Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

** **

**(Mark One)**

 

**x**  QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF1934

 

**For the quarterly period ended September 30,2008**

 

**OR**

 

**o**  TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF1934

 

**For thetransition period from                            to                             **

 

**Commission file number 001-32389**

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

(Exact name of registrant as specified in itscharter)

 

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

 

**(502) 426-4800**

(Registrant’s telephonenumber, including area code)

 

**Not applicable**

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

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

**Yes**x    **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 “large accelerated filer,” “accelerated filer,” and“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Checkone):

 

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

 

Indicate by check mark whether the registrantis a shell company (as defined in Rule 12b-2 of the Exchange Act).

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

 

**APPLICABLEONLY TO CORPORATE ISSUERS**

 

As of November 7, 2008,there were 11,380,760 of the registrant’s limited partnership unitsoutstanding.

 

 

 

----

Tableof Contents

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

 

**FORM 10-Q**

** **

**TABLE OF CONTENTS**

** **
| **PART I – FINANCIAL INFORMATION**                                                                 | **4**                                                                                              |
|--------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|
| ** **                                                                                                   | ** **                                                                                         |
| Item 1                                                                                                       | – Unaudited Financial Statements                                                              | 4 |
| Consolidated  Balance Sheets as of September 30, 2008 and December 31, 2007                        | 4                                                                                                  |
| Consolidated  Statement of Partners’ Equity as of September 30, 2008                               | 4                                                                                                  |
| Consolidated  Statements of Operations for the Three and Nine Months Ended  September 30, 2008 and 2007 | 5                                                                                                  |
| Consolidated  Statements of Cash Flows for the Nine Months Ended September 30, 2008  and 2007           | 6                                                                                                  |
| Notes to Consolidated Financial Statements                                                                   | 7                                                                                                  |
| Item 2                                                                                                       | – Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3                                                                                                       | – Quantitative  and Qualitative Disclosures About Market Risk                                 | 30 |
| Item  4                                                                                                      | – Controls and  Procedures                                                                    | 31 |
| Item  4T                                                                                                     | – Controls and  Procedures                                                                    | 31 |
|                                                                                                         |                                                                                               |   |
| **PART II – OTHER INFORMATION**                                                                    | **32**                                                                                             |
| ** **                                                                                                   | ** **                                                                                         |
| Item  1                                                                                                      | – Legal Proceedings                                                                           | 32 |
| Item 1A                                                                                                      | – Risk Factors                                                                                | 32 |
| Item 2                                                                                                       | – Unregistered  Sales of Equity Securities and Use of Proceeds                                | 32 |
| Item 3                                                                                                       | – Defaults  Upon Senior Securities                                                            | 33 |
| Item 4                                                                                                       | – Submission  of Matters to a Vote of Security Holders                                        | 33 |
| Item  5                                                                                                      | – Other Information                                                                           | 33 |
| Item 6                                                                                                       | – Exhibits                                                                                    | 34 |
| SIGNATURES                                                                                                   | 36                                                                                                 |

 

2

----

Tableof Contents

 

**INFORMATIONREGARDING FORWARD-LOOKING STATEMENTS**

** **

Some of thestatements included in this quarterly report on Form 10-Q, particularlythose included in Part I, Item 2 – Management’s Discussion and Analysis ofFinancial Condition and Results of Operations (“MD&A”), may be considered “forward-lookingstatements” because the statements relate to matters which have not yetoccurred. For example, phrases such as “we anticipate,” “believe” or “expect”indicate that it is possible that the event anticipated, believed or expectedmay not occur. If these events do not occur, the result, which we expected,also may, or may not, occur in a different manner, which may be more or lessfavorable to us. We do not undertake any obligation to update theseforward-looking statements.

 

Any forward-lookingstatements included in MD&A, or elsewhere in this report, reflect ourmanaging general partner’s best judgment based on known factors, but involverisks and uncertainties. Actual results could differ materially from thoseanticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on March 25, 2008. Any forward-lookinginformation provided by us pursuant to the safe harbor established by thePrivate Securities Litigation Reform Act of 1995 should be evaluated in thecontext of these factors.

 

3

----

Tableof Contents

 

# **PART I – FINANCIAL INFORMATION**

# ** **

## **Item 1 – Unaudited Financial Statements**

## ** **

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedBalance Sheets as of September 30, 2008 and December 31, 2007

 
| ** **                                                                                                                                   | ** ** | **(Unaudited)**              | ** **  | ** **                      | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                   | ** ** | **September 30,  2008** | ** **  | **December 31, 2007** | ** ** |
| **ASSETS:**                                                                                                                                  |       |                         |        |                            |       |
| Cash and  equivalents                                                                                                                        |       | $                            | 1,288,028   |                            | $          | 1,577,082 |   |
| Cash and  equivalents - restricted                                                                                                           |       | 5,483,178                    |        | 965,862                         |       |
| Accounts  receivable, net of allowance for doubtful accounts of $194,044 at  September  30, 2008 and $100,028 at December 31, 2007 |       | 1,574,974                    |        | 1,007,212                       |       |
| Notes  receivable                                                                                                                            |       | 3,500,000                    |        | -                               |       |
| Deposits                                                                                                                                     |       | 500,000                      |        | -                               |       |
| Land,  buildings and amenities, net                                                                                                          |       | 354,310,369                  |        | 324,523,682                     |       |
| Long-lived  assets held for sale                                                                                                             |       | -                            |        | 33,958,931                      |       |
| Other assets                                                                                                                                 |       | 3,863,056                    |        | 3,589,100                       |       |
|                                                                                                                                         |       |                         |        |                            |       |
| **Total  assets**                                                                                                                            |       | $                            | 370,519,605 |                            | $          | 365,621,869 |   |
|                                                                                                                                         |       |                         |        |                            |       |
| **LIABILITIES:**                                                                                                                             |       |                         |        |                            |       |
| Mortgages  and notes payable                                                                                                                 |       | $                            | 266,462,313 |                            | $          | 265,176,332 |   |
| Accounts  payable and accrued expenses                                                                                                       |       | 2,845,451                    |        | 4,080,205                       |       |
| Accounts  payable and accrued expenses due to affiliate                                                                                      |       | 670,097                      |        | 640,102                         |       |
| Distributions  payable                                                                                                                       |       | 910,461                      |        | 1,138,076                       |       |
| Security  deposits                                                                                                                           |       | 903,314                      |        | 882,709                         |       |
| Long-lived  liabilities held for sale                                                                                                        |       | -                            |        | 3,102,787                       |       |
| Other  liabilities                                                                                                                           |       | 6,588,586                    |        | 4,731,728                       |       |
|                                                                                                                                         |       |                         |        |                            |       |
| **Total  liabilities**                                                                                                                       |       | 278,380,222                  |        | 279,751,939                     |       |
|                                                                                                                                         |       |                         |        |                            |       |
| **MINORITY  INTEREST**                                                                                                                       |       | 7,560,977                    |        | 9,002,023                       |       |
|                                                                                                                                         |       |                         |        |                            |       |
| COMMITMENTS  AND CONTINGENCIES (NOTE 11)                                                                                                     |       |                         |        |                            |       |
|                                                                                                                                         |       |                         |        |                            |       |
| **PARTNERS’  EQUITY**                                                                                                                   |       | 84,578,406                   |        | 76,867,907                      |       |
|                                                                                                                                         |       |                         |        |                            |       |
| **Total liabilities  and partners’ equity**                                                                                             |       | $                            | 370,519,605 |                            | $          | 365,621,869 |   |

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatement of Partners’ Equity as of September 30, 2008

(Unaudited)

 
| ** **                                           | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**   | ** ** |
|------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|-----------------------|------------|-------------|------------|
| **PARTNERS’  EQUITY:**                          |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Initial  equity                                      |       | 714,491                         |       | 10,667,117                       |       | $                    | 3,131,381  |                  | $          | 46,750,444  |       | $ | 49,881,825 |   |
| Net income  prior years                              |       | -                               |       | -                                |       | 2,694,543            |       | 40,225,451            |       | 42,919,994  |       |
| Net income  current year                             |       | -                               |       | -                                |       | 669,837              |       | 9,999,659             |       | 10,669,496  |       |
| Cash  distributions declared to date                 |       | -                               |       | -                                |       | (1,186,107           | )          | (17,706,802           | )          | (18,892,909 | )          |
| Retirement  of limited partnership interests to date |       | -                               |       | (848                             | )          | -                    |       | -                     |       | -           |       |
|                                                 |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Balances on  September 30, 2008                 |       | 714,491                         |       | 10,666,269                       |       | $                    | 5,309,654  |                  | $          | 79,268,752  |       | $ | 84,578,406 |   |

 

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

 

4

----

Tableof Contents

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatements of Operations for the Three and Nine Months Ended September 30,2008 and 2007

(Unaudited)

 
| ** **                                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                             | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| **REVENUE:**                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Rental  income                                                         |       | $                                                    | 12,718,627 |                                                | $          | 10,779,325 |   | $ | 35,501,446 |   | $ | 29,995,638 |   |
| Tenant  reimbursements                                                 |       | 450,998                                              |       | 420,084                                             |       | 1,266,019 |   | 1,280,821 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **Total  revenue**                                                     |       | 13,169,625                                           |       | 11,199,409                                          |       | 36,767,465 |   | 31,276,459 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **EXPENSES:**                                                          |       |                                                 |       |                                                |       |   |   |   |   |
| Operating  expenses                                                    |       | 3,301,972                                            |       | 2,558,771                                           |       | 8,654,418 |   | 7,148,387 |   |
| Operating  expenses reimbursed to affiliate                            |       | 1,432,024                                            |       | 1,311,028                                           |       | 4,030,924 |   | 3,738,762 |   |
| Management fees                                                        |       | 616,699                                              |       | 528,862                                             |       | 1,732,998 |   | 1,523,035 |   |
| Property  taxes and insurance                                          |       | 1,654,128                                            |       | 1,328,282                                           |       | 4,998,232 |   | 4,024,010 |   |
| Professional  and administrative expenses                              |       | 363,889                                              |       | 336,369                                             |       | 933,191 |   | 1,009,024 |   |
| Professional  and administrative expenses reimbursed to affiliate      |       | 383,083                                              |       | 405,778                                             |       | 1,226,346 |   | 1,315,241 |   |
| Depreciation  and amortization                                         |       | 5,393,935                                            |       | 4,216,215                                           |       | 14,477,185 |   | 11,802,645 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **Total  operating expenses**                                          |       | 13,145,730                                           |       | 10,685,305                                          |       | 36,053,294 |   | 30,561,104 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **OPERATING  INCOME**                                                  |       | 23,895                                               |       | 514,104                                             |       | 714,171 |   | 715,355 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| Interest and  other income                                             |       | 114,993                                              |       | 18,606                                              |       | 269,435 |   | 81,667 |   |
| Interest  expense                                                      |       | (3,863,315                                           | )          | (3,408,525                                          | )          | (10,832,497 | ) | (9,459,482 | ) |
| Loss on  disposal of assets                                            |       | (84,848                                              | )          | (8,225                                              | )          | (164,586 | ) | (57,144 | ) |
| Minority  interest                                                     |       | (480,602                                             | )          | (375,648                                            | )          | (1,441,046 | ) | (667,944 | ) |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **LOSS  FROM CONTINUING OPERATIONS**                                   |       | (3,328,673                                           | )          | (2,508,392                                          | )          | (8,572,431 | ) | (8,051,660 | ) |
| Discontinued  operations, net                                          |       | (3,615                                               | )          | 545,714                                             |       | 331,794 |   | 879,913 |   |
| Gain on sale  of discontinued operations                               |       | -                                                    |       | -                                                   |       | 18,910,133 |   | 13,482,291 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **NET  (LOSS) INCOME**                                                 |       | $                                                    | (3,332,288 | )                                                   | $          | (1,962,678 | ) | $ | 10,669,496 |   | $ | 6,310,544 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **Loss  from continuing operations allocated to limited partners**     |       | $                                                    | (3,119,697 | )                                                   | $          | (2,350,914 | ) | $ | (8,034,249 | ) | $ | (7,546,223 | ) |
| Discontinued  operations, net allocated to limited partners            |       | (3,388                                               | )          | 511,454                                             |       | 310,964 |   | 824,677 |   |
| Gain on sale  of discontinued operations allocated to limited partners |       | -                                                    |       | -                                                   |       | 17,722,944 |   | 12,635,950 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **NET  (LOSS) INCOME ALLOCATED TO LIMITED PARTNERS**                   |       | $                                                    | (3,123,085 | )                                                   | $          | (1,839,460 | ) | $ | 9,999,659 |   | $ | 5,914,404 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **Loss  from continuing operations per limited partnership unit**      |       | $                                                    | (0.29      | )                                                   | $          | (0.22 | ) | $ | (0.75 | ) | $ | (0.71 | ) |
| Discontinued  operations, net per limited partnership unit             |       | -                                                    |       | 0.05                                                |       | 0.03 |   | 0.08 |   |
| Gain on sale  of discontinued operations per limited partnership unit  |       | -                                                    |       | -                                                   |       | 1.66 |   | 1.18 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **NET  (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT**                    |       | $                                                    | (0.29      | )                                                   | $          | (0.17 | ) | $ | 0.94 |   | $ | 0.55 |   |
|                                                                   |       |                                                 |       |                                                |       |   |   |   |   |
| **Weighted  average number of limited partnership interests**          |       | 10,666,269                                           |       | 10,666,269                                          |       | 10,666,269 |   | 10,666,341 |   |

 

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

 

5

----

Tableof Contents

 

**NTSREALTY HOLDINGS LIMITED PARTNERSHIP**

### ConsolidatedStatements of Cash Flows for the Nine Months Ended September 30, 2008 and2007

(Unaudited)

 
| ** **                                                                         | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **OPERATING  ACTIVITIES:**                                                         | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Net  income**                                                                    |       | $           | 10,669,496 |        | $          | 6,310,544 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |        |       |        |       |
| Gain from  sale of discontinued assets                                             |       | (18,910,133 | )          | (13,482,291 | )          |
| Loss on  disposal of assets                                                        |       | 164,586     |       | 101,430     |       |
| Depreciation  and amortization                                                     |       | 15,030,173  |       | 13,004,216  |       |
| Minority  interest                                                                 |       | (1,441,046  | )          | (667,944    | )          |
| **Changes  in assets and liabilities:**                                            |       |        |       |        |       |
| Cash and  equivalents - restricted                                                 |       | (4,517,316  | )          | (702,530    | )          |
| Accounts  receivable                                                               |       | 242,813     |       | 696,755     |       |
| Other assets                                                                       |       | 1,757,127   |       | (626,063    | )          |
| Accounts  payable and accrued expenses                                             |       | (1,234,754  | )          | (650,373    | )          |
| Accounts  payable and accrued expenses due to affiliate                            |       | 29,995      |       | (35,550     | )          |
| Security  deposits                                                                 |       | (124,817    | )          | (71,746     | )          |
| Other  liabilities                                                                 |       | 1,509,994   |       | 2,444,990   |       |
|                                                                               |       |        |       |        |       |
| **Net cash  provided by operating activities**                                     |       | 3,176,118   |       | 6,321,438   |       |
|                                                                               |       |        |       |        |       |
| **INVESTING  ACTIVITIES:**                                                         |       |        |       |        |       |
| Additions to  land, buildings and amenities                                        |       | (3,649,901  | )          | (4,783,782  | )          |
| Proceeds  from sale of discontinued operations                                     |       | 49,963,973  |       | 26,102,758  |       |
| Investment  in joint venture by minority interest, net                             |       | -           |       | 10,091,295  |       |
| Acquisitions                                                                       |       | (41,000,000 | )          | (78,352,173 | )          |
| Notes  receivable issued                                                           |       | (3,500,000  | )          | -           |       |
| Deposits on  property acquisitions                                                 |       | (500,000    | )          | (200,000    | )          |
|                                                                               |       |        |       |        |       |
| **Net cash  provided by (used in) investing activities**                           |       | 1,314,072   |       | (47,141,902 | )          |
|                                                                               |       |        |       |        |       |
| **FINANCING  ACTIVITIES:**                                                         |       |        |       |        |       |
| Proceeds  from mortgages payable                                                   |       | 60,310,500  |       | 63,250,000  |       |
| Revolving  note payable, net                                                       |       | (14,502,039 | )          | 6,804,736   |       |
| Principal  payments on mortgages payable                                           |       | (2,482,168  | )          | (2,423,557  | )          |
| Additional  payments on mortgages payable                                          |       | (44,650,813 | )          | (21,200,000 | )          |
| Additions to  loan costs                                                           |       | (268,112    | )          | (591,772    | )          |
| Cash  distributions.                                                               |       | (3,186,612  | )          | (4,552,474  | )          |
|                                                                               |       |        |       |        |       |
| **Net cash  (used in) provided by financing activities**                           |       | (4,779,244  | )          | 41,286,933  |       |
|                                                                               |       |        |       |        |       |
| **NET  (DECREASE) INCREASE IN CASH AND EQUIVALENTS**                               |       | (289,054    | )          | 466,469     |       |
|                                                                               |       |        |       |        |       |
| **CASH AND  EQUIVALENTS, beginning of period**                                     |       | 1,577,082   |       | 28,250      |       |
|                                                                               |       |        |       |        |       |
| **CASH AND  EQUIVALENTS, end of period**                                           |       | $           | 1,288,028  |        | $          | 494,719 |   |

 

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

 

6

----

Tableof Contents

 

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

Notes to Consolidated Financial Statements

(Unaudited)

 

The unaudited consolidated financialstatements included herein should be read in conjunction with NTS RealtyHoldings Limited Partnership’s (“NTS Realty”) 2007 annual report on Form 10-Kas filed with the Securities and Exchange Commission on March 25,2008.  In the opinion of NTS RealtyCapital, Inc., our managing general partner, all adjustments, consistingonly of normal recurring accruals, necessary for a fair presentation have beenmade to the accompanying consolidated financial statements for the three andnine months ended September 30, 2008 and 2007.  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 joint ventures.

 

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

 

***Organization and Distribution Policy***

*** ***

We are in the business of developing,constructing, owning and operating multifamily properties, commercial andretail real estate.  At September 30,2008 we owned, either wholly or as a tenant in common with an unaffiliatedthird party, 22 properties, comprised of 12 multifamily properties, 7 officeand business centers and 3 retail properties. The properties are located in and around Louisville (8) andLexington (1), Kentucky, Fort Lauderdale (3), Florida, Indianapolis (4),Indiana, Memphis (1) and Nashville (2), Tennessee, Richmond (2), Virginiaand Atlanta (1), Georgia.  Our office andbusiness centers aggregate approximately 661,000 square feet.  Our multifamily properties consist of 3,672units while our retail properties contain approximately 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 sixty-five percent(65%) of our “net cash flow from operations” as this term is defined inregulations promulgated by the Treasury Department under the Internal RevenueCode of 1986, as amended; provided that if a law is enacted or existing law ismodified or interpreted in a manner that subjects us to taxation as acorporation or otherwise subjects us to entity level taxation for federal,state or local income tax purposes, we will adjust the amount distributed toreflect our obligation to pay tax.  Anydistribution other than a distribution with respect to the final quarter of acalendar year will be made no later than forty-five (45) days after the lastday of such quarter based on our estimate of “net cash flow from operations”for the year.  Any distribution withrespect to the final quarter of a calendar year will be made no later thanninety (90) days after the last day of such quarter based on actual “net cashflow from operations” for the year, adjusted for any excess or insufficientdistributions made with respect to the first three quarters of the calendaryear.

 

“Net cash flow from operations” may 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” is calculatedafter reinvesting sales or refinancing proceeds or establishing reserves, wemay not have any “net cash flow from operations” from which to paydistributions.

 

We paid quarterly distributions of $0.10 perunit to limited partners on April 16, 2008, and $0.08 per unit to limitedpartners on July 17, 2008 and October 16, 2008, respectively.

 

***Consolidation Policy and Minority Interest***

 

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

 

7

----

Tableof Contents

 

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

 

***Recent Accounting Pronouncements***

*** ***

SFAS No. 157, *Fair ValueMeasurements*

 

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

 

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

 

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

 

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

 

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

 

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

 
| ** **                  | ** ** | **Carrying** | ** ** | **Fair Value Measurements** | ** ** |
|-----------------------------|------------|--------------|------------|---------------------------------------|------------|
| ** **                  | ** ** | **Value**    | ** ** | **Level 1**                      | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Financial  liabilities:** |       |         |       |                                  |       |   |   |   |   |
| Interest  rate swap         |       | $            | 288,000    |                                  | $          | - |   | $ | 288,000 |   | $ | - |   |
|                             |            |              |            |                                       |            |  |  |  |  |  |  |  |  |

 

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

 

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

 

Certain reclassifications have been made tothe prior period financial statements to conform to the September 30, 2008classifications.  These reclassificationshave no effect on previously reported operating results or partners’ equity.

 

**Note 3 –Real Estate Transactions**

 

***Acquisitions***

*** ***

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

 

8

----

Tableof Contents

 

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

 

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

 
| **Property - Multifamily** | ** ** | **Location** | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------|------------|--------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| Shelby Farms  (1)                    |       | Memphis, TN  |       | 450       |       | June 27, 2008         |       | $                       | 41,000,000 |   |
|                                      |            |              |            |           |            |                            |            |                         |            |  |

 

----

(1)          Financed by a mortgage payable to a bank of $26.3 million.  Ownership percentage at September 30,2008 was 100%.

 

***Pro Forma Information***

 

The following table presents our unauditedpro forma results of operations and per unit amounts as if we had consummatedour 2008 acquisition as of the beginning of each period presented.

 
| ** **                                                     | ** ** | **(Unaudited)**                                      | ** ** | **(Unaudited)**                                     | ** ** |
|----------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                     | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                                                       |       | $                                                    | 13,169,625 |                                                | $          | 12,320,234 |   | $ | 38,936,017 |   | $ | 34,602,384 |   |
| Expenses and  other income, net                                |       | 16,498,298                                           |       | 15,256,649                                          |       | 48,331,178 |   | 43,924,157 |   |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Loss from  continuing operations                               |       | $                                                    | (3,328,673 | )                                                   | $          | (2,936,415 | ) | $ | (9,395,161 | ) | $ | (9,321,773 | ) |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Net (loss)  income                                             |       | $                                                    | (3,332,288 | )                                                   | $          | (2,390,701 | ) | $ | 9,846,766 |   | $ | 5,040,431 |   |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Loss from  continuing operations allocated to limited partners |       | $                                                    | (3,119,097 | )                                                   | $          | (2,752,065 | ) | $ | (8,805,327 | ) | $ | (8,736,606 | ) |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Net (loss)  income allocated to limited partners               |       | $                                                    | (3,123,085 | )                                                   | $          | (2,240,612 | ) | $ | 9,228,580 |   | $ | 4,724,021 |   |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Loss from  continuing operations per limited partnership unit  |       | $                                                    | (0.29      | )                                                   | $          | (0.25 | ) | $ | (0.82 | ) | $ | (0.82 | ) |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Net (loss)  income per limited partnership unit                |       | $                                                    | (0.29      | )                                                   | $          | (0.20 | ) | $ | 0.87 |   | $ | 0.44 |   |
|                                                           |       |                                                 |       |                                                |       |   |   |   |   |
| Weighted  average number of limited partnership interests      |       | 10,666,269                                           |       | 10,666,269                                          |       | 10,666,269 |   | 10,666,341 |   |

 

9

----

Tableof Contents

 

***Dispositions***

*** ***

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)          The $56.0 million sale resulted in a gain of approximately $19.0 million.  We used net proceeds of approximately $54.0million to pay down $19.4 million on our revolving note payable, repaid our$2.6 million mortgage payable to an insurance company, repaid our $14.3 millionmortgage payable to a bank, used $13.1 million to acquire Shelby Farms, and had$4.3 million remaining that we intend to invest in replacement of “like kind”property.

 

***Discontinued Operations and Long Lived Assetsand Liabilities Held for Sale***

 

On June 12, 2007, the board of directorsof NTS Realty Capital, Inc., our managing general partner, authorized thesale of Atrium Center, Blankenbaker Business Center I, Blankenbaker BusinessCenter II, Anthem Office Center, NTS Center, Plainview Center, Plainview PointOffice Center Phase I and II, Plainview Point Office Center Phase III, and theITT Parking Lot (the “Office Portfolio”).

 

On August 2, 2007, we announced that weentered into an agreement to sell the Office Portfolio.  On February 1, 2008, we announced thatwe entered into an amended agreement to sell the Office Portfolio.  The amended agreement removed NTS Center fromthe Office Portfolio.  On May 1,2008, we sold the Office Portfolio. On September 1, 2008, we reclassifiedNTS Center from discontinued operations and long-lived assets and liabilitiesheld for sale to continuing operations. All prior periods presented have alsobeen reclassified.

 

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

 
| **Property**                                 | ** ** | **Location**   | ** ** | **Status** |
|----------------------------------------------|------------|----------------|------------|------------|
| Atrium Center                                |       | Louisville, KY |       | Sold 2008  |
| Blankenbaker Business Center I               |       | Louisville, KY |       | Sold 2008  |
| Blankenbaker Business Center II              |       | Louisville, KY |       | Sold 2008  |
| Anthem Office Center                         |       | Louisville, KY |       | Sold 2008  |
| Plainview Center                             |       | Louisville, KY |       | Sold 2008  |
| Plainview Point Office Center Phase I and II |       | Louisville, KY |       | Sold 2008  |
| Plainview Point Office Center Phase III      |       | Louisville, KY |       | Sold 2008  |
| ITT Parking Lot                              |       | Louisville, KY |       | Sold 2008  |
| Springs Medical Office Center                |       | Louisville, KY |       | Sold 2007  |
| Springs Office Center                        |       | Louisville, KY |       | Sold 2007  |

 

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

 

10

----

Tableof Contents

 

The components of discontinued operations areoutlined below and include the results of operations for the respective periodsin which we owned such assets during the three and nine months ended September 30,2008 and 2007.

 
| ** **                                                         | ** ** | **(Unaudited)**                                      | ** ** | **(Unaudited)**                                     | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                         | ** ** | **2008**                                             | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| **REVENUE:**                                                       |       |                                                 |       |                                                |       |   |   |   |   |
| Rental  income                                                     |       | $                                                    | -          |                                                | $          | 1,813,300 |   | $ | 2,281,996 |   | $ | 5,355,047 |   |
| Tenant  reimbursements                                             |       | -                                                    |       | 72,554                                              |       | 189,462 |   | 244,924 |   |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Total  revenue**                                                 |       | -                                                    |       | 1,885,854                                           |       | 2,471,458 |   | 5,599,971 |   |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| **EXPENSES:**                                                      |       |                                                 |       |                                                |       |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 1,531                                                |       | 601,475                                             |       | 812,851 |   | 1,886,773 |   |
| Management  fees                                                   |       | 163                                                  |       | 94,171                                              |       | 112,725 |   | 286,250 |   |
| Property  taxes and insurance                                      |       | -                                                    |       | 143,270                                             |       | 181,982 |   | 455,337 |   |
| Depreciation  and amortization                                     |       | -                                                    |       | -                                                   |       | - |   | 502,139 |   |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Total  expenses**                                                |       | 1,694                                                |       | 838,916                                             |       | 1,107,558 |   | 3,130,499 |   |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| **DISCONTINUED  OPERATING (LOSS) INCOME**                          |       | (1,694                                               | )          | 1,046,938                                           |       | 1,363,900 |   | 2,469,472 |   |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| Interest and  other income                                         |       | (1,921                                               | )          | 15,369                                              |       | 8,552 |   | 43,804 |   |
| Interest  expense                                                  |       | -                                                    |       | (516,593                                            | )          | (1,040,658 | ) | (1,589,078 | ) |
| Loss on  disposal of assets                                        |       | -                                                    |       | -                                                   |       | - |   | (44,285 | ) |
|                                                               |       |                                                 |       |                                                |       |   |   |   |   |
| **Discontinued  operations, net**                                  |       | $                                                    | (3,615     | )                                                   | $          | 545,714 |   | $ | 331,794 |   | $ | 879,913 |   |

 

The components of long-lived assets held forsale at December 31, 2007 consisted primarily of land, buildings andamenities for the properties being sold. The components of long-lived liabilities held for sale at December 31,2007 consisted primarily of accrued property tax liabilities, security depositliabilities and any stand-alone mortgage on the properties being sold.

 

***Notes Receivable***

*** ***

We received promissory notes of$2,500,000 and $1,000,000 as consideration from the sale of the OfficePortfolio.  The notes are with anunaffiliated third party, with interest receivable in monthly installments atLIBOR plus 6.00% with maturity dates of May 1, 2009 and May 1, 2011,respectively.

 

**Note 4 –Concentration of Credit Risk**

 

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

 

Our financial instruments that are exposed toconcentrations of credit risk consist of cash and equivalents and cash andequivalents - restricted.  We maintainour cash accounts primarily with banks located in Kentucky.  The total cash balances are insured by theFDIC up to $250,000 per bank account. At September 30, 2008, we may attimes, in certain accounts, have deposits in excess of $250,000 per bankaccount.

 

**Note 5 –Cash and Equivalents**

 

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

 

11

----

Tableof Contents

 

**Note 6 –Cash and Equivalents - 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 and Depreciation**

 

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 theinitial or renewal term of the respective tenant lease.  Depreciation expense from continuingoperations for the three months ended September 30, 2008 and 2007 wasapproximately $5,206,000 and $4,110,000, respectively.  Depreciation expense from continuingoperations for the nine months ended September 30, 2008 and 2007 wasapproximately $14,109,000 and $11,465,000, respectively.

 

SFAS No. 144 “Accounting for theImpairment or Disposal of Long-Lived Assets,” specifies circumstances in whichcertain long-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceedsthe sum of its expected future cash flows, the asset’s carrying value must bewritten down to fair value.  Indetermining the value of an investment property and whether the investmentproperty is impaired, management considers several factors such as projectedrental and vacancy rates, property operating expenses, capital expenditures andinterest rates.  The capitalization rateused to determine property valuation is based on the market in which theinvestment property is located, length of leases, tenant financial strength,the economy in general, demographics, environment, property location,visibility, age and physical condition among others.  All of these factors are considered by managementin determining the value of any particular investment property.  The value of any particular investmentproperty is sensitive to the actual results of any of these factors, eitherindividually or taken as a whole.  If theactual results differ from management’s judgment, the valuation could benegatively or positively affected. Application of this standard during the three and nine months ended September 30,2008 and 2007 did not result in an impairment loss.

 

12

----

Tableof Contents

 

**Note 8 –Mortgages and Notes Payable**

 

Mortgages and notes payable consist of thefollowing:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **(Unaudited)**                  | ** **  | ** **                      | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                          | ** ** | **September 30, 2008** | ** **  | **December 31, 2007** | ** ** |
| 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  $42,996,069                                                                                                                                                                            |       | $                                | 27,714,171  |                            | $          | 28,238,625 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage payable  to a bank for $24.0 million with monthly installments of principal and  interest, bearing interest at a variable rate based on LIBOR one-month rate  plus 1.8%, currently 4.29%, due June 1, 2009, secured by certain land,  buildings and amenities, with a carrying value of $17,495,133 and an $801,000  letter of credit. The mortgage is guaranteed by Mr. Nichols (75%) and  Mr. Lavin (25%) |       | 24,000,000                       |        | 17,818,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and interest,  bearing fixed interest at 5.98%, maturing January 15, 2015, secured by  certain land, buildings and amenities, with a carrying value of $148,458,816                                                                                                                                                                             |       | 71,322,955                       |        | 72,141,872                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| 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  $148,458,816                                                                                                                                                                            |       | 32,131,701                       |        | 32,511,394                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Revolving  note payable to a bank for $15.0 million, with interest payable in monthly  installments, unsecured, at a variable rate based on LIBOR plus 1.75%,  currently 5.47%, due May 31, 2009                                                                                                                                                                                                                               |       | 10,427,721                       |        | 24,929,760                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  fixed interest at 9.00%, maturing August 1, 2010, secured by certain  land, buildings and amenities, with a carrying value of $2,667,545                                                                                                                                                                                               |       | 2,441,348                        |        | 2,524,433                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing fixed interest at 8.45%, maturing November 1, 2015,  secured by certain land, buildings and amenities, with a carrying value of  $2,095,793                                                                                                                                                                              |       | 2,337,402                        |        | 2,510,076                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing fixed interest at 8.38%, maturing December 1, 2010,  secured by certain land, buildings and amenities (1)                                                                                                                                                                                                                |       | -                                |        | 2,610,501                       |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  fixed interest at 5.11%, maturing December 1, 2014, secured by certain  land, buildings and amenities, with a carrying value of $13,071,460                                                                                                                                                                                            |       | 11,623,291                       |        | 11,758,589                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to a bank, with interest payable in monthly installments, bearing  interest at LIBOR plus 1.75%, maturing July 1, 2008, secured by certain  land, buildings and amenities                                                                                                                                                                                                                                    |       | -                                |        | 14,277,897                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest bearing  fixed interest at 5.72%, maturing April 11, 2017, secured by certain  land, buildings and amenities, with a carrying value of $41,686,453                                                                                                                                                                                               |       | 35,385,224                       |        | 35,715,686                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| Mortgage  payable to a bank, with interest payable in monthly installments, bearing  fixed interest at 5.99%, maturing October 15, 2017, secured by certain  land, buildings and amenities, with a carrying value of $30,205,843                                                                                                                                                                                               |       | 22,750,000                       |        | 22,750,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
| 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 $40,000,116                                                                                                                                                                                             |       | 26,328,500                       |        | -                               |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       |                             |        |                            |       |
|                                                                                                                                                                                                                                                                                                                                                                                                                                |       | $                                | 266,462,313 |                            | $          | 267,786,833 |   |

 

----

(1)          This mortgage payable has been included in our long-lived liabilitiesheld for sale.

 

Based on the borrowing rates currentlyavailable to us for loans with similar terms and average maturities, the fairvalue of long-term debt on September 30, 2008 was approximately $253.0million.

 

13

----

Tableof Contents

 

On May 1, 2008, we paid down $19.4million on our revolving note payable in connection with the sale of the OfficePortfolio.  As a result of completing thesale of our Office Portfolio, on May 2, 2008, our total availability todraw on our revolving note payable was reduced from $28.0 million to $20.0million.

 

On May 28, 2008, we reduced our totalavailability to draw on our revolving note payable to $15.0 million.  We extended the maturity of our note payableto May 31, 2009.

 

Interest paid for the nine months ended September 30,2008 and 2007 was approximately $11.5 million and $10.6 million, respectively.

 

Our mortgages may be prepaid but aregenerally subject to a yield-maintenance premium.  Certain mortgages and notes payable containcovenants and requirements that we maintain specified debt limits and ratiosrelated to our debt balances and property values.  We complied with all covenants and requirementsat September 30, 2008. We anticipate renewing or refinancing our mortgagesand notes payable coming due within the next twelve months. On May 1,2008, we re-paid our mortgage payable to a bank maturing July 1, 2008.

 

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

 

The fair value of the interest rate swapagreement at September 30, 2008, was approximately $288,000 and isincluded in other liabilities on our Consolidated Balance Sheet.  During the three months ended September 30,2008, we recognized a net gain of approximately $118,000 and made net paymentsof approximately $119,000.  For the ninemonths ended September 30, 2008, we recognized a total expense ofapproximately $188,000.

 

On August 11, 2008, we obtainedpermanent financing for Shelby Farms and paid off the notes payable to anunaffiliated third party for $18.6 million and $9.2 million, respectively.

 

**Note 9 –Accounts Payable and Accrued Expenses Due to Affiliate**

 

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

 

**Note 10 –Related Party Transactions**

 

Pursuant to our management agreement, NTSDevelopment Company receives fees for a variety of services performed for ourbenefit.  NTS Development Company alsoreceives fees under separate management agreements for each of our propertiesowned as a tenant in common with an unaffiliated third party.  Property management fees are paid in anamount equal to 5% of the gross collected revenue from our wholly-ownedproperties and 3.5% of the gross collected revenue from our properties owned asa tenant in common with an unaffiliated third party.  We were the beneficiary of a preferentialownership interest, disproportionately greater than our initial cash investmentin each property owned as a tenant in common with an unaffiliated thirdparty.  Construction supervision fees arepaid in an amount equal to 5% of the costs incurred which relate to capitalimprovements.  These construction supervisionfees are capitalized as part of land, buildings and amenities.  Also, pursuant to the agreement, NTSDevelopment Company receives commercial leasing fees equal to 4% of the grossrental amount for new leases and 2% of the gross rental amount for new leasesin which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS DevelopmentCompany in an amount of 1% to 4% of the aggregate sales price of a propertypursuant to our management agreement 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 and no construction supervision feesfor the properties we own as a tenant in common with an unaffiliated thirdparty in exchange for a larger potential disposition fee.

 

14

----

Tableof Contents

 

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 amountspursuant to our management agreement with NTS Development Company for the threeand nine months ended September 30, 2008 and 2007.  These charges include items, which have beenexpensed as operating expenses reimbursed to affiliate or professional andadministrative expenses reimbursed to affiliate and items, which have beencapitalized as other assets or as land, buildings and amenities.  Certain of these items are included in ourresults of discontinued operations.

 
| ** **                                                        | ** ** | **(Unaudited)**                                                            | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months Ended September 30,** | ** ** |
| ** **                                                        | ** ** | **2008**                                                                   | ** ** | **2007** | ** ** |
| Property  management fees                                         | ** ** | $                                                                          | 617,000    |   | $ | 623,000 |   |
|                                                              |       |                                                                       |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 936,000                                                                    |       | 965,000 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 198,000                                                                    |       | 138,000 |   |
| Operating  expenses reimbursement - Administrative                |       | 278,000                                                                    |       | 358,000 |   |
| Operating  expenses reimbursement - Other                         |       | 20,000                                                                     |       | 24,000 |   |
|                                                              |       |                                                                       |       |   |   |
| Total  operating expenses reimbursed to affiliate                 |       | 1,432,000                                                                  |       | 1,485,000 |   |
|                                                              |       |                                                                       |       |   |   |
| Professional  and administrative expenses reimbursed to affiliate |       | 383,000                                                                    |       | 406,000 |   |
|                                                              |       |                                                                       |       |   |   |
| Construction  supervision fees                                    |       | 12,000                                                                     |       | 92,000 |   |
| Commercial  leasing fees                                          |       | 33,000                                                                     |       | 35,000 |   |
|                                                              |       |                                                                       |       |   |   |
| **Total related  party transactions**                             |       | $                                                                          | 2,477,000  |   | $ | 2,641,000 |   |

 
| ** **                                                            | ** ** | **(Unaudited)**                                                           | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                                                            | ** ** | **For the Nine Months Ended September 30,** | ** ** |
| ** **                                                            | ** ** | **2008**                                                                  | ** ** | **2007** | ** ** |
| Property  management fees                                             | ** ** | $                                                                         | 1,846,000  |   | $ | 1,809,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Operating  expenses reimbursement - Property                          |       | 2,781,000                                                                 |       | 2,773,000 |   |
| Operating  expenses reimbursement - Multifamily Leasing               |       | 523,000                                                                   |       | 374,000 |   |
| Operating  expenses reimbursement - Administrative                    |       | 919,000                                                                   |       | 1,086,000 |   |
| Operating  expenses reimbursement - Other                             |       | 75,000                                                                    |       | 88,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Total  operating expenses reimbursed to affiliate                     |       | 4,298,000                                                                 |       | 4,321,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Professional  and administrative expenses reimbursed to affiliate     |       | 1,226,000                                                                 |       | 1,315,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Construction  supervision fees                                        |       | 159,000                                                                   |       | 214,000 |   |
| Commercial  leasing fees                                              |       | 41,000                                                                    |       | 308,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| Disposition  fees included in gain on sale of discontinued operations |       | 1,558,000                                                                 |       | 578,000 |   |
|                                                                  |       |                                                                      |       |   |   |
| **Total  related party transactions**                                 |       | $                                                                         | 9,128,000  |   | $ | 8,545,000 |   |

 

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.

 

15

----

Tableof Contents

 

During the three months ended September 30,2008 and 2007, we were charged approximately $12,000 for property maintenancefees from affiliates of NTS Development Company.  During the nine months ended September 30,2008 and 2007, we were charged approximately $44,000 and $52,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

NTS Development Company leased 20,368 squarefeet in NTS Center at a rental rate of $14.50 per square foot.  We received rental payments from NTSDevelopment Company of approximately $74,000 and $222,000 during each of thethree and nine months ended September 30, 2008 and 2007.  The average per square foot rental rate forsimilar space in NTS Center as of September 30, 2008 was $14.52 per squarefoot.

 

**Note 11 –Commitments and 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 do not believe there is any litigationthreatened against us other than routine litigation arising out of the ordinarycourse of business, some of which is expected to be covered by insurance, noneof which is expected to have a material effect on our financial position orresults of operations.

 

**Note 12 –Segment Reporting**

 

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

 

16

----

Tableof Contents

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                                                    | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three Months Ended September 30, 2008** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                  | -          |   | $ | 309,808 |   | $ | 1,519,488 |   | $ | 10,897,375 |   | $ | (8,044 | ) | $ | 12,718,627 |   |
| Tenant reimbursements                                                                                          |       | -                                                                  |       | 18,804 |   | 432,194 |   | - |   | - |   | 450,998 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | -                                                                  |       | 328,612 |   | 1,951,682 |   | 10,897,375 |   | (8,044 | ) | 13,169,625 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | -                                                                  |       | 32,484 |   | 694,157 |   | 4,007,355 |   | - |   | 4,733,996 |   |
| Management fees                                                                                                |       | -                                                                  |       | 16,344 |   | 87,487 |   | 512,868 |   | - |   | 616,699 |   |
| Property taxes and insurance                                                                                   |       | -                                                                  |       | 15,273 |   | 235,626 |   | 1,371,994 |   | 31,235 |   | 1,654,128 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                  |       | - |   | - |   | - |   | 746,972 |   | 746,972 |   |
| Depreciation and amortization                                                                                  |       | -                                                                  |       | 66,447 |   | 582,396 |   | 4,745,092 |   | - |   | 5,393,935 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | -                                                                  |       | 130,548 |   | 1,599,666 |   | 10,637,309 |   | 778,207 |   | 13,145,730 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | -                                                                  |       | 198,064 |   | 352,016 |   | 260,066 |   | (786,251 | ) | 23,895 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                  |       | 71 |   | 4,512 |   | 15,424 |   | 94,986 |   | 114,993 |   |
| Interest expense                                                                                               |       | -                                                                  |       | (110,566 | ) | (526,435 | ) | (3,298,133 | ) | 71,819 |   | (3,863,315 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                  |       | - |   | (72,254 | ) | (12,594 | ) | - |   | (84,848 | ) |
| Minority interest                                                                                              |       | -                                                                  |       | - |   | - |   | (480,602 | ) | - |   | (480,602 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | -                                                                  |       | 87,569 |   | (242,161 | ) | (2,554,635 | ) | (619,446 | ) | (3,328,673 | ) |
| Discontinued operations, net                                                                                   |       | -                                                                  |       | - |   | (3,615 | ) | - |   | - |   | (3,615 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                  | -          |   | $ | 87,569 |   | $ | (245,776 | ) | $ | (2,554,635 | ) | $ | (619,446 | ) | $ | (3,332,288 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                  | -          |   | $ | 7,336,858 |   | $ | 30,554,753 |   | $ | 316,418,758 |   | $ | - |   | $ | 354,310,369 |   |

 

17

----

Table of Contents

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                                                    | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Three Months Ended September 30, 2007** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                  | -          |   | $ | 324,976 |   | $ | 1,351,692 |   | $ | 9,133,628 |   | $ | (30,971 | ) | $ | 10,779,325 |   |
| Tenant reimbursements                                                                                          |       | -                                                                  |       | 19,357 |   | 400,727 |   | - |   | - |   | 420,084 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | -                                                                  |       | 344,333 |   | 1,752,419 |   | 9,133,628 |   | (30,971 | ) | 11,199,409 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | -                                                                  |       | 37,447 |   | 588,955 |   | 3,243,397 |   | - |   | 3,869,799 |   |
| Management fees                                                                                                |       | -                                                                  |       | 16,874 |   | 87,821 |   | 424,167 |   | - |   | 528,862 |   |
| Property taxes and insurance                                                                                   |       | -                                                                  |       | 13,971 |   | 222,514 |   | 1,058,060 |   | 33,737 |   | 1,328,282 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                  |       | - |   | - |   | - |   | 742,147 |   | 742,147 |   |
| Depreciation and amortization                                                                                  |       | -                                                                  |       | 67,802 |   | 386,999 |   | 3,761,414 |   | - |   | 4,216,215 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | -                                                                  |       | 136,094 |   | 1,286,289 |   | 8,487,038 |   | 775,884 |   | 10,685,305 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | -                                                                  |       | 208,239 |   | 466,130 |   | 646,590 |   | (806,855 | ) | 514,104 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                  |       | - |   | 343 |   | 18,263 |   | - |   | 18,606 |   |
| Interest expense                                                                                               |       | -                                                                  |       | (113,243 | ) | (287,592 | ) | (2,880,744 | ) | (126,946 | ) | (3,408,525 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                  |       | - |   | (8,225 | ) | - |   | - |   | (8,225 | ) |
| Minority interest                                                                                              |       | -                                                                  |       | - |   | - |   | (375,648 | ) | - |   | (375,648 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | -                                                                  |       | 94,996 |   | 170,656 |   | (1,840,243 | ) | (933,801 | ) | (2,508,392 | ) |
| Discontinued operations, net                                                                                   |       | 8,067                                                              |       | - |   | 537,647 |   | - |   | - |   | 545,714 |   |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                  | 8,067      |   | $ | 94,996 |   | $ | 708,303 |   | $ | (1,840,243 | ) | $ | (933,801 | ) | $ | (1,962,678 | ) |
|                                                                                                           |       |                                                               |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                  | -          |   | $ | 7,495,763 |   | $ | 29,260,192 |   | $ | 291,409,895 |   | $ | - |   | $ | 328,165,850 |   |

 

18

----

Tableof Contents

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                                                   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                                          | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                 | -          |   | $ | 943,241 |   | $ | 4,742,349 |   | $ | 29,923,596 |   | $ | (107,740 | ) | $ | 35,501,446 |   |
| Tenant reimbursements                                                                                          |       | -                                                                 |       | 65,977 |   | 1,200,042 |   | - |   | - |   | 1,266,019 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | -                                                                 |       | 1,009,218 |   | 5,942,391 |   | 29,923,596 |   | (107,740 | ) | 36,767,465 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | -                                                                 |       | 115,359 |   | 1,943,939 |   | 10,626,044 |   | - |   | 12,685,342 |   |
| Management fees                                                                                                |       | -                                                                 |       | 47,893 |   | 272,242 |   | 1,412,863 |   | - |   | 1,732,998 |   |
| Property taxes and insurance                                                                                   |       | -                                                                 |       | 44,358 |   | 689,217 |   | 4,170,952 |   | 93,705 |   | 4,998,232 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                 |       | - |   | - |   | - |   | 2,159,537 |   | 2,159,537 |   |
| Depreciation and amortization                                                                                  |       | -                                                                 |       | 219,274 |   | 1,368,117 |   | 12,889,794 |   | - |   | 14,477,185 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | -                                                                 |       | 426,884 |   | 4,273,515 |   | 29,099,653 |   | 2,253,242 |   | 36,053,294 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | -                                                                 |       | 582,334 |   | 1,668,876 |   | 823,943 |   | (2,360,982 | ) | 714,171 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                 |       | 71 |   | 7,347 |   | 41,037 |   | 220,980 |   | 269,435 |   |
| Interest expense                                                                                               |       | -                                                                 |       | (332,749 | ) | (1,470,061 | ) | (8,947,555 | ) | (82,132 | ) | (10,832,497 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                 |       | - |   | (131,934 | ) | (32,652 | ) | - |   | (164,586 | ) |
| Minority interest                                                                                              |       | -                                                                 |       | - |   | - |   | (1,441,046 | ) | - |   | (1,441,046 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | -                                                                 |       | 249,656 |   | 74,228 |   | (6,674,181 | ) | (2,222,134 | ) | (8,572,431 | ) |
| Discontinued operations, net                                                                                   |       | 10,760                                                            |       | - |   | 321,034 |   | - |   | - |   | 331,794 |   |
| Gain on sale of discontinued operations                                                                        |       | 120,598                                                           |       | - |   | 18,789,535 |   | - |   | - |   | 18,910,133 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                 | 131,358    |   | $ | 249,656 |   | $ | 19,184,797 |   | $ | (6,674,181 | ) | $ | (2,222,134 | ) | $ | 10,669,496 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                 | -          |   | $ | 7,336,858 |   | $ | 30,554,753 |   | $ | 316,418,758 |   | $ | - |   | $ | 354,310,369 |   |

 

19

----

Tableof Contents

 
| ** **                                                                                                     | ** ** | **(Unaudited)**                                                   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
| ** **                                                                                                     | ** ** | **Land**                                                          | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                  |       | $                                                                 | -          |   | $ | 1,038,911 |   | $ | 4,075,807 |   | $ | 25,208,128 |   | $ | (327,208 | ) | $ | 29,995,638 |   |
| Tenant reimbursements                                                                                          |       | -                                                                 |       | 59,185 |   | 1,221,636 |   | - |   | - |   | 1,280,821 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                              |       | -                                                                 |       | 1,098,096 |   | 5,297,443 |   | 25,208,128 |   | (327,208 | ) | 31,276,459 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Operating expenses and operating expenses reimbursed  to affiliate                                             |       | -                                                                 |       | 112,577 |   | 1,685,731 |   | 9,088,841 |   | - |   | 10,887,149 |   |
| Management fees                                                                                                |       | -                                                                 |       | 53,827 |   | 264,678 |   | 1,204,530 |   | - |   | 1,523,035 |   |
| Property taxes and insurance                                                                                   |       | -                                                                 |       | 41,868 |   | 673,233 |   | 3,207,699 |   | 101,210 |   | 4,024,010 |   |
| Professional and administrative expenses and  professional and administrative expenses reimbursed to affiliate |       | -                                                                 |       | - |   | - |   | - |   | 2,324,265 |   | 2,324,265 |   |
| Depreciation and amortization                                                                                  |       | -                                                                 |       | 203,405 |   | 1,307,961 |   | 10,291,279 |   | - |   | 11,802,645 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                   |       | -                                                                 |       | 411,677 |   | 3,931,603 |   | 23,792,349 |   | 2,425,475 |   | 30,561,104 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Operating income (loss)**                                                                                    |       | -                                                                 |       | 686,419 |   | 1,365,840 |   | 1,415,779 |   | (2,752,683 | ) | 715,355 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Interest and other income                                                                                      |       | -                                                                 |       | - |   | 1,727 |   | 63,063 |   | 16,877 |   | 81,667 |   |
| Interest expense                                                                                               |       | -                                                                 |       | (329,645 | ) | (1,122,027 | ) | (7,664,349 | ) | (343,461 | ) | (9,459,482 | ) |
| Loss on disposal of assets                                                                                     |       | -                                                                 |       | - |   | (46,438 | ) | (10,706 | ) | - |   | (57,144 | ) |
| Minority interest                                                                                              |       | -                                                                 |       | - |   | - |   | (667,944 | ) | - |   | (667,944 | ) |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Income (loss) from continuing operations**                                                                   |       | -                                                                 |       | 356,774 |   | 199,102 |   | (5,528,269 | ) | (3,079,267 | ) | (8,051,660 | ) |
| Discontinued operations, net                                                                                   |       | 22,493                                                            |       | - |   | 857,420 |   | - |   | - |   | 879,913 |   |
| Gain on sale of discontinued operations                                                                        |       | -                                                                 |       | - |   | 13,482,291 |   | - |   | - |   | 13,482,291 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| **Net income (loss)**                                                                                          |       | $                                                                 | 22,493     |   | $ | 356,774 |   | $ | 14,538,813 |   | $ | (5,528,269 | ) | $ | (3,079,267 | ) | $ | 6,310,544 |   |
|                                                                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Land, buildings and amenities, net                                                                             |       | $                                                                 | -          |   | $ | 7,495,763 |   | $ | 29,260,192 |   | $ | 291,409,895 |   | $ | - |   | $ | 328,165,850 |   |

## ** **

## **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.

 

**CriticalAccounting Policies**

 

A critical accounting policy is one thatwould materially affect our operations or financial condition, and requiresmanagement to make estimates or judgments in certain circumstances.  These judgments often result from the need tomake estimates about the effect of matters that are inherently uncertain.  Critical accounting policies are not to beconfused with accounting principles and methods disclosed in accordance withU.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  Our CriticalAccounting Policies, as previously disclosed in our most recent annual reporton Form 10-K, which was filed on March 25, 2008, discuss judgmentsknown to management pertaining to trends, events or uncertainties known whichwere taken into consideration upon the application of those policies and thelikelihood that materially different amounts would be reported upon taking intoconsideration different conditions and assumptions and remain unchanged duringthe quarter ended September 30, 2008.

 

**Resultsof Operations**

 

As of September 30, 2008, we ownedwholly or as a tenant in common with an unaffiliated third party, 22properties, comprised of 12 multifamily properties, 7 office and business centersand 3 retail properties. We generate substantially all of our operating incomefrom property operations.

 

20

----

Tableof Contents

 

Net loss for the three months ended September 30,2008 and 2007 was approximately $3,332,000 and $1,963,000, respectively.  Net income for the nine months ended September 30,2008 and 2007 was approximately $10,669,000 and $6,311,000, respectively. During 2007 we acquired majority interest in The Overlook Apartments (March 2007)and Creek’s Edge Apartments (August 2007) as a tenant in common with anunaffiliated third party.  During 2008 weacquired Shelby Farms Apartments (June 2008).  Collectively these acquisitions are referredto as our “2007 and 2008 acquisitions”. Our increased net loss for the three months ended September 30,2008 was primarily the result of increased operating and interest expense as aresult of our 2007 and 2008 acquisitions. Our increased net income for the nine months ended September 30,2008 was driven by our Gain on sale of discontinued operations of approximately$18,900,000 for that period in 2008, up from approximately $13,500,000 duringthe comparable period in 2007.  Theremaining variance of approximately $1,100,000 was primarily due to increasedinterest expense.

 

The following tables includecertain selected summarized operating data for the three and nine months ended September 30,2008 and 2007.  This data should be readin conjunction with our financial statements, including the notes attachedhereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                                                    | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2008** | ** ** |
| ** **                                                         | ** ** | **Land**                                                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                                                  | -          |   | $ | 328,612 |   | $ | 1,951,682 |   | $ | 10,897,375 |   | $ | (8,044 | ) | $ | 13,169,625 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                                  |       | 32,484 |   | 694,157 |   | 4,007,355 |   | - |   | 4,733,996 |   |
| Depreciation  and amortization                                     |       | -                                                                  |       | 66,447 |   | 582,396 |   | 4,745,092 |   | - |   | 5,393,935 |   |
| Total  interest expense                                            |       | -                                                                  |       | (110,566 | ) | (526,435 | ) | (3,298,133 | ) | 71,819 |   | (3,863,315 | ) |
| Net income  (loss)                                                 |       | -                                                                  |       | 87,569 |   | (245,776 | ) | (2,554,635 | ) | (619,446 | ) | (3,332,288 | ) |
|                                                                    |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                    | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                                           | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                                                  | -          |   | $ | 344,333 |   | $ | 1,752,419 |   | $ | 9,133,628 |   | $ | (30,971 | ) | $ | 11,199,409 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                                  |       | 37,447 |   | 588,955 |   | 3,243,397 |   | - |   | 3,869,799 |   |
| Depreciation  and amortization                                     |       | -                                                                  |       | 67,802 |   | 386,999 |   | 3,761,414 |   | - |   | 4,216,215 |   |
| Total  interest expense                                            |       | -                                                                  |       | (113,243 | ) | (287,592 | ) | (2,880,744 | ) | (126,946 | ) | (3,408,525 | ) |
| Net income  (loss)                                                 |       | 8,067                                                              |       | 94,996 |   | 708,303 |   | (1,840,243 | ) | (933,801 | ) | (1,962,678 | ) |
|                                                                    |            |                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                   | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2008** | ** ** |
| ** **                                                         | ** ** | **Land**                                                          | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                                                 | -          |   | $ | 1,009,218 |   | $ | 5,942,391 |   | $ | 29,923,596 |   | $ | (107,740 | ) | $ | 36,767,465 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                                 |       | 115,359 |   | 1,943,939 |   | 10,626,044 |   | - |   | 12,685,342 |   |
| Depreciation  and amortization                                     |       | -                                                                 |       | 219,274 |   | 1,368,117 |   | 12,889,794 |   | - |   | 14,477,185 |   |
| Total  interest expense                                            |       | -                                                                 |       | (332,749 | ) | (1,470,061 | ) | (8,947,555 | ) | (82,132 | ) | (10,832,497 | ) |
| Net income  (loss)                                                 |       | 131,358                                                           |       | 249,656 |   | 19,184,797 |   | (6,674,181 | ) | (2,222,134 | ) | 10,669,496 |   |
|                                                                    |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                                                   | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                                          | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                                                 | -          |   | $ | 1,098,096 |   | $ | 5,297,443 |   | $ | 25,208,128 |   | $ | (327,208 | ) | $ | 31,276,459 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                                                 |       | 112,577 |   | 1,685,731 |   | 9,088,841 |   | - |   | 10,887,149 |   |
| Depreciation  and amortization                                     |       | -                                                                 |       | 203,405 |   | 1,307,961 |   | 10,291,279 |   | - |   | 11,802,645 |   |
| Total  interest expense                                            |       | -                                                                 |       | (329,645 | ) | (1,122,027 | ) | (7,664,349 | ) | (343,461 | ) | (9,459,482 | ) |
| Net income  (loss)                                                 |       | 22,493                                                            |       | 356,774 |   | 14,538,813 |   | (5,528,269 | ) | (3,079,267 | ) | 6,310,544 |   |
|                                                                    |            |                                                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

21

----

Tableof Contents

 

Occupancy levels at ourcontinuing properties by segment as of September 30, 2008 and 2007 were asfollows:

 
| ** **  | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 78.3     | %          | 73.7     | %          |
| Multifamily |       | 93.8     | %          | 94.7     | %          |
| Retail      |       | 97.0     | %          | 98.2     | %          |
| Land        |       | N/A      |       | N/A      |       |

 

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

 

The average occupancy levels at ourcontinuing properties by segment for the three and nine months ended September 30,2008 and 2007 were as follows:

 
| ** **  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **  | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Commercial  |       | 78.8                                                     | %          | 74.1                                                    | %          | 77.4 | % | 74.3 | % |
| Multifamily |       | 94.1                                                     | %          | 95.3                                                    | %          | 93.3 | % | 95.2 | % |
| Retail      |       | 97.0                                                     | %          | 98.2                                                    | %          | 97.5 | % | 98.2 | % |
| Land        |       | N/A                                                      |       | N/A                                                     |       | N/A |   | N/A |   |

 

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

 

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

 

We have on-site leasing staff, who are employeesof NTS Development Company, at each of the multifamily properties.  The staff handles all on-site visits frompotential tenants, coordinates local advertising with NTS Development Company’smarketing staff, makes visits to local companies to promote fully furnishedapartments and negotiates lease renewals with current residents.

 

The following discussion relating to changesin our results of operations includes only material line items within ourStatements of Operations or line items for which there was a material changebetween the three and nine months ended September 30, 2008 and 2007.

 

***Rental Incomeand Tenant Reimbursements***

 

Rental income and tenant reimbursements fromcontinuing operations for the three months ended September 30, 2008 and2007 were approximately $13,170,000 and $11,199,000, respectively.  Rental income and tenant reimbursement fromcontinuing operations for the nine months ended September 30, 2008 and2007 were approximately $36,767,000 and $31,276,000, respectively.  The increases of $1,971,000 or 18% and$5,491,000 or 18% were primarily due to our 2007 and 2008 acquisitions  which contributed additional revenue of$1,500,000 or 75% and $3,900,000 or 71% during the three and nine months ended September 30,2008, respectively.  The remainingincrease of $500,000 or 25% and $1,600,000 or 29% for the three and nine monthsended September 30, 2008, respectively, is attributable to increasedaverage monthly rent per unit at our existing multifamily properties.  Average monthly rent per unit increased by$39 or 4% per month for the three months ended September 30, 2008 over thecomparable period in 2007.   Averagemonthly rent per unit increased by $39 or 4% per month for the nine monthsended September 30, 2008 over the comparable period in 2007.  Average monthly rent per unit for the threemonths ended September 30, 2008 and 2007 were $955 and $916,respectively.  Average monthly rent perunit for the nine months ended September 30, 2008 and 2007 were $945 and$906, respectively.  Average monthly rentper unit is calculated for our multifamily properties acquired before 2007.

 

22

----

Tableof Contents

 

***OperatingExpenses and Operating Expenses Reimbursed to Affiliate***

*** ***

Operating expenses from continuing operationsfor the three months ended September 30, 2008 and 2007 were approximately$3,302,000 and $2,559,000, respectively. The increase of $743,000, or 29%, was primarily due to a $291,000increase at Creek’s Edge Apartments and Shelby Farms Apartments along with$193,000 increased expense at The Willows Apartments for repairs andmaintenance.  The increase was also dueto $110,000 at Lakeshore Business Centers and $149,000 across all multi-familyproperties for repairs and maintenance. Operating expenses from continuing operations for the nine months ended September 30,2008 and 2007 were approximately $8,654,000 and $7,148,000, respectively.  The increase of $1,506,000, or 21%, wasprimarily due to a $718,000 increase from our 2007 and 2008 acquisitions. Theincrease is also due to a $261,000 increase at The Willows of PlainviewApartments, $178,000 increase at Willow Lake Apartments and $74,000 increaseacross all multifamily properties for repairs and maintenance. The remainingincrease is due to a $259,000 increase across all commercial properties and a$16,000 increase at Springs Station Retail for repairs and maintenance.

 

Operating expenses reimbursed to affiliate fromcontinuing operations for the three months ended September 30, 2008 and2007 were approximately $1,432,000 and $1,311,000, respectively.  Operating expenses reimbursed to affiliatefrom continuing operations for the nine months ended September 30, 2008 and2007 were approximately $4,031,000 and $3,739,000, respectively.  The increases of approximately $121,000, or9%, and $292,000, or 8%, were primarily due to the cost of reimbursing NTSDevelopment Company for the employees of our 2007 and 2008 acquisitions.

 

We do not have any employees.  Pursuant to our management agreement, NTSDevelopment Company employs the individuals who provide services necessary tooperate our properties and conduct our business.  NTS Development Company provides employeesthat may also perform services for other properties and businessenterprises.  In the situation where aparticular employee benefits multiple operations, the employee’s cost isproportionately charged out to the entity receiving the services.    We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.  The cost of services providedto us by NTS Development Company’s employees are classified in our consolidatedStatements of Operations as “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 general partners.  Theseemployee services include property management, leasing, maintenance, securityand other services necessary to manage and operate our business.

 

Operating expenses reimbursed to affiliateconsisted approximately of the following:

*** ***
| ** **           | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** |
|----------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **           | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Property             |       | $                                                        | 936,000    |                                                    | $          | 852,000 |   | $ | 2,627,000 |   | $ | 2,414,000 |   |
| Multifamily  Leasing |       | 198,000                                                  |       | 139,000                                                 |       | 523,000 |   | 374,000 |   |
| Administrative       |       | 278,000                                                  |       | 299,000                                                 |       | 821,000 |   | 887,000 |   |
| Other                |       | 20,000                                                   |       | 21,000                                                  |       | 60,000 |   | 64,000 |   |
|                 |       |                                                     |       |                                                    |       |   |   |   |   |
| **Total**            |       | $                                                        | 1,432,000  |                                                    | $          | 1,311,000 |   | $ | 4,031,000 |   | $ | 3,739,000 |   |

 

***ManagementFees***

*** ***

Management fees from continuing operationsfor the three months ended September 30, 2008 and 2007 were approximately$617,000 and $529,000, respectively. Management fees from continuing operations for the nine months ended September 30,2008 and 2007 were approximately $1,733,000 and $1,523,000, respectively.  The increases of approximately $88,000, or17%, and $210,000, or 14%, were primarily due to our 2007 and 2008 acquisitionsalong with our management fee on a one time lease termination payment by aformer tenant at Lakeshore Business Center II in 2008.

 

Pursuant to our management agreement, NTSDevelopment Company receives property management fees equal to 5% of the grosscollected revenue from our wholly-owned properties.  NTS Development Company 

 

23

----

Tableof Contents

 

receives property management fees from ourproperties owned as a tenant in common with an unaffiliated third party equalto 3.5% of their gross collected 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 third party.  NTS Development Company has agreed to accepta lower management fee for the properties we own as a tenant in common with anunaffiliated third party in exchange for a larger potential dispositionfee.  Disposition fees of up to 6% of thegross sales price may be paid to NTS Development Company for the sale of one ofour properties 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 of management fee expense.

 

***Property Taxesand Insurance***

*** ***

Property taxes and insurance from continuingoperations for the three months ended September 30, 2008 and 2007 wereapproximately $1,654,000 and $1,328,000, respectively.  The increase of approximately $326,000, or25% was primarily due to Creek’s Edge Apartments and Shelby Farms Apartments$200,000 in property taxes and $73,000 increase in property taxes at CastleCreek Apartments, Lake Clearwater Apartments and The Lakes Apartments alongwith $36,000 for insurance. Property taxes and insurance from continuingoperations for the nine months ended September 30, 2008 and 2007 wereapproximately $4,998,000 and $4,024,000, respectively.  The increase of approximately $974,000, or24%, was primarily due to increased property tax expense of $490,000 at CastleCreek Apartments, Lake Clearwater Apartments and The Lakes Apartments as aresult of increased property tax assessments. We are continuing to appeal the property tax assessments on these threeproperties located in Marion County, Indiana. There can be no assurance these appeals will be successful or completedin a timely manner.  If the remainingappeals are not successful, the resulting property taxes that we estimatepaying during 2008 related to the aforementioned three properties under appealcould exceed the 2007 property tax expense on those properties by approximately$1 million. The increase was also due to $481,000 from our 2007 and 2008acquisitions.

 

***Professionaland Administrative Expenses and Professional and Administrative ExpensesReimbursed to Affiliate***

*** ***

Professional and administrative expenses fromcontinuing operations for the three months ended September 30, 2008 and2007 were approximately $364,000 and $336,000, respectively.  The increase of $28,000, or 8%, was primarilydue to an increase in bank fees. Professional and administrative expenses from continuing operations forthe nine months ended September 30, 2008 and 2007 were approximately$933,000 and $1,009,000, respectively. The decrease of $76,000, or 8%, was primarily due to a decrease in legaland professional fees.

 

Professional and administrative expensesreimbursed to affiliate from continuing operations for the three months ended September 30,2008 and 2007 were approximately $383,000 and $406,000, respectively.  Professional and administrative expensesreimbursed to affiliate from continuing operations for the nine months ended September 30,2008 and 2007 were approximately $1,226,000 and $1,315,000, respectively.  The decreases of $23,000, or 6%, and $89,000,or 7%, were primarily due to reduced personnel costs reimbursed to NTSDevelopment Company.

 

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

 

Professional and administrative 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.

 

24

----

Tableof Contents

 

Professional and administrativeexpenses reimbursed to affiliate consisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                                          | ** ** | **(Unaudited)**                                         | ** ** |
|---------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **          | ** ** | **2008**                                                 | ** ** | **2007**                                                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Finance             |       | $                                                        | 95,000     |                                                    | $          | 95,000 |   | $ | 293,000 |   | $ | 319,000 |   |
| Accounting          |       | 175,000                                                  |       | 204,000                                                 |       | 586,000 |   | 616,000 |   |
| Investor  Relations |       | 72,000                                                   |       | 69,000                                                  |       | 224,000 |   | 265,000 |   |
| Human  Resources    |       | 5,000                                                    |       | 4,000                                                   |       | 15,000 |   | 14,000 |   |
| Overhead            |       | 36,000                                                   |       | 34,000                                                  |       | 108,000 |   | 101,000 |   |
|                |       |                                                     |       |                                                    |       |   |   |   |   |
| **Total**           |       | $                                                        | 383,000    |                                                    | $          | 406,000 |   | $ | 1,226,000 |   | $ | 1,315,000 |   |

*** ***

***Depreciationand Amortization***

 

Depreciation and amortization expense fromcontinuing operations for the three months ended September 30, 2008 and2007 was approximately $5,394,000 and $4,216,000, respectively.  Depreciation and amortization expense fromcontinuing operations for the nine months ended September 30, 2008 and2007 was approximately $14,477,000 and $11,803,000, respectively.  The increases of $1,178,000, or 28%, and$2,674,000, or 23%, were primarily due to our 2007 and 2008 acquisitions.

 

***Interest andOther Income***

*** ***

Interest and other income fromcontinuing operations for the three months ended September 30, 2008 and2007 was approximately $115,000 and $19,000, respectively.  Interest and other income from continuingoperations for the nine months ended September 30, 2008 and 2007 wasapproximately $269,000 and $82,000, respectively.  The increases of $96,000, and $187,000, wereprimarily due to interest earned on the proceeds from the sale of the OfficePortfolio (May 2008) along with interest earned on our notes receivablefrom an unaffiliated third party as consideration from the sale of the OfficePortfolio.

 

***InterestExpense***

*** ***

Interest expense from continuing operationsfor the three months ended September 30, 2008 and 2007 was approximately$3,863,000 and $3,409,000, respectively. The increase of $454,000, or 13%, was primarily due to the 2008acquisition of Shelby Farms. Interest expense from continuing operations forthe nine months ended September 30, 2008 and 2007 was approximately$10,832,000 and $9,459,000, respectively. The increase of $1,373,000, or 15%,was primarily due to our 2007 and 2008 acquisitions.

 

***Loss onDisposal of Assets***

*** ***

The loss on disposal of assets fromcontinuing operations for the three and nine months ended September 30,2008 and 2007 can be attributed to assets that were not fully depreciated atthe time of replacement, spread primarily amongst the commercial andmultifamily properties.  Thesereplacements included roof replacements, heating and air conditioning units,tenant finish renovations and signage.

 

***MinorityInterest***

*** ***

Minority interest for the three and ninemonths ended September 30, 2008 and 2007 includes the net lossattributable to the minority holder of the tenant in common interests in ourproperties acquired in 2007 as a tenant in common with an unaffiliated thirdparty.  The properties are The OverlookApartments and Creek’s Edge at Stony Point Apartments.

 

***DiscontinuedOperations***

*** ***

Discontinued Operations, netfor the three months ended September 30, 2008 was a net loss ofapproximately $4,000 and net income of approximately $546,000, for the threemonths ended September 30, 2007. The decrease was due to the sale of the Office Portfolio (May 2008).  Discontinued operations, net for the ninemonths ended September 30, 2008 and 2007, was approximately $332,000 and$880,000, respectively.

 

25

----

Tableof Contents

 

Discontinued operations, net for the ninemonths ended September 30, 2008, includes the net operating results forthe properties previously sold as listed below.

 
| **Property**                                  | ** ** | **Location**   | ** ** | **Status** | ** ** |
|-----------------------------------------------|------------|----------------|------------|------------|------------|
| Atrium  Center                                |       | Louisville, KY |       | Sold 2008  |       |
| Blankenbaker  Business Center I               |       | Louisville, KY |       | Sold 2008  |       |
| Blankenbaker  Business Center II              |       | Louisville, KY |       | Sold 2008  |       |
| Anthem  Office Center                         |       | Louisville, KY |       | Sold 2008  |       |
| Plainview  Center                             |       | Louisville, KY |       | Sold 2008  |       |
| Plainview  Point Office Center Phase I and II |       | Louisville, KY |       | Sold 2008  |       |
| Plainview  Point Office Center Phase III      |       | Louisville, KY |       | Sold 2008  |       |
| ITT Parking  Lot                              |       | Louisville, KY |       | Sold 2008  |       |
| Springs  Medical Office Center                |       | Louisville, KY |       | Sold 2007  |       |
| Springs  Office Center                        |       | Louisville, KY |       | Sold 2007  |       |

 

***Gain on Saleof 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.  Gain on sale of discontinued operations forthe nine months ended September 30, 2007 was approximately $13.5 million,due to the sale of the Springs Medical Office Center and Springs Office Centeron February 12, 2007.

 

**Liquidityand Capital Resources**

 

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

 

The following table summarizes ourapproximate sources/uses of cash flow for the nine months ended September 30,2008 and 2007:
| ** **                                           | ** ** | **(Unaudited)**                                         | ** ** |
|------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                           | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                                           | ** ** | **2008**                                                | ** ** | **2007** | ** ** |
| Operating  activities                                | ** ** | $                                                       | 3,176,000  |   | $ | 6,321,000 |   |
| Investing  activities                                |       | 1,314,000                                               |       | (47,142,000 | ) |
| Financing  activities                                |       | (4,779,000                                              | )          | 41,287,000 |   |
|                                                 |       |                                                    |       |   |   |
| **Net  (decrease) increase in cash and equivalents** |       | $                                                       | (289,000   | ) | $ | 466,000 |   |

*** ***

***Cash Flow fromOperating Activities***

*** ***

Net cash provided by operating activitiesdecreased to approximately $3.2 million from $6.3 million, for the nine monthsended September 30, 2008 and 2007, respectively.  This decrease was primarily due to reservingapproximately $4.6 million of restricted cash at September 30, 2008 fromthe proceeds of our sale of the Office Portfolio that we expect to use tosatisfy the requirements of Section 1031 of the Internal Revenue Code inpurchasing “like kind” replacement property in order to defer recognition ofgain for federal tax purposes offset by an increase of $1.5 million in otherliabilities.

 

***Cash Flow fromInvesting Activities***

*** ***

Net cash provided by investing activities wasapproximately $1.3 million, compared to net cash used in investing activitiesof $47.1 million, for the nine months ended September 30, 2008 and 2007,respectively.  The change was primarilydue to $23.8 million additional proceeds related to property dispositions and$37.3 million decrease in cash used to fund property acquisitions than in thecomparable prior period partially offset by issuing notes receivable to theunaffiliated third party purchaser of the Office Portfolio for $3.5 millionalong with a $10 million decrease in cash provided by joint venture investment.

 

26

----

Tableof Contents

 

***Cash Flow fromFinancing Activities***

*** ***

Net cash used in financing activities wasapproximately $4.8 million, compared to cash provided by financing activitiesof $41.3 million, for the nine months ended September 30, 2008 and 2007,respectively.  Our 2008 activity includedrepayment of mortgages and our revolving note payable from the proceeds of oursale of the Office Portfolio totaling approximately $36.3 million along withprincipal payments on mortgages of $2.5 million and cash distributions of $3.2million, which was partially offset by an increase in our revolving notepayable of $5.0 million, a $6.2 million increase in mortgage payable, notespayable of $27.8 million issued for the temporary financing of Shelby Farms andmortgages payable of $26.3 million issued for the permanent financing of ShelbyFarms. We repaid the temporary financing of $27.8 million notes payable when weobtained permanent financing for Shelby Farms.

 

***FutureLiquidity***

 

Our future liquidity depends significantly onour properties’ occupancy and operating results remaining at a level whichprovides for debt payments, distributions to our limited partners and adequateworking capital, currently and in the future. If occupancy were to fall below that level and remain at or below thatlevel for a significant period of time, our ability to make payments due underour debt agreements and to continue paying daily operational costs would begreatly impaired.  In the next twelvemonths, we intend to operate the properties in a similar manner to theiroperation in recent years.  Cashreserves, which consist of unrestricted cash as shown on our balance sheet,were approximately $1.3 million on September 30, 2008.

 

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

 

On June 25, 2008, we announced that theboard of directors of our managing general partner approved a quarterlydistribution of $0.08 per unit on our limited partnership units.  The distribution was paid on July 17,2008, to limited partners of record at the close of business on July 10,2008.

 

On September 15, 2008, we announced thatthe board of directors of our managing general partner approved a quarterlydistribution of $0.08 per unit on our limited partnership units. Thedistribution was paid on October 16, 2008, to limited partners of recordat the close of business on September 30, 2008.

 

Pursuant to leasing agreements signed by September 30,2008, we are obligated to incur expenditures of approximately $1.4 millionfunded by borrowings on our debt during the next twelve months primarily forrenovations and tenant origination costs necessary to continue leasing ourproperties.  This discussion of futureliquidity details our material commitments. We anticipate seeking renewal or refinancing of our note payable comingdue in the next twelve months.

 

Our availability on the revolving notepayable was approximately $4.6 million as of September 30, 2008.

 

***PropertyTransactions***

*** ***

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

 

***Acquisitions***

 
| **Property - Multifamily** | ** ** | **Location** | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------|------------|--------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| Shelby Farms  (1)                    |       | Memphis, TN  |       | 450       |       | June 27, 2008         |       | $                       | 41,000,000 |   |
|                                      |            |              |            |           |            |                            |            |                         |            |  |

 

----

(1)          Financed by a mortgage payable to a bank of $26.3 million.  Ownership percentage at September 30,2008 was 100%.

 

27

----

Tableof Contents

 

***Dispositions***

*** ***

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)          The $56.0 million sale resulted in a gain of approximately $19.0million.  We used net proceeds ofapproximately $54.0 million to pay down $19.4 million on our revolving notepayable, repaid our $2.6 million mortgage payable to an insurance company,repaid our $14.3 million mortgage payable to a bank, used $13.1 million toacquire Shelby Farms, and had $4.3 million remaining that we intend to investin replacement of “like kind” property.

 

On March 26, 2008, we and anunaffiliated third party entered into an agreement to purchase a parcel of landtotaling approximately 11 acres for an aggregate purchase price of $5.3 millionfrom an affiliate, Orlando Lake Forest Joint Venture.  On July 31, 2008, the agreement wasterminated pursuant to its terms.

 

On August 27, 2008, we entered into anagreement to purchase Courtney Estates, a multifamily property located inRaleigh, North Carolina, from an unaffiliated third party. On October 9,2008, we announced that we terminated the agreement in accordance with ourrights under the agreement.

 

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.

 

At September 30, 2008 we hadapproximately $4.6 million of proceeds from the sale of the Office Portfolioremaining to be invested in replacement “like kind” property.  Our ability to successfully invest theremaining proceeds in accordance with Section 1031 of the Internal RevenueCode and qualifying all of the proceeds for exclusion from gain recognition forfederal income tax purposes is dependent on many factors including a time limitof 180 days and there can be no assurance that we will be successful in doingso.

 

28

----

Tableof Contents

 

Website Information

 

Informationconcerning NTS Realty Holdings Limited Partnership is available through the NTSDevelopment 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 charge throughthe “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.

 

29

----

Tableof Contents

 

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

## ** **

Our primary market risk exposure, with regardto financial instruments, is expected to be our exposure to changes in interestrates.  We refinanced substantially allof our debt acquired at the time of our merger with instruments, which bearinterest at a fixed rate, with the exception of approximately $34.4 million atvariable rates.  We anticipate that ahypothetical 100 basis point increase in interest rates would increase interestexpense on our variable rate debt by approximately $344,000 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.

 

The fair value of the interest rate swapagreement at September 30, 2008, was approximately $288,000 and isincluded in other liabilities on our Consolidated Balance Sheet.  During the three months ended September 30,2008, we recognized a net gain of approximately $118,000 and made net paymentsof approximately $119,000.  For the ninemonths ended September 30, 2008, we recognized a total expense ofapproximately $188,000.

 

**ContractualObligations and Commercial Commitments**

 

The following table represents ourobligations and commitments to make future payments as of September 30,2008 under contracts, such as debt and lease agreements, and under contingentcommitments, such as debt guarantees.

## ** **

| ** **                              | ** ** | **Total** | ** **  | **Within One Year** | ** ** | **One - Three  Years** | ** ** | **Three - Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------------|------------|-----------|-------------|-------------------------------|------------|----------------------------------|------------|-----------------------------------|------------|----------------------------|------------|
| **Contractual  Obligations**            |       |      |        |                          |       |                             |       |                              |       |                       |       |
| Mortgages  and notes payable            |       | $         | 360,196,876 |                          | $          | 52,342,570                       |       | $                                 | 35,906,447 |                       | $          | 34,214,031 |   | $ | 237,733,828 |   |
| Capital  lease obligations              |       | -         |        | -                             |       | -                                |       | -                                 |       | -                          |       |
| Operating  leases (1)                   |       | -         |        | -                             |       | -                                |       | -                                 |       | -                          |       |
| Other  long-term obligations (2)        |       | -         |        | -                             |       | -                                |       | -                                 |       | -                          |       |
|                                    |       |      |        |                          |       |                             |       |                              |       |                       |       |
| **Total  contractual cash obligations** |       | $         | 360,196,876 |                          | $          | 52,342,570                       |       | $                                 | 35,906,447 |                       | $          | 34,214,031 |   | $ | 237,733,828 |   |

 

----

(1)          We are party to numerous small operating leases for office equipmentsuch as copiers, postage machines and fax machines, which represent aninsignificant obligation.

 

(2)          We are party to several annual maintenance agreements with vendors forsuch items as outdoor maintenance, pool service and security systems, whichrepresent an insignificant obligation.

 

30

----

Tableof Contents

 

## **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, 2008.  Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that our disclosure controls andprocedures were effective as of September 30, 2008.  There were no changes in our internal controlover financial reporting during the quarter ended September 30, 2008 thatmaterially affected or are reasonably likely to materially affect the internalcontrol over financial reporting.

 

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

 

There were no material changes in ourinternal control over financial reporting during the quarter ended September 30,2008.

 

31

----

Tableof Contents

 

# **PART II– OTHER INFORMATION**

# ** **

## **Item 1 – LegalProceedings**

## ** **

None.

 

## **Item 1A – Risk Factors**

## ** **

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

 

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

## ** **

On March 14, 2008, weannounced that an entity controlled by Mr. J.D. Nichols, Chairman of NTSRealty Capital, Inc., the managing general partner of NTS Realty HoldingsLimited Partnership (the “Company”), commenced a pre-arranged trading plan topurchase limited partnership units of the Company pursuant to Rule 10b5-1under the Securities Exchange Act of 1934, as amended (the “Act”).  The plan authorizes its administrator, WellsFargo Investments, LLC, to purchase up to $600,000 of the Company’s limitedpartnership units from time to time through no later than December 2008.  Under the terms of the plan, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

On May 16, 2008, weannounced that entities created by Mr. J.D. Nichols commenced pre-arrangedtrading plans to purchase limited partnership units of the Company pursuant to Rule 10b5-1under the Act.  The plans authorize theiradministrator, Wells Fargo Investments, LLC, to purchase up to $1,200,000 and$168,000 of the Company’s limited partnership units from time to time throughno later than April 2010 and November 2008, respectively.  Under the terms of the plan, Mr. Nicholshas no discretion or control over the timing, effectuation or the amount ofeach purchase.

 

During the nine months ended September 30,2008, 59,700 units were purchased by the entities controlled or established by Mr. Nicholspursuant to the trading plans announced March 14, 2008 and May 16,2008, respectively.

 

**UnitRepurchase Information:**

 
| **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 2008      |       | 2,800                                               |       | $                                               | 4.89       |                                                                                                                                        | 184,491    | (2)                                                                                                                                                                                    |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                                        |       |                                                                                                                                                                                   |       |
| August 2008    |       | 10,400                                              |       | $                                               | 5.23       |                                                                                                                                        | 194,891    | (2)                                                                                                                                                                                    |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                                        |       |                                                                                                                                                                                   |       |
| September 2008 |       | 18,000                                              |       | $                                               | 5.27       |                                                                                                                                        | 212,891    | (2)                                                                                                                                                                                    |       | (1) |
|                |       |                                                |       |                                            |       |                                                                                                                                        |       |                                                                                                                                                                                   | (1)        |
| Total               |       | 31,200                                              |       | $                                               | 5.13       |                                                                                                                                        | 212,891    | (2)                                                                                                                                                                                    |       | (1) |

 

----

(1)          A description of the maximum amount that may be used to purchase ourunits under the trading plans is included in the narrative preceding thistable.

 

(2)          Represents the total number of our limited partnership units that havebeen purchased pursuant to the trading plans by entities controlled or createdby Mr. Nichols, pursuant to the current or any previous publicly announcedplan or program by trading plans.

 

32

----

Table of Contents

 

## **Item 3 – DefaultsUpon Senior Securities**

## ** **

None.

 

## **Item 4 – Submission of Matters to a Vote of SecurityHolders**

## ** **

None.

 

## **Item 5 – OtherInformation**

## ** **

None.

 

33

----

Tableof Contents

 

## **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 andNTS  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 ofNational  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) |
|                 |       |       |                                                                                                                                                                                                                                                                                       |       |   |
| 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                                                                                                                                      |       | (15) |
|                 |       |       |                                                                                                                                                                                                                                                                                       |       |   |
| 31.2                 |       |       | Certification of Chief Financial Officer Pursuant to  Rule 13a-14(a) and Rule 15d-14(a) of the SecuritiesExchange Act, as amended                                                                                                                                      |       | (15) |

 

34

----

Tableof Contents

 
| **Exhibit No.** | ** ** | ** ** | ** **                                                                                                                                                        | ** ** |
|----------------------|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| 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                       |       | (15) |
|                 |       |       |                                                                                                                                                              |       |   |
| 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                       |       | (15) |
|                 |       |       |                                                                                                                                                              |       |   |
| 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) |

 

----

| (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) |   | Filed herewith                                                                                                                                                                                               |

 

35

----

Tableof Contents

 

## **SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
| ** ** | **NTS REALTY HOLDINGS LIMITED PARTNERSHIP** |
|------------|---------------------------------------------|
|       |                                        |   |
|       | By:                                         | NTS REALTY CAPITAL, INC. |
|       |                                        | Its: | Managing General Partner |
|       |                                        |   | * * |
|       |                                        | By: | */s/ Brian F. Lavin* |
|       |                                        |   | Brian F. Lavin |
|       |                                        |   | Its: | President and Chief Executive Officer |
|       |                                        |   | Date: | November 7, 2008 |
|       |                                        |   |   |   |
|       |                                        | By: | */s/ Gregory A. Wells* |
|       |                                        |   | Gregory A. Wells |
|       |                                        |   | Its: | Chief Financial Officer |
|       |                                        |   | Date: | November 7, 2008 |

 

36

----