | 50,669,580  |       |
| Net loss current year                               |       | —                                      |       | —                                             |       | (597,301                   | )          | (8,916,797                  | )          | (9,514,098  | )          |
| Cash distributions declared  to date                |       | —                                      |       | —                                             |       | (1,329,006                 | )          | (19,840,056                 | )          | (21,169,062 | )          |
| Retirement of limited  partnership intereststo date |       | —                                      |       | (848                                               | )          | —                     |       | —                      |       | —      |       |
|                                                |       |                                        |       |                                               |       |                       |       |                        |       |        |       |
| Balances on September 30,  2009                |       | 714,491                                     |       | 10,666,269                                         |       | $                          | 4,386,141  |                        | $          | 65,482,104  |       | $ | 69,868,245 |   |

 

The accompanying notes to condensed consolidatedfinancial statements are an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatements of Operations for the Three and Nine Months

### Ended September 30,2009 and 2008

(Unaudited)

 
| ** **                                                                       | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
|----------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                             |       | ** **                                       |       | **Restated**                                    |       |   |   | **Restated** |   |
| **REVENUE:**                                                                     |       | ** **                                       |       | ** **                                      |       |   |   |   | ** ** |
| Rental income                                                                    |       | $                                                | 11,257,042 |                                            | $          | 10,496,522 |   | $ | 31,598,434 |   | $ | 28,958,784 |   |
| Tenant reimbursements                                                            |       | 450,194                                          |       | 450,998                                         |       | 1,353,674 |   | 1,266,019 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **Total revenue**                                                                |       | 11,707,236                                       |       | 10,947,520                                      |       | 32,952,108 |   | 30,224,803 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **EXPENSES:**                                                                    |       |                                             |       |                                            |       |   |   |   |   |
| Operating expenses                                                               |       | 3,157,547                                        |       | 2,766,073                                       |       | 7,961,467 |   | 7,296,898 |   |
| Operating expenses  reimbursed to affiliate                                      |       | 1,331,794                                        |       | 1,181,249                                       |       | 3,689,226 |   | 3,287,938 |   |
| Management fees                                                                  |       | 574,270                                          |       | 537,613                                         |       | 1,630,987 |   | 1,498,892 |   |
| Property taxes and  insurance                                                    |       | 1,631,382                                        |       | 1,423,270                                       |       | 4,952,817 |   | 4,274,036 |   |
| Professional and  administrative expenses                                        |       | 106,171                                          |       | 363,889                                         |       | 755,132 |   | 933,191 |   |
| Professional and  administrative expensesreimbursed to affiliate.                |       | 366,534                                          |       | 383,083                                         |       | 1,151,927 |   | 1,226,346 |   |
| Depreciation and  amortization                                                   |       | 4,560,368                                        |       | 4,182,806                                       |       | 12,913,911 |   | 10,750,813 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **Total operating expenses**                                                     |       | 11,728,066                                       |       | 10,837,983                                      |       | 33,055,467 |   | 29,268,114 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **OPERATING (LOSS) INCOME**                                                      |       | (20,830                                          | )          | 109,537                                         |       | (103,359 | ) | 956,689 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| Interest and other income                                                        |       | 87,211                                           |       | 109,773                                         |       | 226,359 |   | 251,014 |   |
| Interest expense                                                                 |       | (3,073,998                                       | )          | (2,975,083                                      | )          | (8,659,674 | ) | (8,177,741 | ) |
| Loss on disposal of assets                                                       |       | (109,717                                         | )          | (83,139                                         | )          | (122,878 | ) | (159,941 | ) |
| Loss from investments in  tenants in common                                      |       | (551,925                                         | )          | (612,906                                        | )          | (1,654,142 | ) | (1,815,280 | ) |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **LOSS FROM CONTINUING  OPERATIONS**                                             |       | (3,669,259                                       | )          | (3,451,818                                      | )          | (10,313,694 | ) | (8,945,259 | ) |
| Discontinued operations,  net                                                    |       | 300,499                                          |       | 119,530                                         |       | 539,488 |   | 704,622 |   |
| Gain on sale of  discontinued operations                                         |       | —                                           |       | —                                          |       | — |   | 18,910,133 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **CONSOLIDATED NET (LOSS)  INCOME**                                              |       | (3,368,760                                       | )          | (3,332,288                                      | )          | (9,774,206 | ) | 10,669,496 |   |
| Net loss attributable to  noncontrolling interests                               |       | (228,256                                         | )          | —                                          |       | (260,108 | ) | — |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **NET (LOSS) INCOME**                                                            |       | $                                                | (3,140,504 | )                                               | $          | (3,332,288 | ) | $ | (9,514,098 | ) | $ | 10,669,496 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **Loss from continuing  operations allocated to****limited partners**            |       | $                                                | (3,438,901 | )                                               | $          | (3,235,111 | ) | $ | (9,666,194 | ) | $ | (8,383,670 | ) |
| Discontinued operations, net  allocated to limitedpartners                       |       | 155,225                                          |       | 112,026                                         |       | 379,210 |   | 660,386 |   |
| Gain on sale of  discontinued operations allocated tolimited  partners           |       | 126,409                                          |       | —                                          |       | 126,409 |   | 17,722,943 |   |
| Net loss attributable to  noncontrolling interestsallocated to limited  partners |       | (213,926                                         | )          | —                                          |       | (243,778 | ) | — |   |
| ** **                                                                       |       |                                             |       |                                            |       |   |   |   |   |
| **NET (LOSS) INCOME  ALLOCATED TO****LIMITED PARTNERS**                          |       | $                                                | (2,943,341 | )                                               | $          | (3,123,085 | ) | $ | (8,916,797 | ) | $ | 9,999,659 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **Loss from continuing  operations per limited****partnership unit**             |       | $                                                | (0.32      | )                                               | $          | (0.30 | ) | $ | (0.91 | ) | $ | (0.79 | ) |
| Discontinued operations,  net per limited partnershipunit                        |       | 0.01                                             |       | 0.01                                            |       | 0.04 |   | 0.07 |   |
| Gain on sale of  discontinued operations per limitedpartnership  unit            |       | 0.01                                             |       | —                                          |       | 0.01 |   | 1.66 |   |
| Net loss attributable to  noncontrolling interestsper limited partnership unit   |       | (0.02                                            | )          | —                                          |       | (0.02 | ) | — |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **NET (LOSS) INCOME PER  LIMITED****PARTNERSHIP UNIT**                           |       | $                                                | (0.28      | )                                               | $          | (0.29 | ) | $ | (0.84 | ) | $ | 0.94 |   |
|                                                                             |       |                                             |       |                                            |       |   |   |   |   |
| **Weighted average number  of limited partnership interests**                    |       | 10,666,269                                       |       | 10,666,269                                      |       | 10,666,269 |   | 10,666,269 |   |

 

The accompanying notes to condensed consolidatedfinancial statements are an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Condensed ConsolidatedStatements of Cash Flows for the Nine Months Ended September 30, 2009 and2008

(Unaudited)

 
| ** **                                                                               | ** ** | **2009**    | ** ** | **2008**     | ** ** |
|------------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|
| ** **                                                                               | ** ** | ** **  | ** ** | **Restated** | ** ** |
| **OPERATING ACTIVITIES:**                                                                | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Consolidated net (loss)  income**                                                      |       | $           | (9,774,206 | )            | $          | 10,669,496 |   |
| Adjustments to reconcile  net (loss) income to net cash provided by operatingactivities: |       |        |       |         |       |
| Gain from sale of  discontinued operations                                               |       | —      |       | (18,910,133  | )          |
| Loss on disposal of assets                                                               |       | 122,878     |       | 159,941      |       |
| Depreciation and  amortization                                                           |       | 13,477,859  |       | 11,350,732   |       |
| Loss from investments in  tenants in common                                              |       | 1,654,142   |       | 1,815,280    |       |
| **Changes in assets and  liabilities:**                                                  |       |        |       |         |       |
| Cash and equivalents —  restricted                                                  |       | (1,338,247  | )          | (4,532,966   | )          |
| Accounts receivable                                                                      |       | (118,445    | )          | 307,702      |       |
| Other assets                                                                             |       | (1,259,803  | )          | 1,849,406    |       |
| Accounts payable and  accrued expenses                                                   |       | 509,656     |       | (1,310,658   | )          |
| Accounts payable and  accrued expenses due to affiliate                                  |       | 441,433     |       | 9,929        |       |
| Security deposits                                                                        |       | 44,355      |       | (117,962     | )          |
| Other liabilities                                                                        |       | 1,491,727   |       | 1,206,296    |       |
|                                                                                     |       |        |       |         |       |
| **Net cash provided by operating  activities**                                           |       | 5,251,349   |       | 2,497,063    |       |
|                                                                                     |       |        |       |         |       |
| **INVESTING ACTIVITIES:**                                                                |       |        |       |         |       |
| Additions to land,  buildings and amenities                                              |       | (1,750,614  | )          | (3,582,975   | )          |
| Proceeds from sale of  discontinued operations                                           |       | —      |       | 49,963,973   |       |
| Acquisitions                                                                             |       | (32,175,459 | )          | (41,000,000  | )          |
| Deposit on acquisitions                                                                  |       | —      |       | (500,000     | )          |
| Notes receivable                                                                         |       | —      |       | (3,500,000   | )          |
|                                                                                     |       |        |       |         |       |
| **Net cash (used in)  provided by investing activities**                                 |       | (33,926,073 | )          | 1,380,998    |       |
|                                                                                     |       |        |       |         |       |
| **FINANCING ACTIVITIES:**                                                                |       |        |       |         |       |
| Contributions from  noncontrolling interest holders in properties                        |       | 5,588,426   |       | —       |       |
| Distributions from tenants  in common properties                                         |       | 120,000     |       | —       |       |
| Proceeds from mortgages  payable                                                         |       | 24,225,000  |       | 60,310,500   |       |
| Revolving note payable, net                                                              |       | 4,278,089   |       | (14,502,039  | )          |
| Principal payments on  mortgages payable                                                 |       | (2,492,393  | )          | (2,151,706   | )          |
| Additional payments on  mortgages payable                                                |       | —      |       | (44,650,813  | )          |
| Additions to loan costs                                                                  |       | —      |       | (268,112     | )          |
| Cash distributions.                                                                      |       | (1,707,114  | )          | (3,186,612   | )          |
|                                                                                     |       |        |       |         |       |
| **Net cash provided by  (used in) financing activities**                                 |       | 30,012,008  |       | (4,448,782   | )          |
|                                                                                     |       |        |       |         |       |
| **NET INCREASE (DECREASE)  IN CASH AND EQUIVALENTS**                                     |       | 1,337,284   |       | (570,721     | )          |
|                                                                                     |       |        |       |         |       |
| **CASH AND EQUIVALENTS,  beginning of period**                                           |       | —      |       | 845,337      |       |
|                                                                                     |       |        |       |         |       |
| **CASH AND EQUIVALENTS, end  of period**                                                 |       | $           | 1,337,284  |         | $          | 274,616 |   |

 

The accompanying notes to condensed consolidatedfinancial statements are an integral part of these statements.

 

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Notes to CondensedConsolidated Financial Statements

(Unaudited)

 

The unaudited condensed consolidatedfinancial statements included herein should be read in conjunction with NTSRealty Holdings Limited Partnership’s (“NTS Realty”) 2008 annual report on Form 10-Kas filed with the Securities and Exchange Commission on March 31,2009.  The Condensed Consolidated BalanceSheet as of December 31, 2008 has been derived from the auditedconsolidated financial statements of NTS Realty for that period.  Certain information and note disclosuresnormally included in our annual financial statements prepared in accordancewith generally accepted accounting principles have been condensed oromitted.  In the opinion of NTS RealtyCapital, Inc., our managing general partner, all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation have beenmade to the accompanying condensed consolidated financial statements for thethree and nine months ended September 30, 2009 and 2008.  Our managing general partner has evaluatedsubsequent events through November 6, 2009, the date this quarterly reporton Form 10-Q was filed with the Securities and Exchange Commission.  The results of operations for the interimperiods are not necessarily indicative of the results that may be expected forthe full year or any other interim period. As used in this quarterly report on Form 10-Q, the terms “we,” “us”or “our,” as the context requires, may refer to NTS Realty or its interests inits properties and tenants in common.

 

**Note 1 — Summary ofSignificant Accounting Policies**

** **

***Organization and Distribution Policy***

*** ***

We are in the business of developing,constructing, owning and operating multifamily properties, commercial andretail real estate.  As of September 30,2009, we owned wholly, as a tenant in common with an unaffiliated third partyor through joint venture investments, 24 properties, comprised of 14multifamily properties, 7 office and business centers and 3 retailproperties.  The properties are locatedin and around Louisville (8) and Lexington (1), Kentucky, Fort Lauderdale (3) andOrlando (2), Florida, Indianapolis (4), Indiana, Memphis (1) and Nashville(2), Tennessee, Richmond (2), Virginia and Atlanta (1), Georgia.  Our office and business centers aggregateapproximately 670,000 square feet.  Weown multifamily properties containing 4,029 units and retail properties containingapproximately 210,000 square feet.

 

We pay distributions if and when authorizedby our managing general partner.  We arerequired to pay distributions on a quarterly basis, equal to no less thansixty-five percent (65%) of our “net cash flow from operations” as this term isdefined in regulations promulgated by the Treasury Department under theInternal Revenue Code of 1986, as amended; provided that if a law is enacted orexisting law is modified or interpreted in a manner that subjects us to taxationas a corporation 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 bereduced by the amount of reserves as determined by us each quarter.  Our managing general partner will establishthese reserves for, among other things, working capital or capital improvementneeds.  Therefore, there is no assurancethat we will have “net cash flow from operations” from which to paydistributions in the future.  Forexample, our partnership agreement permits our managing general partner toreinvest sales or refinancing proceeds in new and existing properties or tocreate reserves to fund future capital expenditures.  Because “net cash flow from operations” iscalculated after reinvesting sales or refinancing proceeds or establishingreserves, we may not have any “net cash flow from operations” from which to paydistributions.

 

We paid quarterly distributions of $0.05 perunit to limited partners on April 17, 2009, July 16, 2009 and October 16,2009.

 

***Basis of Presentation***

*** ***

The condensed consolidated financialstatements include the accounts of all wholly-owned properties and propertiesthat are less than wholly-owned, but which we control or for which we are theprimary beneficiary.  Our 

 

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properties owned as a tenant in common withan unaffiliated third party are accounted for under the equity method.  Intercompany transactions and balances havebeen eliminated.  Our properties owned astenants in common had previously been consolidated in our 2008 financialstatements for the three and nine months ended September 30, 2008.  All prior period information has beenrestated to reflect our current policy of accounting for these properties usingthe equity method.  This restatement didnot affect our partners’ equity, loss from continuing operations, net income orcorresponding per limited partnership unit amounts as previously reported.  The following presents the effect of therestatement on operating results and cash flows for the three and nine monthsended September 30, 2008:

 
| ** **                                                     | ** ** | **Three  Months Ended   September 30, 2008** | ** ** | **Nine  Months Ended   September 30, 2008** | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                     | ** ** | **Restated  (1)**                                 | ** ** | **Previously********Reported**                   | ** ** | **Restated  (1)** | ** ** | **Previously  Reported** | ** ** |
| **Operating results:**                                         |       |                                              |       |                                             |       |   |   |   |   |
| Total revenue                                                  |       | $                                                 | 10,947,520 |                                             | $          | 13,169,625 |   | $ | 30,224,803 |   | $ | 36,767,465 |   |
| Operating income                                               |       | 109,537                                           |       | 23,895                                           |       | 956,689 |   | 714,171 |   |
| Discontinued operations,  net                                  |       | 119,530                                           |       | (3,615                                           | )          | 704,622 |   | 331,794 |   |
| Loss from continuing  operations allocated to limited partners |       | (3,235,111                                        | )          | (3,119,697                                       | )          | (8,383,670 | ) | (8,034,249 | ) |
| Discontinued operations,  net allocated to limited partners    |       | 112,026                                           |       | (3,388                                           | )          | 660,386 |   | 310,964 |   |
| Loss from continuing  operations per limited partnership unit  |       | (0.30                                             | )          | (0.29                                            | )          | (0.79 | ) | (0.75 | ) |
| Discontinued operations,  net per limited partnership unit     |       | 0.01                                              |       | —                                           |       | 0.07 |   | 0.03 |   |
|                                                                |            |                                                   |            |                                                  |            |  |  |  |  |  |  |  |  |

 

----

(1) The restatement includes Outlet Mall indiscontinued operations.

 
| ** **                                 | ** ** | **Nine  Months Ended   September 30, 2008** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **Restated**                                     | ** ** | **Previously  Reported** | ** ** |
| **Cash flows:**                            |       |                                             |       |   |   |
| Net cash provided by  operating activities |       | $                                                | 2,497,063  |   | $ | 3,176,118 |   |
| Net cash provided by  investing activities |       | 1,380,998                                        |       | 1,314,072 |   |
| Net cash used in financing  activities     |       | (4,448,782                                       | )          | (4,779,244 | ) |
|                                            |            |                                                  |            |  |  |  |  |

*** ***

Effective, January 1, 2009, we adoptedthe provisions of the Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (“ASC”) Topic 810 *Consolidations*(“FASBASC Topic 810”).  FASB ASC Topic 810clarifies that a noncontrolling interest in a subsidiary is an ownershipinterest in a consolidated entity, which should be reported as equity in theparent’s consolidated financial statements.

 

**Further, as a result of theadoption of FASB ASC Topic 810, net income attributable to noncontrollinginterests (which includes nonredeemable noncontrolling interests inconsolidated properties), is excluded from the determination of consolidatednet income (loss).**

** **

**Our properties owned throughjoint venture investments that are less than wholly-owned, but which we controlor for which we are the primary beneficiary, are Golf Brook Apartments andSabal Park Apartments in Orlando, Florida. At September 30, 2009, we owned 51% of each joint venture.  An executive officer of NTS Realty’s managinggeneral partner has a familial relationship with a member of the joint venturepartner.**

** **

**A progression ofnoncontrolling interests for the nine months ended September 30, 2009 isas follows:**

** **
| ** **                                                        | ** ** | **2009**  | ** ** |
|-------------------------------------------------------------------|------------|-----------|------------|
| Noncontrolling interests at  January 1                       |       | $         | —     |   |
| Contributions from  noncontrolling interest holders in properties |       | 5,588,426 |       |
| Net loss attributable to  noncontrolling interests                |       | (260,108  | )          |
| Total noncontrolling  interests                                   |       | $         | 5,328,318  |   |

 

***Fair Value Measurements***

*** ***

In September 2006, the FASB issued FASBASC Topic 820 *Fair Value Measurements and Disclosures*(“FASBASC Topic 820”).  FASB ASC Topic 820requires companies to determine fair value based on the price 

 

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that would be received to sell the asset orpaid to transfer the liability to a market participant.  FASB ASC Topic 820 emphasizes that fair valueis a market-based measurement, not an entity-specific measurement.  The provisions of FASB ASC Topic 820 wereeffective as of January 1, 2008; however, FASB ASC 820-10-65 deferred theeffective date for certain non-financial assets and liabilities not re-measuredat fair value on a recurring basis to fiscal years beginning after November 15,2008 or our first quarter of 2009.  Theadoption of FASB ASC 820-10-65 did not have any impact on our CondensedConsolidated Statements of Operations.

 

FASB ASC Topic 820 requires that assets andliabilities carried at fair value be classified and disclosed in one of thefollowing categories:

 

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

 

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

 

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

 

Our financial assets and liabilities that aremeasured at fair value on a recurring basis as of September 30, 2009 and December 31,2008 are as follows:

 
| ** **                 | ** ** | **Fair  Value Measurements as of September 30, 2009** | ** ** |
|----------------------------|------------|------------------------------------------------------------|------------|
| ** **                 | ** ** | **Carrying  Value**                                        | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Financial liabilities:** |       |                                                       |       |   |   |   |   |   |   |
| Interest rate swap (1)     |       | $                                                          | —     |   | $ | — |   | $ | — |   | $ | — |   |
|                            |            |                                                            |            |  |  |  |  |  |  |  |  |  |  |

 
| ** **                 | ** ** | **Fair  Value Measurements as of December 31, 2008** | ** ** |
|----------------------------|------------|-----------------------------------------------------------|------------|
| ** **                 | ** ** | **Carrying  Value**                                       | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Financial liabilities:** |       |                                                      |       |   |   |   |   |   |   |
| Interest rate swap (1)     |       | $                                                         | 475,336    |   | $ | — |   | $ | 475,336 |   | $ | — |   |
|                            |            |                                                           |            |  |  |  |  |  |  |  |  |  |  |

 

----

**(1)**          Fair value for our interest rate swap was determined basedon the valuation statements issued as of December 31, 2008 by thecounter-party bank.  The fair value isbased upon the estimated amounts we would receive to sell an asset or transfera liability in an orderly transaction between market participants at thereporting dates and is determined using interest rate market pricing models.  The interest rate swapexpired September 1, 2009.

** **

***Financial Instruments***

 

During the second quarter 2009, we adoptedFASB ASC Topic 825 *Financial Instruments*which requires disclosures about fair value of financial instruments in bothinterim and annual financial statements (Note 2).

 

Certain of our assets and liabilities areconsidered financial instruments.  Fairvalue estimates, methods and assumptions are set forth below.

 

Cash and equivalents and cash and equivalents— restricted — The carrying amount of these assets and liabilities approximatesfair value as of September 30, 2009 and December 31, 2008 due to theshort-term nature of such accounts.

 

Notes receivable — As of September 30,2009 and December 31, 2008, we determined the estimated fair values of ournotes receivable were approximately $3.3 million and $3.3 million,respectively, by discounting future cash receipts utilizing a discount rateequivalent to the rate at which similar notes receivable would be originated atthe reporting date.

 

Mortgages and note payable — As of September 30,2009 and December 31, 2008, we determined the estimated fair values of ourmortgages and note payable, including those relating to discontinuedoperations, were

 

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approximately $239.0 million and $217.6 million, respectively, bydiscounting future cash payments utilizing a discount rate equivalent to therate at which similar instruments would be originated at the reporting date.

 

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

** **

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

 

Certain reclassifications have been made tothe prior period financial statements to conform with September 30, 2009classifications.  Our Outlet Mallproperty was reclassified in 2009 as discontinued operations and as held forsale on our balance sheet.  Thesereclassifications did not have an effect on previously reported operatingresults or partners’ equity.

 

**Note 3 — Real EstateTransactions**

** **

***Acquisitions***

*** ***

Upon acquisition of wholly owned properties,the assets and liabilities purchased are recorded at their fair market value atthe date of the acquisition using the acquisition method in accordance withFASB ASC Topic 805 *Business Combinations*.  We recognized the net tangible and identifiedintangible assets for each of the properties acquired based on fair values (includingland, buildings, tenant improvements, acquired above and below market leasesand the origination cost of acquired in-place leases) and acquiredliabilities.  The intangible assetsrecorded in relation to our multifamily properties will be amortized over aperiod of one year, which approximates the weighted average lease lives.  No above or below market leases or customerrelationship intangibles existed at the acquisition date.  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 for the tangibleassets acquired that utilize discount and capitalization rates deemedappropriate and available market information.

 

We adopted FASB ASC Topic 805 *Business Combinations* on January 1, 2009, whichrequires us to expense acquisition costs as incurred.

 

During the nine months ended September 30,2009, we made the following property acquisitions primarily to invest inadditional multifamily properties:

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

 

----

(1)          Financed by a mortgagepayable to a government sponsored enterprise of $9.6 million.  Our ownership percentage at September 30,2009 was 51%.

(2)          Financed by a mortgagepayable to a government sponsored enterprise of $14.6 million.  Our ownership percentage at September 30,2009 was 51%.

 

The following table summarizes theconsideration paid for Sabal Park and Golf Brook, and the fair value of theassets acquired and liabilities assumed at the acquisition date.

 
| ** **                                                | ** ** | **Golf  Brook** | ** ** | **Sabal  Park** | ** ** |
|-----------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| **Consideration**                                         | ** ** | ** **      | ** ** | ** **      | ** ** |
| Cash                                                      |       | $               | 19,330,517 |            | $          | 12,873,833 |   |
| **Assets acquired**                                       |       |            |       |            |       |
| Land, buildings and  amenities                            |       | $               | 19,315,565 |            | $          | 12,859,894 |   |
| Identified intangible asset                               |       | $               | 184,435    |            | $          | 140,106 |   |
| **Liabilities assumed**                                   |       |            |       |            |       |
| Accounts payable and  accrued expenses; Other liabilities |       | (169,483        | )          | $               | (126,167   | ) |
| **Total identifiable net  assets**                        |       | $               | 19,330,517 |            | $          | 12,873,833 |   |

 

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***On July 29,2009, our joint venture partner contributed approximately $1.7 million to ourjoint ventures which reduced our ownership percentage to 65.1% of each jointventure.***

*** ***

On August 6, 2009, our joint venturepartner contributed approximately $1.5 million to our joint ventures whichreduced our ownership percentage to 51.0% of each joint venture.  We do not expect our ownership interest ineither joint venture to be further reduced.

 

***Pro Forma Information***

*** ***

The following table presents our unauditedpro forma results of operations and per unit amounts as if we had consummatedour 2009 acquisitions as of the beginning of each period presented.

 
| ** **                                                     | ** ** | **(Unaudited)**                                  | ** ** | **(Unaudited)**                                 | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
| ** **                                                     | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                     | ** ** | ** **                                       | ** ** | ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues                                                       |       | $                                                | 11,707,236 |                                            | $          | 12,024,535 |   | $ | 34,523,341 |   | $ | 33,432,432 |   |
| Expenses and other income,  net                                |       | 11,728,066                                       |       | 11,987,981                                      |       | 34,861,777 |   | 32,693,102 |   |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Operating (loss) income                                        |       | (20,830                                          | )          | 36,554                                          |       | (338,436 | ) | 739,330 |   |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Net (loss) income                                              |       | $                                                | (3,140,504 | )                                               | $          | (3,486,760 | ) | $ | (9,839,177 | ) | $ | 10,209,437 |   |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Loss from continuing  operations allocated to limited partners |       | $                                                | (3,438,901 | )                                               | $          | (3,518,983 | ) | $ | (10,263,586 | ) | $ | (9,229,111 | ) |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Net (loss) income allocated  to limited partners               |       | $                                                | (2,943,341 | )                                               | $          | (3,267,859 | ) | $ | (9,221,468 | ) | $ | 9,568,482 |   |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Loss from continuing  operations per limited partnership unit  |       | $                                                | (0.32      | )                                               | $          | (0.33 | ) | $ | (0.96 | ) | $ | (0.87 | ) |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Net (loss) income per  limited partnership unit                |       | $                                                | (0.28      | )                                               | $          | (0.31 | ) | $ | (0.86 | ) | $ | 0.90 |   |
|                                                           |       |                                             |       |                                            |       |   |   |   |   |
| Weighted average number of  limited partnership interests      |       | 10,666,269                                       |       | 10,666,269                                      |       | 10,666,269 |   | 10,666,269 |   |

 

***Dispositions***

*** ***

During the nine months ended September 30,2009, we did not dispose of any properties.

 

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

*** ***

In May 2008, we sold the Atrium Center,Blankenbaker Business Center I, Blankenbaker Business Center II, Anthem OfficeCenter, Plainview Center, Plainview Point Office Center Phase I and II, PlainviewPoint Office Center Phase III, and the ITT Parking Lot (the “Office Portfolio”).  The Office Portfolio has been reclassified asdiscontinued operations in all prior periods presented.

 

On June 23, 2009, we announced that weentered into an agreement to sell our Outlet Mall retail property to anunaffiliated third party.  Pursuant tothe agreement, we are scheduled to receive $4.0 million in cash if the sale iscompleted.  The proposed purchaser mustclose by March 12, 2010.  We intendto use the proceeds from the sale to repay outstanding debt and for workingcapital requirements.

 

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

 
| **Property**                                  | ** ** | **Location**   | ** ** | **Date of  Sale**   | ** ** |
|-----------------------------------------------|------------|----------------|------------|---------------------|------------|
| Atrium Center                                 |       | Louisville, KY |       | May 2008       |       |
| Blankenbaker Business  Center I               |       | Louisville, KY |       | May 2008       |       |
| Blankenbaker Business  Center II              |       | Louisville, KY |       | May 2008       |       |
| Anthem Office Center                          |       | Louisville, KY |       | May 2008       |       |
| Plainview Center                              |       | Louisville, KY |       | May 2008       |       |
| Plainview Point Office  Center Phase I and II |       | Louisville, KY |       | May 2008       |       |
| Plainview Point Office  Center Phase III      |       | Louisville, KY |       | May 2008       |       |
| ITT Parking Lot                               |       | Louisville, KY |       | May 2008       |       |
| Outlet Mall                                   |       | Louisville, KY |       | Asset Held for Sale |       |

 

These assets and liabilities held for salehave been separately identified on our balance sheets at September 30,2009 and December 31, 2008.

 

The components of discontinued operations areoutlined below and include the results of operations for the period in which weowned such assets during the three and nine months ended September 30,2008 and September 30, 2009, respectively.

 
| ** **                                                        | ** ** | **(Unaudited)**                                  | ** ** | **(Unaudited)**                                 | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                                        | ** ** | **Three Months Ended********September 30,** | ** ** | **Nine Months Ended********September 30,** | ** ** |
| ** **                                                        | ** ** | **2009**                                         | ** ** | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| **REVENUE:**                                                      |       |                                             |       |                                            |       |   |   |   |   |
| Rental income                                                     |       | $                                                | 182,944    |                                            | $          | 182,944 |   | $ | 548,832 |   | $ | 2,830,829 |   |
| Tenant reimbursements                                             |       | 24,393                                           |       | —                                          |       | 24,393 |   | 189,462 |   |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| **Total revenue**                                                 |       | 207,337                                          |       | 182,944                                         |       | 573,225 |   | 3,020,291 |   |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| **EXPENSES:**                                                     |       |                                             |       |                                            |       |   |   |   |   |
| Operating expenses and  operating expensesreimbursed to affiliate |       | 14,433                                           |       | 6,664                                           |       | 29,937 |   | 817,822 |   |
| Management fees                                                   |       | 9,147                                            |       | 9,310                                           |       | 30,491 |   | 137,118 |   |
| Property taxes and insurance                                      |       | 16                                               |       | 269                                             |       | 16 |   | 182,251 |   |
| Depreciation and  amortization                                    |       | —                                           |       | 26,769                                          |       | 53,538 |   | 90,668 |   |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| **Total expenses**                                                |       | 23,596                                           |       | 43,012                                          |       | 113,982 |   | 1,227,859 |   |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| **DISCONTINUED OPERATING  INCOME**                                |       | 183,741                                          |       | 139,932                                         |       | 459,243 |   | 1,792,432 |   |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| Interest and other income                                         |       | 134,877                                          |       | (1,921                                          | )          | 134,877 |   | 8,552 |   |
| Interest expense                                                  |       | (18,119                                          | )          | (18,481                                         | )          | (54,632 | ) | (1,096,362 | ) |
|                                                              |       |                                             |       |                                            |       |   |   |   |   |
| **Discontinued operations,  net**                                 |       | $                                                | 300,499    |                                            | $          | 119,530 |   | $ | 539,488 |   | $ | 704,622 |   |

 

**Note 4 — Concentrationof Credit Risk**

** **

We own and operate, either wholly, as atenant in common with an unaffiliated third party, or through joint ventureinvestments, multifamily, commercial and retail properties in Louisville andLexington, Kentucky; Fort Lauderdale and Orlando, Florida; Indianapolis, Indiana;Memphis and Nashville, Tennessee; Richmond, Virginia and Atlanta, Georgia.

 

**Note 5 — Cash andEquivalents**

** **

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

 

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**Note 6 — Cash andEquivalents - Restricted**

 

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

 

**Note 7 — Property andDepreciation**

 

Land, buildings and amenities are stated atcost.  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 the initialor renewal term of the respective tenant lease. Depreciation expense from continuing operations for the three monthsended September 30, 2009 and 2008 was approximately $4,473,000 and$4,013,000, respectively.  Depreciationexpense from continuing operations for the nine months ended September 30,2009 and 2008 was approximately $12,597,000 and $10,531,000, respectively.

 

FASB ASC Topic 360 *Property,Plant, and Equipment* 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 be negativelyor positively affected.  Application ofthis standard during the three and nine months ended September 30, 2009and 2008 did not result in an impairment loss.

 

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

 

We own a tenant in common interest in andoperate the following properties:

 

·                  The Overlook at St. Thomas;a 484-unit luxury apartment complex in Louisville, Kentucky.  We own a 60% interest as a tenant in commonwith an unaffiliated third party.

·                  Creek’s Edge at Stony Point;a 202-unit luxury apartment complex in Richmond, Virginia.  We own a 51% interest as a tenant in commonwith an unaffiliated third party.

 

Presented below are the summarized balancesheets and statements of operations for these properties:

 
| ** **                               | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
|------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
| **Summarized Balance Sheets**            |       |                         |       |                        |       |
| Land, buildings and  amenities           |       | $                            | 67,358,875 |                        | $          | 70,726,877 |   |
| Other, net                               |       | 1,671,259                    |       | 1,525,783                   |       |
| Total assets                             |       | $                            | 69,030,134 |                        | $          | 72,252,660 |   |
|                                     |       |                         |       |                        |       |
| Mortgages payable and other  liabilities |       | $                            | 58,647,076 |                        | $          | 58,697,143 |   |
| Equity                                   |       | 10,383,058                   |       | 13,555,517                  |       |
| Total liabilities and  equity            |       | $                            | 69,030,134 |                        | $          | 72,252,660 |   |

 

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| ** **                                  | ** ** | **(Unaudited)**                  | ** ** | **(Unaudited)**                  | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **Three  Months Ended**          | ** ** | **Nine Months Ended**  | ** ** |
| ** **                                  | ** ** | **September 30, 2009** | ** ** | **September 30, 2008** | ** ** | **September 30, 2009** | ** ** | **September 30, 2008** | ** ** |
| **Summarized Statements of  Operations**    |       |                             |       |                             |       |   |   |   |   |
|                                        |       |                             |       |                             |       |   |   |   |   |
| Revenue                                     |       | $                                | 2,090,335  |                             | $          | 2,039,161 |   | $ | 6,137,906 |   | $ | 5,993,828 |   |
|                                        |       |                             |       |                             |       |   |   |   |   |
| Operating expenses                          |       | 502,135                          |       | 535,898                          |       | 1,370,609 |   | 1,357,518 |   |
| Operating expenses  reimbursed to affiliate |       | 249,362                          |       | 245,642                          |       | 734,641 |   | 727,651 |   |
| Management fees                             |       | 73,314                           |       | 69,940                           |       | 213,419 |   | 209,715 |   |
| Property taxes and  insurance               |       | 225,889                          |       | 230,589                          |       | 698,895 |   | 723,928 |   |
| Depreciation and  amortization              |       | 1,172,709                        |       | 1,184,360                        |       | 3,509,588 |   | 3,646,065 |   |
|                                        |       |                             |       |                             |       |   |   |   |   |
| Total operating expenses                    |       | 2,223,409                        |       | 2,266,429                        |       | 6,527,152 |   | 6,664,877 |   |
|                                        |       |                             |       |                             |       |   |   |   |   |
| Operating loss                              |       | (133,074                         | )          | (227,268                         | )          | (389,246 | ) | (671,049 | ) |
|                                        |       |                             |       |                             |       |   |   |   |   |
| Net loss                                    |       | $                                | (991,045   | )                                | $          | (1,093,507 | ) | $ | (2,972,460 | ) | $ | (3,256,327 | ) |
|                                        |       |                             |       |                             |       |   |   |   |   |
| **Distributions**                           |       |                             |       |                             |       |   |   |   |   |
|                                        |       |                             |       |                             |       |   |   |   |   |
| The Overlook at St. Thomas                  |       | $                                | 200,000    |                             | $          | — |   | $ | 200,000 |   | $ | — |   |
| Creek’s Edge at Stony Point            |       | —                           |       | —                           |       | — |   | — |   |

 

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**Note 9 — Mortgages and Note Payable**

 

Mortgages and note payable consist of thefollowing:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **(Unaudited)**              | ** **  | ** **                  | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | ** ** | **September 30,  2009** | ** **  | **December 31,  2008** | ** ** |
| Mortgage payable to an  insurance company in monthly installments of principal and interest, bearing  fixed interest at 5.07%, maturing on March 15, 2015, secured by certain  land, buildings and amenities, with a carrying value of $40,309,331                                                                                                                                                                                                                        |       | $                            | 26,983,213  |                        | $          | 27,534,884 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a bank  in monthly installments of principal and interest, bearing interest at a  variable rate based on LIBOR one-month rate plus 3.50%, currently 3.76%, due  June 1, 2011, secured by certain land, buildings and amenities, with a  carrying value of $17,072,526 and a $640,000 letter of credit. The mortgage  is guaranteed by Mr. Nichols and Mr. Lavin, the chairman and  president, respectively, of our managing general partner |       | 23,659,000                   |        | 23,907,000                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to an  insurance company in monthly installments of principal and interest, bearing  fixed interest at 5.98%, maturing January 15, 2015, secured by certain  land, buildings and amenities, with a carrying value of $140,907,579                                                                                                                                                                                                                        |       | 70,172,487                   |        | 71,041,740                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to an  insurance company in monthly installments of principal and interest, bearing  fixed interest at 5.35%, maturing January 15, 2015, secured by certain  land, buildings and amenities, with a carrying value of $140,907,579                                                                                                                                                                                                                        |       | 31,601,208                   |        | 32,001,720                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Revolving note payable to a  bank for $15.0 million, with interest payable in monthly installments,  unsecured, at a variable rate based on LIBOR one-month rate plus 2.50%,  currently 2.75%, due May 31, 2010                                                                                                                                                                                                                                                           |       | 10,760,238                   |        | 6,482,149                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a bank  in monthly installments of principal and interest, bearing fixed interest at  9.0%, maturing August 1, 2010, secured by certain land, buildings and  amenities, with a carrying value of $2,572,194                                                                                                                                                                                                                                           |       | 2,321,508                    |        | 2,412,387                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to an  insurance company in monthly installments of principal and interest, bearing  fixed interest at 8.45%, maturing November 1, 2015, secured by certain  land and a building, with a carrying value of $1,937,975                                                                                                                                                                                                                                    |       | 2,089,535                    |        | 2,277,378                   |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a  government sponsored enterprise, in monthly installments of principal and  interest, bearing fixed interest at 5.11%, maturing December 1, 2014,  secured by certain land, buildings and amenities, with a carrying value of  $12,104,314                                                                                                                                                                                                          |       | 11,431,676                   |        | 11,575,911                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a bank,  with interest payable in monthly installments, bearing fixed interest at  6.03%, maturing September 1, 2018, secured by certain land, buildings  and amenities, with a carrying value of $37,563,199                                                                                                                                                                                                                                         |       | 26,328,500                   |        | 26,328,500                  |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a  government sponsored enterprise, with interest payable in monthly  installments, bearing interest at a variable rate based on LIBOR one-month  rate plus 3.33%, currently 3.59%, maturing July 1, 2016, secured by  certain land, buildings and amenities with a carrying value of $19,004,746                                                                                                                                                     |       | 14,625,000                   |        | —                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |       |                         |        |                        |       |
| Mortgage payable to a  government sponsored enterprise, with interest payable in monthly  installments, bearing interest at a variable rate based on LIBOR one-month  rate plus 3.50%, currently 3.76%, maturing July 1, 2016, secured by  certain land, buildings and amenities with a carrying value of $12,657,319                                                                                                                                                     |       | 9,600,000                    |        | —                      |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       |                         |        |                        |       |
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | $                            | 229,572,365 |                        | $          | 203,561,669 |   |

 

Interest paid for each of the nine monthsended September 30, 2009 and 2008 was approximately $8.9 million.

 

Our mortgages may be prepaid but aregenerally subject to a yield-maintenance premium.  Certain mortgages and note payable containcovenants and requirements that we maintain specified debt limits and ratiosrelated to our debt balances and property values.  We complied with all covenants andrequirements at September 30, 2009. We anticipate renewing or refinancing our mortgages and note payablecoming due within the next twelve months.

 

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As of October 31, 2009, we amended ourrevolving note payable.  The amendmentextended the maturity date to May 31, 2010 and included an Entity LevelDebt Service Coverage Ratio, referred to as our “debt ratio.”  The debt ratio requires that we maintain asof the end of each fiscal quarter, on a trailing four quarter basis derivedfrom our publicly filed Form 10-K and Form 10-Q filings, as may beperiodically restated, a debt ratio of at least 1.10 to 1.0.  The debt ratio is defined as adjusted incomedivided by our principal and interest payments. Adjusted income is defined as the sum of operating income (loss) plusdepreciation and amortization plus interest and other income, each as definedin the above-mentioned filings and reports plus our percentage ownership of netoperating income (loss).  Principal andinterest payments are defined as interest expense (as defined in the mostrecent Statement of Operations) plus principal payments on mortgages payable(as defined in the most recent Statement of Cash Flows) plus our percentageownership of scheduled interest and principal payments (as determined by thelender) not otherwise reflected in interest expense or principal payments onmortgages payable.

 

We entered into an interest rate swapagreement beginning in September 2007 that effectively converted $18.0million of our variable-rate debt bearing interest at the LIBOR one month rateto a fixed rate basis through September 2009, when the contract expired.

 

The interest rate swap expired on September 1,2009.  The fair value of the interestrate swap agreement at December 31, 2008, was $0.5 million, and wasincluded in Other Liabilities on our Condensed Consolidated Balance Sheet.  During the three months ended September 30,2009, we recognized a net loss of approximately $4,000 and during the three monthsended September 30, 2008 we recognized an insignificant net loss on theinterest rate swap agreement after any net payments were received or made.  During the nine months ended September 30,2009 and 2008, we recognized a net loss of approximately $90,000 and $188,000on the interest rate swap agreement after any net payments were received ormade.

 

Mortgages payable on our properties owned asa tenant in common with an unaffiliated third party consist of the following:

 
| ** **                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **September 30,  2009** | ** ** | **December 31,  2008** | ** ** |
| Mortgage payable to a bank  in monthly installments of principal and interest, bearing fixed interest at  5.72%, maturing on April 11, 2017, secured by certain land, buildings  and amenities, with a carrying value of $39,082,705 (1) |       | $                            | 34,911,929 |                        | $          | 35,268,090 |   |
|                                                                                                                                                                                                                                          |       |                         |       |                        |       |
| Mortgage payable to a bank  in monthly installments, bearing fixed interest at 5.99% maturing  November 15, 2017, secured by certain land, buildings and amenities,  with a carrying value of $28,276,170 (2)                            |       | $                            | 22,750,000 |                        | $          | 22,750,000 |   |

 

----

(1) We are proportionately liable for this mortgage, limited to our60% interest as a tenant in common.

(2) We are jointly and severally liableunder this mortgage.

 

**Note 10 — AccountsPayable and Accrued Expenses Due to Affiliate**

 

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

 

**Note 11 — Related PartyTransactions**

** **

Pursuant to our management agreement, NTSDevelopment Company receives fees for a variety of services performed for ourbenefit.  NTS Development Company alsoreceives fees under separate management agreements for each of our propertiesowned as a tenant in common with an unaffiliated third party.  Property management fees are paid in anamount equal to 5% of the gross collected revenue from our wholly-ownedproperties and joint venture properties that are less than wholly-owned, butwhich we control or for which we are the primary beneficiary, and 3.5% of thegross collected revenue from our properties owned as a tenant in common with anunaffiliated third party.  We were thebeneficiary of a preferential ownership interest, disproportionately greaterthan our initial cash investment in each property owned as a tenant in commonwith an unaffiliated third party. Construction supervision fees are paid in an amount equal to 5% of thecosts incurred which relate to capital improvements.  These construction supervision fees arecapitalized as part of land, buildings and amenities.  Also 

 

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pursuant to the management 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 and up to a 6% fee upon disposition on ourproperties owned as a tenant in common with an unaffiliated third party underseparate management agreements.  NTSDevelopment Company is reimbursed its actual costs for services rendered to NTSRealty.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.

 

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

 

We were charged the following approximateamounts pursuant to our management agreement with NTS Development Company forour wholly-owned and joint venture properties for the three and nine monthsended September 30, 2009 and 2008. These charges include items, which have been expensed as operatingexpenses reimbursed to affiliate or professional and administrative expensesreimbursed to affiliate and items, which have been capitalized as other assetsor as land, buildings and amenities. Certain of these items are included in our results of discontinuedoperations.

 
| ** **                                                        | ** ** | **(Unaudited)**                                    | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------|------------|
| ** **                                                        | ** ** | **For the  Three Months Ended September 30,** | ** ** |
| ** **                                                        | ** ** | **2009**                                           | ** ** | **2008** | ** ** |
| ** **                                                        | ** ** | ** **                                         | ** ** | **Restated** | ** ** |
|                                                              |       |                                               |       |   |   |
| Property management fees                                          |       | **$**                                              | 583,000    |   | $ | 547,000 |   |
|                                                              |       |                                               |       |   |   |
| Operating expenses  reimbursement – Property                 |       | 885,000                                            |       | 770,000 |   |
| Operating expenses  reimbursement – Multifamily Leasing      |       | 184,000                                            |       | 157,000 |   |
| Operating expenses  reimbursement – Administrative           |       | 253,000                                            |       | 244,000 |   |
| Operating expenses  reimbursement – Other                    |       | 15,000                                             |       | 15,000 |   |
|                                                              |       |                                               |       |   |   |
| Total operating expenses  reimbursed to affiliate                 |       | 1,337,000                                          |       | 1,186,000 |   |
|                                                              |       |                                               |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 367,000                                            |       | 383,000 |   |
|                                                              |       |                                               |       |   |   |
| Construction supervision  fees                                    |       | 70,000                                             |       | 12,000 |   |
| Commercial leasing fees                                           |       | 62,000                                             |       | 33,000 |   |
|                                                              |       |                                               |       |   |   |
| **Total related party  transactions**                             |       | $                                                  | 2,419,000  |   | $ | 2,161,000 |   |

 

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| ** **                                                            | ** ** | **(Unaudited)**                                                           | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **For the Nine Months Ended September 30,** | ** ** |
| ** **                                                            | ** ** | **2009**                                                                  | ** ** | **2008** | ** ** |
| ** **                                                            | ** ** | ** **                                                                | ** ** | **Restated** | ** ** |
|                                                                  |       |                                                                      |       |   |   |
| Property management fees                                              | ** ** | **$**                                                                     | 1,661,000  |   | $ | 1,636,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Operating expenses  reimbursement – Property                     |       | 2,462,000                                                                 |       | 2,295,000 |   |
| Operating expenses  reimbursement – Multifamily Leasing          |       | 459,000                                                                   |       | 401,000 |   |
| Operating expenses  reimbursement – Administrative               |       | 745,000                                                                   |       | 813,000 |   |
| Operating expenses  reimbursement – Other                        |       | 39,000                                                                    |       | 61,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Total operating expenses  reimbursed to affiliate                     |       | 3,705,000                                                                 |       | 3,570,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate     |       | 1,152,000                                                                 |       | 1,226,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Construction supervision  fees                                        |       | 87,000                                                                    |       | 159,000 |   |
| Commercial leasing fees                                               |       | 121,000                                                                   |       | 41,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Disposition fees included  in gain on sale of discontinued operations |       | —                                                                    |       | 1,558,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| **Total related party  transactions**                                 |       | $                                                                         | 6,726,000  |   | $ | 8,190,000 |   |

 

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

 

During the three months ended September 30,2009 and 2008, we were charged approximately $13,000 and $12,000, respectively,for property maintenance fees from affiliates of NTS Development Company.  During the nine months ended September 30,2009 and 2008, we were charged approximately $55,000 and $44,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 squarefeet of office space at a rental rate of $14.50 per square foot and 2,220square feet of storage space at a rental rate of $5.50 per square foot at NTSCenter.  We received rental payments fromNTS Development Company of approximately $77,000 and $74,000 during each of thethree months ended September 30, 2009 and 2008, respectively.  We received rental payments from NTSDevelopment Company of approximately $229,000 and $222,000 during each of thenine months ended September 30, 2009 and 2008, respectively.  The average per square foot rental rate forsimilar office space in NTS Center as of September 30, 2009 was $14.28 persquare foot.

 

**Note 12 — Commitmentsand Contingencies**

** **

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

 

***Litigation***

*** ***

We are not engaged in any litigation whichresults are expected to be material to us. Further, we do not believe there is any litigation threatened against usother than routine litigation arising out of the ordinary course of business,some of which is expected to be covered by insurance, none of which is expectedto have a material effect on our financial position, results of operations orcash flows.

 

**Note 13 — SegmentReporting**

** **

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

 

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managementapproach, which is consistent with the basis and manner in which our managementinternally disaggregates financial information for the purpose of assisting inmaking internal operating decisions.  Weevaluate performance based on stand-alone operating segment net income or loss.

 
| ** **                                                                                                      | ** ** | **(Unaudited)**                                | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended September 30, 2009** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                     | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                              | 155,326    |   | $ | 1,269,604 |   | $ | 9,839,388 |   | $ | (7,276 | ) | $ | 11,257,042 |   |
| Tenant  reimbursements                                                                                          |       | 26,025                                         |       | 424,169 |   | — |   | — |   | 450,194 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 181,351                                        |       | 1,693,773 |   | 9,839,388 |   | (7,276 | ) | 11,707,236 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 30,919                                         |       | 707,950 |   | 3,750,472 |   | — |   | 4,489,341 |   |
| Management  fees                                                                                                |       | 8,758                                          |       | 78,746 |   | 486,766 |   | — |   | 574,270 |   |
| Property  taxes and insurance                                                                                   |       | 15,617                                         |       | 229,847 |   | 1,354,078 |   | 31,840 |   | 1,631,382 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                         |       | — |   | — |   | 472,705 |   | 472,705 |   |
| Depreciation  and amortization                                                                                  |       | 40,062                                         |       | 477,396 |   | 4,042,910 |   | — |   | 4,560,368 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 95,356                                         |       | 1,493,939 |   | 9,634,226 |   | 504,545 |   | 11,728,066 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 85,995                                         |       | 199,834 |   | 205,162 |   | (511,821 | ) | (20,830 | ) |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | —                                         |       | 437 |   | 16,655 |   | 70,119 |   | 87,211 |   |
| Interest  expense                                                                                               |       | (89,014                                        | )          | (505,431 | ) | (2,487,932 | ) | 8,379 |   | (3,073,998 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                         |       | (91,865 | ) | (17,852 | ) | — |   | (109,717 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                         |       | — |   | (551,925 | ) | — |   | (551,925 | ) |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                             |       | (3,019                                         | )          | (397,025 | ) | (2,835,892 | ) | (433,323 | ) | (3,669,259 | ) |
| Discontinued  operations, net                                                                                   |       | 141,229                                        |       | 159,270 |   | — |   | — |   | 300,499 |   |
| ** **                                                                                                      |       |                                           |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 138,210                                        |       | (237,755 | ) | (2,835,892 | ) | (433,323 | ) | (3,368,760 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                         |       | — |   | (228,256 | ) | — |   | (228,256 | ) |
| ** **                                                                                                      |       |                                           |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                              | 138,210    |   | $ | (237,755 | ) | $ | (2,607,636 | ) | $ | (433,323 | ) | $ | (3,140,504 | ) |
| ** **                                                                                                      |       |                                           |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                              | 3,893,481  |   | $ | 30,259,010 |   | $ | 262,546,488 |   | $ | — |   | $ | 296,698,979 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended September 30, 2008** | ** ** |
| **Restated**                                                                                                    | ** ** | **Retail**                                     | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                              | 126,864    |   | $ | 1,519,488 |   | $ | 8,858,214 |   | $ | (8,044 | ) | $ | 10,496,522 |   |
| Tenant  reimbursements                                                                                          |       | 18,804                                         |       | 432,194 |   | — |   | — |   | 450,998 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 145,668                                        |       | 1,951,682 |   | 8,858,214 |   | (8,044 | ) | 10,947,520 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 27,351                                         |       | 694,157 |   | 3,225,814 |   | — |   | 3,947,322 |   |
| Management  fees                                                                                                |       | 7,197                                          |       | 87,487 |   | 442,929 |   | — |   | 537,613 |   |
| Property  taxes and insurance                                                                                   |       | 15,004                                         |       | 235,626 |   | 1,141,405 |   | 31,235 |   | 1,423,270 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                         |       | — |   | — |   | 746,972 |   | 746,972 |   |
| Depreciation  and amortization                                                                                  |       | 39,678                                         |       | 582,396 |   | 3,560,732 |   | — |   | 4,182,806 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 89,230                                         |       | 1,599,666 |   | 8,370,880 |   | 778,207 |   | 10,837,983 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 56,438                                         |       | 352,016 |   | 487,334 |   | (786,251 | ) | 109,537 |   |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | 71                                             |       | 4,512 |   | 10,204 |   | 94,986 |   | 109,773 |   |
| Interest  expense                                                                                               |       | (92,085                                        | )          | (526,435 | ) | (2,357,015 | ) | 452 |   | (2,975,083 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                         |       | (72,254 | ) | (10,885 | ) | — |   | (83,139 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                         |       | — |   | (612,906 | ) | — |   | (612,906 | ) |
|                                                                                                            |       |                                           |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                             |       | (35,576                                        | )          | (242,161 | ) | (2,483,268 | ) | (690,813 | ) | (3,451,818 | ) |
| Discontinued  operations, net                                                                                   |       | 123,145                                        |       | (3,615 | ) | — |   | — |   | 119,530 |   |
| ** **                                                                                                      |       |                                           |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                              | 87,569     |   | $ | (245,776 | ) | $ | (2,483,268 | ) | $ | (690,813 | ) | $ | (3,332,288 | ) |
| ** **                                                                                                      |       |                                           |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                              | 3,955,685  |   | $ | 30,554,753 |   | $ | 244,526,461 |   | $ | — |   | $ | 279,036,899 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Nine Months Ended September 30, 2009** | ** ** |
| ** **                                                                                                      | ** ** | **Retail**                                    | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                             | 458,855    |   | $ | 3,861,557 |   | $ | 27,301,802 |   | $ | (23,780 | ) | $ | 31,598,434 |   |
| Tenant  reimbursements                                                                                          |       | 81,880                                        |       | 1,271,794 |   | — |   | — |   | 1,353,674 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 540,735                                       |       | 5,133,351 |   | 27,301,802 |   | (23,780 | ) | 32,952,108 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 111,157                                       |       | 2,084,517 |   | 9,455,019 |   | — |   | 11,650,693 |   |
| Management  fees                                                                                                |       | 26,953                                        |       | 251,041 |   | 1,352,993 |   | — |   | 1,630,987 |   |
| Property  taxes and insurance                                                                                   |       | 44,248                                        |       | 698,762 |   | 4,114,188 |   | 95,619 |   | 4,952,817 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                        |       | — |   | — |   | 1,907,059 |   | 1,907,059 |   |
| Depreciation  and amortization                                                                                  |       | 124,607                                       |       | 1,451,574 |   | 11,337,730 |   | — |   | 12,913,911 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 306,965                                       |       | 4,485,894 |   | 26,259,930 |   | 2,002,678 |   | 33,055,467 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | 233,770                                       |       | 647,457 |   | 1,041,872 |   | (2,026,458 | ) | (103,359 | ) |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | 155                                           |       | 2,234 |   | 34,233 |   | 189,737 |   | 226,359 |   |
| Interest  expense                                                                                               |       | (268,636                                      | )          | (1,469,189 | ) | (7,000,656 | ) | 78,807 |   | (8,659,674 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                        |       | (102,423 | ) | (20,455 | ) | — |   | (122,878 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                        |       | — |   | (1,654,142 | ) | — |   | (1,654,142 | ) |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |
| **Loss from continuing operations**                                                                             |       | (34,711                                       | )          | (921,921 | ) | (7,599,148 | ) | (1,757,914 | ) | (10,313,694 | ) |
| Discontinued  operations, net                                                                                   |       | 380,217                                       |       | 159,271 |   | — |   | — |   | 539,488 |   |
| ** **                                                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |
| **Consolidated net income (loss)**                                                                              |       | 345,506                                       |       | (762,650 | ) | (7,599,148 | ) | (1,757,914 | ) | (9,774,206 | ) |
| Net  loss attributable to noncontrolling interests                                                              |       | —                                        |       | — |   | (260,108 | ) | — |   | (260,108 | ) |
| ** **                                                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                             | 345,506    |   | $ | (762,650 | ) | $ | (7,339,040 | ) | $ | (1,757,914 | ) | $ | (9,514,098 | ) |
| ** **                                                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                             | 3,893,481  |   | $ | 30,259,010 |   | $ | 262,546,488 |   | $ | — |   | $ | 296,698,979 |   |

 

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| ** **                                                                                                      | ** ** | **(Unaudited)**                               | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
| **Restated**                                                                                                    | ** ** | **Land**                                      | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                             | —     |   | $ | 394,408 |   | $ | 4,742,349 |   | $ | 23,929,767 |   | $ | (107,740 | ) | $ | 28,958,784 |   |
| Tenant  reimbursements                                                                                          |       | —                                        |       | 65,977 |   | 1,200,042 |   | — |   | — |   | 1,266,019 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | —                                        |       | 460,385 |   | 5,942,391 |   | 23,929,767 |   | (107,740 | ) | 30,224,803 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | —                                        |       | 100,024 |   | 1,943,939 |   | 8,540,873 |   | — |   | 10,584,836 |   |
| Management  fees                                                                                                |       | —                                        |       | 23,501 |   | 272,242 |   | 1,203,149 |   | — |   | 1,498,892 |   |
| Property  taxes and insurance                                                                                   |       | —                                        |       | 44,089 |   | 689,217 |   | 3,447,025 |   | 93,705 |   | 4,274,036 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                        |       | — |   | — |   | — |   | 2,159,537 |   | 2,159,537 |   |
| Depreciation  and amortization                                                                                  |       | —                                        |       | 138,967 |   | 1,368,117 |   | 9,243,729 |   | — |   | 10,750,813 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | —                                        |       | 306,581 |   | 4,273,515 |   | 22,434,776 |   | 2,253,242 |   | 29,268,114 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                     |       | —                                        |       | 153,804 |   | 1,668,876 |   | 1,494,991 |   | (2,360,982 | ) | 956,689 |   |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Interest  and other income                                                                                      |       | —                                        |       | 71 |   | 7,347 |   | 22,616 |   | 220,980 |   | 251,014 |   |
| Interest  expense                                                                                               |       | —                                        |       | (277,047 | ) | (1,470,061 | ) | (6,131,388 | ) | (299,245 | ) | (8,177,741 | ) |
| Loss  on disposal of assets                                                                                     |       | —                                        |       | — |   | (131,934 | ) | (28,007 | ) | — |   | (159,941 | ) |
| Loss  from investments in tenants in common                                                                     |       | —                                        |       | — |   | — |   | (1,815,280 | ) | — |   | (1,815,280 | ) |
|                                                                                                            |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| **(Loss) income from continuing operations**                                                                    |       | —                                        |       | (123,172 | ) | 74,228 |   | (6,457,068 | ) | (2,439,247 | ) | (8,945,259 | ) |
| Discontinued  operations, net                                                                                   |       | 10,760                                        |       | 372,828 |   | 321,034 |   | — |   | — |   | 704,622 |   |
| Gain  on sale of discontinued operations                                                                        |       | 120,598                                       |       | — |   | 18,789,535 |   | — |   | — |   | 18,910,133 |   |
| ** **                                                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                           |       | $                                             | 131,358    |   | $ | 249,656 |   | $ | 19,184,797 |   | $ | (6,457,068 | ) | $ | (2,439,247 | ) | $ | 10,669,496 |   |
| ** **                                                                                                      |       |                                          |       |   |   |   |   |   |   |   |   |   |   |
| Land,  buildings and amenities, net                                                                             |       | $                                             | —     |   | $ | 3,955,685 |   | $ | 30,554,753 |   | $ | 244,526,461 |   | $ | — |   | $ | 279,036,899 |   |

 

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

## ** **

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

 

**Critical AccountingPolicies**

** **

A critical accounting policy is one thatwould materially affect our operations or financial condition, and requiresmanagement to make estimates or judgments in certain circumstances.  These judgments often result from the need tomake estimates about the effect of matters that are inherently uncertain.  Critical accounting policies are not to beconfused with accounting principles and methods disclosed in accordance withU.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  Our CriticalAccounting Policies, as previously disclosed in our most recent annual reporton Form 10-K, which was filed on March 31, 2009, discuss judgmentsknown to management pertaining to trends, events or uncertainties known which weretaken into consideration upon the application of those policies and thelikelihood that materially different amounts would be reported upon taking intoconsideration different conditions and assumptions and remain unchanged duringthe quarter ended September 30, 2009.

 

**Results of Operations**

** **

As of September 30, 2009, we ownedwholly or as a tenant in common with an unaffiliated third party or throughjoint venture investments, fourteen multifamily properties, seven office andbusiness centers and three retail properties. We generate substantially all of our operating income from propertyoperations.

 

Net losses for the three months ended September 30,2009 and 2008 were approximately $3.1 million and $3.3 million,respectively.  The decrease was primarilydue to decreased professional fees which were partially offset by increasedoperating losses from our acquisitions of Golf Brook Apartments and Sabal ParkApartments (June 2009), referred to as our “2009 acquisitions.”  Net loss for the nine months ended September 30,2009 was approximately $9.5 million and net income for the nine months ended September 30,2008 was approximately $10.7 million. The decrease was primarily due to the $18.9 million gain recognized onthe sale of the Office Portfolio (May 2008).

 

The following tables include certain selectedsummarized operating data for the three and nine months ended September 30,2009 and 2008.  This data should be readin conjunction with our financial statements, including the notes attachedhereto.

 
| ** **                                                         | ** ** | ** ** | ** ** | **(Unaudited)**                                 | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|-------------------------------------------------|------------|
| ** **                                                         | ** ** | ** ** | ** ** | **Three  Months Ended September 30, 2009** | ** ** |
| ** **                                                         | ** ** | ** ** | ** ** | **Retail**                                      | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     | ** ** | ** ** | ** ** | $                                               | 181,351    |   | $ | 1,693,773 |   | $ | 9,839,388 |   | $ | (7,276 | ) | $ | 11,707,236 |   |
| Operating expenses and  operating expenses reimbursed to affiliate | ** ** | ** ** | ** ** | 30,919                                          |       | 707,950 |   | 3,750,472 |   | — |   | 4,489,341 |   |
| Depreciation and  amortization                                     | ** ** | ** ** | ** ** | 40,062                                          |       | 477,396 |   | 4,042,910 |   | — |   | 4,560,368 |   |
| Total interest expense                                             | ** ** | ** ** | ** ** | (89,014                                         | )          | (505,431 | ) | (2,487,932 | ) | 8,379 |   | (3,073,998 | ) |
| Net income (loss)                                                  | ** ** | ** ** | ** ** | 138,210                                         |       | (237,755 | ) | (2,607,636 | ) | (433,323 | ) | (3,140,504 | ) |
|                                                                    |            |            |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                                         | ** ** | ** ** | ** ** | **(Unaudited)**                                 | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|-------------------------------------------------|------------|
| ** **                                                         | ** ** | ** ** | ** ** | **Three  Months Ended September 30, 2008** | ** ** |
| ** **                                                         | ** ** | ** ** | ** ** | **Retail**                                      | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     | ** ** | ** ** | ** ** | $                                               | 145,668    |   | $ | 1,951,682 |   | $ | 8,858,214 |   | $ | (8,044 | ) | $ | 10,947,520 |   |
| Operating expenses and  operating expenses reimbursed to affiliate | ** ** | ** ** | ** ** | 27,351                                          |       | 694,157 |   | 3,225,814 |   | — |   | 3,947,322 |   |
| Depreciation and  amortization                                     | ** ** | ** ** | ** ** | 39,678                                          |       | 582,396 |   | 3,560,732 |   | — |   | 4,182,806 |   |
| Total interest expense                                             | ** ** | ** ** | ** ** | (92,085                                         | )          | (526,435 | ) | (2,357,015 | ) | 452 |   | (2,975,083 | ) |
| Net income (loss)                                                  | ** ** | ** ** | ** ** | 87,569                                          |       | (245,776 | ) | (2,483,268 | ) | (690,813 | ) | (3,332,288 | ) |
|                                                                    |            |            |            |                                                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | ** ** | ** ** | **(Unaudited)**                                | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|------------------------------------------------|------------|
| ** **                                                         | ** ** | ** ** | ** ** | **Nine  Months Ended September 30, 2009** | ** ** |
| ** **                                                         | ** ** | ** ** | ** ** | **Retail**                                     | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     | ** ** | ** ** | ** ** | $                                              | 540,735    |   | $ | 5,133,351 |   | $ | 27,301,802 |   | $ | (23,780 | ) | $ | 32,952,108 |   |
| Operating expenses and  operating expenses reimbursed to affiliate | ** ** | ** ** | ** ** | 111,157                                        |       | 2,084,517 |   | 9,455,019 |   | — |   | 11,650,693 |   |
| Depreciation and  amortization                                     | ** ** | ** ** | ** ** | 124,607                                        |       | 1,451,574 |   | 11,337,730 |   | — |   | 12,913,911 |   |
| Total interest expense                                             | ** ** | ** ** | ** ** | (268,636                                       | )          | (1,469,189 | ) | (7,000,656 | ) | 78,807 |   | (8,659,674 | ) |
| Net income (loss)                                                  | ** ** | ** ** | ** ** | 345,506                                        |       | (762,650 | ) | (7,339,040 | ) | (1,757,914 | ) | (9,514,098 | ) |
|                                                                    |            |            |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                        | ** ** | **(Unaudited)**                                | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                                        | ** ** | **Nine  Months Ended September 30, 2008** | ** ** |
| ** **                                                        | ** ** | **Land**                                       | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                    |       | $                                              | —     |   | $ | 460,385 |   | $ | 5,942,391 |   | $ | 23,929,767 |   | $ | (107,740 | ) | $ | 30,224,803 |   |
| Operating expenses and  operatingexpenses reimbursed to affiliate |       | —                                         |       | 100,024 |   | 1,943,939 |   | 8,540,873 |   | — |   | 10,584,836 |   |
| Depreciation and  amortization                                    |       | —                                         |       | 138,967 |   | 1,368,117 |   | 9,243,729 |   | — |   | 10,750,813 |   |
| Total interest expense                                            |       | —                                         |       | (277,047 | ) | (1,470,061 | ) | (6,131,388 | ) | (299,245 | ) | (8,177,741 | ) |
| Net income (loss)                                                 |       | 131,358                                        |       | 249,656 |   | 19,184,797 |   | (6,457,068 | ) | (2,439,247 | ) | 10,669,496 |   |
|                                                                   |            |                                                |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing propertiesby segment as of September 30, 2009 and 2008 were as follows:

 
| ** **  | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 68.5     | %          | 78.3     | %          |
| Multifamily |       | 94.6     | %          | 93.8     | %          |
| Retail      |       | 100.0    | %          | 86.4     | %          |
| Land        |       | N/A      |       | N/A      |       |

 

The average occupancy levels at ourcontinuing properties by segment for the three and nine months ended September 30,2009 and 2008 were as follows:

 
| ** **  | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
|-------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **  | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Commercial  |       | 67.4                                       | %          | 78.8                                      | %          | 67.3 | % | 77.4 | % |
| Multifamily |       | 94.7                                       | %          | 94.1                                      | %          | 93.0 | % | 93.3 | % |
| Retail      |       | 98.4                                       | %          | 86.4                                      | %          | 97.8 | % | 88.9 | % |
| Land        |       | N/A                                        |       | N/A                                       |       | N/A |   | N/A |   |

 

We believe the changes in average and periodend occupancy from period to period are temporary effects of each property’sspecific mix of lease maturities and are not indicative of any known trend oruncertainty.  The change in thecommercial segment is due to the continued vacancy of Sears Office Building andKrogers departure from NTS Center, in October 2008.

 

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

 

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

 

The following discussion relating to changesin our results of operations includes only material line items within ourCondensed Consolidated Statements of Operations or line items for which therewas a material change between the three and nine months ended September 30,2009 and 2008.

 

***Rental Income and TenantReimbursements***

*** ***

Rental income andtenant reimbursements from continuing operations for the three months ended September 30,2009 and 2008 were approximately $11.7 million and $11.0 million,respectively.  Rental income and tenant reimbursements from continuingoperations for the nine months ended September 30, 2009 and 2008 were approximately$33.0 million and $30.2 million, respectively. The increases of $0.7 million, or 6%, and $2.8 million, or 9%, wereprimarily the result of our 2008 acquisition of Shelby Farm Apartments (June 2008),referred to as our “2008 acquisition” and our 2009 acquisitions offset by adecrease in occupancy related to Kroger’s departure from NTS Center in October 2008. There were no other material offsetting changes in rental income and tenantreimbursements for the three and nine months ended September 30, 2009 and2008.

 

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

*** ***

Operating expensesfrom continuing operations for the three months ended September 30, 2009and 2008 were approximately $3.2 million and $2.8 million, respectively. Operating expenses from continuing operations for the nine months ended September 30,2009 and 2008 were approximately $8.0 million and $7.3 million,respectively.  The increases of $0.4 million, or 14%, and $0.7 million, or10%, were primarily the result of our 2008 and 2009 acquisitions, offset bydecreases in repairs and maintenance primarily at Willow Lake Apartments andWillows of Plainview Apartments.  Therewere no other material offsetting changes in operating expenses from continuingoperations for the three or nine months ended September 30, 2009 and 2008.

 

Operating expenses reimbursed to affiliatefrom continuing operations for the three months ended September 30, 2009and 2008 were approximately $1.3 million and $1.2 million, respectively.  Operating expenses reimbursed to affiliatefrom continuing operations for the nine months ended September 30, 2009and 2008 were approximately $3.7 million and $3.3 million, respectively.  The increases of $0.1 million, or 8%, and$0.4 million, or 12%, were primarily due to our 2008 and 2009acquisitions.  There were no othermaterial offsetting changes in operating expenses reimbursed to affiliate fromcontinuing operations for the three or nine months ended September 30,2009 and 2008.

 

We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company employs the individuals who provide services necessary tooperate our properties and conduct our business.  NTS Development Company provides employeesthat may also perform services for other properties and businessenterprises.  In the situation where aparticular employee benefits multiple operations, the employee’s cost isproportionately charged out to the entity receiving the services.  We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our CondensedConsolidated Statements of Operations as “Operating expenses reimbursed to affiliate.”  The services provided by others areclassified as “Operating expenses.”

 

Operating expenses reimbursed to affiliateare for services performed by employees of NTS Development Company, anaffiliate of our managing general partner. These employee services include property management, leasing,maintenance, security and other services necessary to manage and operate ourbusiness.

 

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Operating expenses reimbursed to affiliatefrom continuing operations consisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                            | ** ** | **(Unaudited)**                           | ** ** |
|---------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **          | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
| ** **          | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Property            |       | $                                          | 885,000    |                                      | $          | 770,000 |   | $ | 2,462,000 |   | $ | 2,141,000 |   |
| Multifamily Leasing |       | 184,000                                    |       | 157,000                                   |       | 459,000 |   | 401,000 |   |
| Administrative      |       | 248,000                                    |       | 239,000                                   |       | 729,000 |   | 700,000 |   |
| Other               |       | 15,000                                     |       | 15,000                                    |       | 39,000 |   | 46,000 |   |
|                |       |                                       |       |                                      |       |   |   |   |   |
| **Total**           |       | $                                          | 1,332,000  |                                      | $          | 1,181,000 |   | $ | 3,689,000 |   | $ | 3,288,000 |   |

 

***Management Fees***

*** ***

Management fees from continuing operationsfor the three months ended September 30, 2009 and 2008 were approximately$0.6 million and $0.5 million, respectively. Management fees from continuing operations for the nine months ended September 30,2009 and 2008 were approximately $1.6 million and $1.5 million,respectively.  The increases of $0.1million, or 20%, and $0.1 million, or 7%, were primarily the result of our 2008and 2009 acquisitions.  There were noother material offsetting changes in management fees for the three and ninemonths ended September 30, 2009 and 2008.

 

Pursuant to our management agreement, NTSDevelopment Company receives property management fees equal to 5% of the grosscollected revenue from our wholly-owned properties and joint venture propertiesthat are less than wholly-owned, but which we control or for which we are theprimary beneficiary.  NTS DevelopmentCompany receives property management fees from our properties owned as a tenantin common with an unaffiliated third party equal to 3.5% of their grosscollected revenue under separate management agreements.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.  Disposition fees of upto 6% of the gross sales price may be paid to NTS Development Company for thesale of a property owned as a tenant in common with an unaffiliated thirdparty.  Management fees are calculated asa percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenuebetween years will differ from the fluctuations in management fee expense.

 

***Property Taxes and Insurance***

*** ***

Property taxes and insurance expense from continuing operations for thethree months ended September 30, 2009 and 2008 were approximately $1.6million and $1.4 million, respectively. The increase of $0.2 million, or 14%, was primarily related to our 2008acquisition (approximately $0.1 million), and our 2009 acquisitions(approximately $0.2 million).  Theincrease is offset by approximately $0.1 million of decreased property taxexpense at The Grove at Richland and The Grove at Whitworth.  Property taxes and insurance from continuingoperations for the nine months ended September 30, 2009 and 2008 wereapproximately $5.0 million and $4.3 million, respectively.  The increaseof $0.7 million, or 16%, was primarily due to our 2008 acquisition(approximately $0.6 million), 2009 acquisitions (approximately $0.2 million)and increased expense at Willow Lake Apartments (approximately $0.4 million)due to higher property tax assessments for the nine months ended September 30,2009.  The increases are partially offset by approximately $0.6 million ofdecreased property tax expense at Castle Creek Apartments, Lake ClearwaterApartments and The Lakes Apartments due to successful property tax assessmentappeals for the nine months ended September 30, 2009.  There were noother material offsetting changes in property taxes and insurance for the threeand nine months ended September 30, 2009 and 2008.

 

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

*** ***

Professional and administrative expenses fromcontinuing operations for the three months ended September 30, 2009 and2008 were approximately $0.1 million and $0.4 million, respectively.  Professional and administrative 

 

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expenses from continuing operations for thenine months ended September 30, 2009 and 2008 were approximately $0.8million and $0.9 million, respectively. The decreases of $0.3 million, or 75%, and $0.1 million, or 11%, wereprimarily due to decreased professional fees. There were no material offsetting changes in professional andadministrative expenses for the nine months ended September 30, 2009 and2008.

 

Professional and administrative expensesreimbursed to affiliate from continuing operations for the three months ended September 30,2009 and 2008 were approximately $0.4 million and $0.4 million,respectively.  Professional andadministrative expenses reimbursed to affiliate from continuing operations forthe nine months ended September 30, 2009 and 2008 were approximately $1.2million and $1.2 million, respectively. For the three and nine months ended September 30, 2009 and 2008,there were no material offsetting changes in professional and administrativeexpenses reimbursed to affiliate.

 

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

 

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

 

Professional and administrativeexpenses reimbursed to affiliate from continuing operations consistedapproximately of the following:

 
| ** **         | ** ** | **(Unaudited)**                            | ** ** | **(Unaudited)**                           | ** ** |
|--------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **         | ** ** | **Three  Months Ended September 30,** | ** ** | **Nine  Months Ended September 30,** | ** ** |
| ** **         | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Finance            |       | $                                          | 84,000     |                                      | $          | 95,000 |   | $ | 277,000 |   | $ | 293,000 |   |
| Accounting         |       | 183,000                                    |       | 175,000                                   |       | 546,000 |   | 586,000 |   |
| Investor Relations |       | 64,000                                     |       | 72,000                                    |       | 217,000 |   | 224,000 |   |
| Human Resources    |       | 4,000                                      |       | 5,000                                     |       | 12,000 |   | 15,000 |   |
| Overhead           |       | 32,000                                     |       | 36,000                                    |       | 100,000 |   | 108,000 |   |
|               |       |                                       |       |                                      |       |   |   |   |   |
| **Total**          |       | $                                          | 367,000    |                                      | $          | 383,000 |   | $ | 1,152,000 |   | $ | 1,226,000 |   |

*** ***

***Depreciation andAmortization***

*** ***

Depreciation and amortization expense fromcontinuing operations for the three months ended September 30, 2009 and2008 was approximately $4.6 million and $4.2 million, respectively.  Depreciation and amortization expense fromcontinuing operations for the nine months ended September 30, 2009 and2008 was approximately $12.9 million and $10.8 million, respectively.   The increases of $0.4 million, or 10%, and$2.1 million, or 19%, were primarily due to our 2008 and 2009 acquisitions andour reclassification of NTS Center into continuing operations.  There were no other material offsettingchanges in depreciation and amortization for the three and nine months ended September 30,2009 and 2008.

 

***Interest Expense***

*** ***

Interest expense from continuing operationsfor the three months ended September 30, 2009 and 2008 was approximately$3.1 million and $3.0 million, respectively. Interest expense from continuing operations for the nine months ended September 30,2009 and 2008 was approximately $8.7 million and $8.2 million,respectively.  The increase of $0.1million, or 3%, for the three months ended September 30, 2009 and 2008 wasprimarily due to our 2009 acquisitions partially offset by a decrease ininterest expense related to our revolving note payable and a variable ratemortgage payable.  The increase of $0.5million, or 6%, for the nine months ended September 30, 2009 

 

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and 2008 was primarily due to our 2008 and2009 acquisitions partially offset by our May 2008 payoff of our mortgagepayable to a bank of $14.3 million, which relates to the sale of the OfficePortfolio and a decrease in interest expense related to the interest rateswap.  There were no other materialoffsetting changes in interest expense for the three and nine months ended September 30,2009 and 2008.

 

***Loss on Disposal of Assets***

*** ***

The loss on disposal of assets fromcontinuing operations for the three and nine months ended September 30,2009 and 2008 can be attributed to assets that were not fully depreciated atthe time of replacement, spread primarily amongst the commercial and multifamilyproperties.  The 2009 loss on disposal ofassets was due to exterior lighting, heating and air conditioning units andproperty handrails while the 2008 loss on disposal of assets included heatingand air conditioning unit replacement, tenant finish renovations, signage, roofreplacement and clubhouse renovations.

 

***Loss From Investment inTenants in Common***

*** ***

Loss from investment in tenants in common forthe three and nine months ended September 30, 2009 and 2008 includes thenet operating loss attributable to our investments in tenants in common with anunaffiliated third party.  The propertiesare The Overlook at St. Thomas Apartments and Creek’s Edge at Stony PointApartments.  There were no other materialoffsetting changes in loss from investment in tenants in common for the threeand nine months ended September 30, 2009 and 2008.

 

***Discontinued Operations***

*** ***

Net income from discontinued operations, netfor the three months ended September 30, 2009 and 2008 was approximately$0.3 million and $0.1 million, respectively. Net income from discontinued operations, net for the nine months ended September 30,2009 and 2008, was approximately $0.5 million and $0.7 million,respectively.  Discontinued operations,net for the three and nine months ended September 30, 2009 and 2008,includes the net operating results for the properties previously sold andcurrently held for sale as listed below.

 
| **Property**                                  | ** ** | **Location**   | ** ** | **Date of  Sale** | ** ** |
|-----------------------------------------------|------------|----------------|------------|-------------------|------------|
| Atrium Center                                 |       | Louisville, KY |       | May 2008     |       |
| Blankenbaker Business  Center I               |       | Louisville, KY |       | May 2008     |       |
| Blankenbaker Business  Center II              |       | Louisville, KY |       | May 2008     |       |
| Anthem Office Center                          |       | Louisville, KY |       | May 2008     |       |
| Plainview Center                              |       | Louisville, KY |       | May 2008     |       |
| Plainview Point Office  Center Phase I and II |       | Louisville, KY |       | May 2008     |       |
| Plainview Point Office  Center Phase III      |       | Louisville, KY |       | May 2008     |       |
| ITT Parking Lot                               |       | Louisville, KY |       | May 2008     |       |
| Outlet Mall                                   |       | Louisville, KY |       | Held for Sale     |       |

** **

**Gainon Sale of Discontinued Operations**

** **

Gain on sale of discontinued operations forthe nine months ended September 30, 2008 was approximately $18.9 million,due to the sale of the Office Portfolio on May 1, 2008.

 

**Liquidityand Capital Resources**

** **

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

 

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The following table summarizes ourapproximate sources/uses of cash flow for the nine months ended September 30,2009 and 2008:

 
| ** **                                           | ** ** | **(Unaudited)**                           | ** ** |
|------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **Nine  Months Ended September 30,** | ** ** |
| ** **                                           | ** ** | **2009**                                  | ** ** | **2008** | ** ** |
| Operating activities                                 | ** ** | **$**                                     | 5,251,000  |   | $ | 2,497,000 |   |
| Investing activities                                 |       | (33,926,000                               | )          | 1,381,000 |   |
| Financing activities                                 |       | 30,012,000                                |       | (4,449,000 | ) |
|                                                 |       |                                      |       |   |   |
| **Net increase (decrease)  in cash and equivalents** |       | $                                         | 1,337,000  |   | $ | (571,000 | ) |

 

***Cash Flow from OperatingActivities***

*** ***

Net cash provided by operating activitiesincreased to approximately $5.3 million from $2.5 million for the nine monthsended September 30, 2009 and 2008, respectively.  The increase was primarily due to increasedcash from operating results and less cash used to fund restricted cash whichwas offset by increased cash used to fund other assets.

 

***Cash Flow from InvestingActivities***

*** ***

Net cash used in investing activities wasapproximately $33.9 million for the nine months ended September 30, 2009compared to cash provided by investing activities of approximately $1.4 millionfor the nine months ended September 30, 2008.  In 2009, we used approximately $32.2 millionon our 2009 acquisitions and approximately $1.8 million on capitalimprovements.  In 2008, we usedapproximately $41.0 million on our 2008 acquisition and approximately $3.6million on capital improvements which were partially offset by approximately$46.5 million of net proceeds from the sale of our Office Portfolio.

 

***Cash Flow from FinancingActivities***

*** ***

***Net cashprovided by financing activities was approximately $30.0 million for the ninemonths ended September 30, 2009 compared to cash used in financingactivities of approximately $4.4 million for the nine months ended September 30,2008.  The increase was primarily theresult of the net activity on the revolving note payable of $18.8 million, adecrease in additional payments on mortgages of $44.7 million and $5.6 millionof contributions from noncontrolling interest holders.  The increase in cash provided is offset by adecrease in proceeds from mortgages payable for acquisitions of $36.1 million.***

*** ***

***Future Liquidity***

*** ***

Our future liquidity depends significantly onour properties’ occupancy remaining at a level which allows us to make debtpayments and have adequate working capital, currently and in the future.  If occupancy were to fall below that leveland remain at or below that level for a significant period of time, our abilityto make payments due under our debt agreements and to continue paying dailyoperational costs would be greatly impaired. In the next twelve months, we intend to operate the properties in asimilar manner to their operation in recent years.  Cash reserves, which consist of unrestrictedcash as shown on our balance sheet, were approximately $1.3 million on September 30,2009.

 

On March 17, 2009, we announced that theboard of directors of our managing general partner approved a quarterlydistribution of $0.05 per unit on our limited partnership units.  The distribution was paid on April 17,2009, to limited partners of record at the close of business on March 31,2009.

 

On June 9, 2009, we announced that theboard of directors of our managing general partner approved a quarterlydistribution of $0.05 per unit on our limited partnership units.  The distribution was paid on July 16,2009, to limited partners of record at the close of business on June 30,2009.

 

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On September 15, 2009, we announced thatthe board of directors of our managing general partner approved a quarterlydistribution of $0.05 per unit on our limited partnership units.  The distribution was paid on October 16,2009, to limited partners of record at the close of business on September 30,2009.

 

On October 31, 2009, we amended ourrevolving note payable.  The amendmentextended the maturity date to May 31, 2010 and included an Entity LevelDebt Service Coverage Ratio.

 

Pursuant to leasing agreements signed by September 30,2009, we are obligated to incur expenditures of approximately $0.7 millionfunded by borrowings on our debt during the next twelve months primarily forrenovations and tenant origination costs necessary to continue leasing ourproperties.  These costs could increasematerially if we are successful in leasing space in Sears Office Building.  This discussion of future liquidity detailsour material commitments.  We intend torenew our note payable and mortgage payable coming due in the next twelvemonths with the existing lenders.

 

We expect to receive $2.5 million on May 1,2010 and $1.0 million on May 1, 2011 in satisfaction of our unaffiliatednotes receivable.

 

The availability on our revolving notepayable was approximately $1.7 million as of September 30, 2009.

 

***Property Transactions***

*** ***

***Acquisitions***

*** ***

During the nine months ended September 30,2009, we made the following property acquisitions:

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

 

----

(1)          Financed by a mortgagepayable to a government sponsored enterprise of $9.6 million.  Our ownership percentage at September 30,2009 was 51%.

(2)          Financed by a mortgagepayable to a government sponsored enterprise of $14.6 million.  Our ownership percentage at September 30,2009 was 51%.

 

***On July 29,2009, our joint venture partner contributed approximately $1.7 million to ourjoint ventures which reduced our ownership percentage to 65.1% of each jointventure.***

*** ***

On August 6, 2009, our joint venturepartner contributed approximately $1.5 million to our joint ventures whichreduced our ownership percentage to 51.0% of each joint venture.  We do not expect our ownership interest ineither joint venture to be further reduced.

 

***Dispositions***

*** ***

During the nine months ended September 30,2009, we did not dispose of any properties.

 

During the nine months ended September 30,2008, we made the following property dispositions:

 
| **Property — Commercial**                    | ** ** | **Location**   | ** ** | **Square  Feet** | ** ** | **Date of  Sale** | ** ** |
|---------------------------------------------------|------------|----------------|------------|------------------|------------|-------------------|------------|
| Atrium Center (1)                                 |       | Louisville, KY |       | 104,286          |       | May 1, 2008  |       |
| Blankenbaker Business  Center I (1)               |       | Louisville, KY |       | 160,689          |       | May 1, 2008  |       |
| Blankenbaker Business  Center II (1)              |       | Louisville, KY |       | 77,408           |       | May 1, 2008  |       |
| Anthem Office Center (1)                          |       | Louisville, KY |       | 85,305           |       | May 1, 2008  |       |
| Plainview Center (1)                              |       | Louisville, KY |       | 98,000           |       | May 1, 2008  |       |
| Plainview Point Office  Center Phase I and II (1) |       | Louisville, KY |       | 57,301           |       | May 1, 2008  |       |
| Plainview Point Office  Center Phase III (1)      |       | Louisville, KY |       | 61,680           |       | May 1, 2008  |       |
| ITT Parking Lot (1)                               |       | Louisville, KY |       | N/A              |       | May 1, 2008  |       |

 

----

(1)         We receivedapproximately $56.0 million in connection with the sale resulting in a gain ofapproximately $19.0 million.  We usedproceeds from this disposition to pay down $19.4 million on our revolving notepayable, repaid our $14.3 million mortgage payable to a bank and to acquireShelby Farms.

 

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On June 23, 2009, we announced that weentered into an agreement to sell our Outlet Mall retail property to anunaffiliated third party.  Pursuant tothe agreement, we are scheduled to receive $4.0 million in cash if the sale iscompleted.  The proposed purchaser mustclose by March 12, 2010.  We intendto use the proceeds from the sale to repay outstanding debt and forworking  capital requirements.

 

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

 

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**Website Information**

** **

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

 

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## **Item 3 — Quantitative and Qualitative Disclosures About MarketRisk**

## ** **

Our primary market risk exposure, with regardto financial instruments is expected to be our exposure to changes in interestrates.  We refinanced substantially allof our debt acquired at the time of our merger with instruments, which bear interestat a fixed rate, with the exception of approximately $34.4 million at variablerates.  We anticipate that a hypothetical100 basis point increase in interest rates would increase interest expense onour variable rate debt by approximately $0.3 million annually.

 

We entered into an interest rate swapagreement beginning in September 2007 that effectively converted $18.0million of our variable-rate debt bearing interest at the LIBOR one month rateto a fixed rate basis through September 2009, when the contract expired.

 

The interest rate swap expired on September 1,2009.  The fair value of the interestrate swap agreement at December 31, 2008, was $0.5 million, and wasincluded in Other Liabilities on our Condensed Consolidated Balance Sheet.  During the three months ended September 30,2009, we recognized a net loss of approximately $4,000 and during the threemonths ended September 30, 2008 we recognized an insignificant net loss onthe interest rate swap agreement after any net payments were received ormade.  During the nine months ended September 30,2009 and 2008, we recognized a net loss of approximately $90,000 and $188,000on the interest rate swap agreement after any net payments were received ormade.

 

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

## ** **

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

 

Our managing general partner’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof our disclosure controls and procedures as of September 30, 2009.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of September 30, 2009.  There were no changes in our internal controlover financial reporting during the quarter ended September 30, 2009 thatmaterially affected or are reasonably likely to materially affect the internalcontrol over financial reporting.

 

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# **PART II— OTHER INFORMATION**

# ** **

## **Item 1 — LegalProceedings**

## ** **

None.

 

## **Item 1A — RiskFactors**

## ** **

There have not been material changes to ourRisk Factors as disclosed in our most recent annual report on Form 10-K asfiled with the Securities and Exchange Commission on March 31, 2009.

 

## **Item 2 —Unregistered Sales of Equity Securities and Use of Proceeds**

## ** **

On May 16, 2008, we announced that anentity controlled by our Chairman, Mr. J.D. Nichols, commenced apre-arranged trading plan to purchase limited partnership units of NTS RealtyHoldings Limited Partnership (the “Company”) pursuant to Rule 10b5-1 underthe Securities Exchange Act of 1934, as amended (the “Act”).  The plan authorizes its administrator, WellsFargo Investments, LLC, to purchase up to $1.2 million of the Company’s limitedpartnership units from time to time through no later than April 2010.  Under the terms of the plan, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

On December 1, 2008, we announced thattwo entities created by Mr. Nichols commenced pre-arranged trading plansto purchase limited partnership units of the Company pursuant to Rule 10b5-1under the Act.  Each of the plansauthorize its administrator, Wells Fargo Investments, LLC, to purchase up toapproximately $0.1 million of the Company’s limited partnership units from timeto time through no later than November 2010.  Under the terms of the plans, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

On December 15, 2008, we announced thatan entity controlled by Mr. Nichols commenced a pre-arranged trading planto purchase limited partnership units of the Company pursuant to Rule 10b5-1under the Act.  The plan authorizes itsadministrator, Wells Fargo Investments, LLC, to purchase up to approximately$0.4 million of the Company’s limited partnership units from time to timethrough no later than November 2010. Under the terms of the plan, Mr. Nichols has no discretion or controlover the timing, effectuation or the amount of each purchase.

 

During the nine months ended September 30,2009, 93,400 units were purchased by the entities created or controlled by Mr. Nicholspursuant to the trading plans announced May 16, 2008, December 1,2008 and December 15, 2008, respectively. The table below summarizes activity pursuant to these plans for thequarterly period ended September 30, 2009.

 
| **Period**          | ** ** | **Total  Number of  Units Purchased** | ** ** | **Average  Price Paid  Per Unit** | ** ** | **Total  Number of  Units Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum  Number  (or Approximate  Dollar Value) of Units  That May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|---------------------|------------|---------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------|------------|
| July 2009      |       | 9,100                                 |       | $                                 | 3.59       |                                                                                          | 325,491    | (2)                                                                                                                        | (1         | ) |
|                |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| August 2009    |       | 22,600                                |       | $                                 | 4.05       |                                                                                          | 348,091    | (2)                                                                                                                        | (1         | ) |
|                |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| September 2009 |       | 17,400                                |       | $                                 | 4.47       |                                                                                          | 365,491    | (2)                                                                                                                        | (1         | ) |
|                |       |                                  |       |                              |       |                                                                                          |       |                                                                                                                       |       |
| Total               |       | 49,100                                |       | $                                 | 4.11       |                                                                                          | 365,491    | (2)                                                                                                                        | (1         | ) |

 

----

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

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

 

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

## ** **

None.

 

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

## ** **

None.

 

## **Item 5 — OtherInformation**

## ** **

None.

 

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## **Item 6 — Exhibits**

## ** **

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

 

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| 31.2   |   | Certification of Chief Financial Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act,  as amended |   | (16)   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
|   |   |                                                                                                                                                   |   |   |
| 32.1   |   | Certification of Chief Executive Officer Pursuant to U.S.C. 1350, as  adopted pursuant to Section 906 of theSarbanes-Oxley  Act of 2002           |   | (16)   |
|   |   |                                                                                                                                                   |   |   |
| 32.2   |   | Certification of Chief Financial Officer Pursuant to U.S.C. 1350, as  adopted pursuant to Section 906 of theSarbanes-Oxley  Act of 2002           |   | (16)   |

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                         | ** ** | ** ** |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 99.01                |       | Registration Statement on Form S-4/A (Amendment No. 5), as  filed by the Registrant with the Securities andExchange  Commission on October 27, 2004 |       | (3)        |

 

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

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 
| ** ** | **NTS REALTY HOLDINGS LIMITED PARTNERSHIP** |
|------------|---------------------------------------------|
|       |                                        |   |   |   |
|       | By:                                         | NTS REALTY CAPITAL, INC. |
|       |                                        | Its: | Managing General Partner |
|       |                                        |   |   |   |
|       |                                        | By: | */s/ Brian F. Lavin* |
|       |                                        |   | Brian F. Lavin |
|       |                                        |   | Its: | President and Chief Executive Officer |
|       |                                        |   | Date: | November 6, 2009 |
|       |                                        |   |   |   |
|       |                                        | By: | */s/ Gregory A. Wells* |
|       |                                        |   | Gregory A. Wells |
|       |                                        |   | Its: | Chief Financial Officer |
|       |                                        |   | Date: | November 6, 2009 |
|            |                                             |  |  |  |  |  |

 

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