**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

** **

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

**THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the quarterly periodended March 31, 2007**

** **

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

(Exact name of registrant as specified in its charter)

** **

**Delaware**

(State of incorporation or organization)

** **

**001-32389**

(Commission File No.)

** **

**41-2111139**

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

** **

**10172 Linn Station Road**

**Louisville, Kentucky40223**

(Address of principal executive offices)

** **

**(502) 426-4800**

(Registrant’s telephone number, including area code)

** **

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

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

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

| Large accelerated filer  o | Accelerated  filer  o | Non-accelerated  filer  x |
|--------------------------------------|---------------------------------|-------------------------------------|

 

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

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

As of May 8, 2007, therewere 11,380,760 of the registrant’s limited partnership units outstanding.

 

 

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**NTS REALTYHOLDINGS LIMITED PARTNERSHIP**

**FORM 10-Q**

**TABLE OF CONTENTS**
| **PART I — FINANCIAL  INFORMATION**                                                                  |       | 4          |       |
|-----------------------------------------------------------------------------------------------------------|------------|------------|------------|
| ** **                                                                                                |       |       |       |
| Item  1 — Financial Statements                                                                       |       | 4          |       |
| Consolidated Balance Sheets as of March 31, 2007 and  December 31, 2006                                   |       | 4          |       |
| Consolidated Statement of Partners’ Equity as of March  31, 2007                                     |       | 4          |       |
| Consolidated Statements of Operations for the Three  Months Ended March 31, 2007 and 2006                 |       | 5          |       |
| Consolidated Statements of Cash Flows for the Three  Months Ended March 31, 2007 and 2006                 |       | 6          |       |
| Notes to Consolidated Financial Statements                                                                |       | 7          |       |
| Item 2 — Management’s Discussion and Analysis of  Financial Condition and Results of Operations |       | 16         |       |
| Item 3 — Quantitative and Qualitative Disclosures  About Market Risk                                 |       | 25         |       |
| Item  4 — Controls and Procedures                                                                    |       | 25         |       |
| Item 4T — Controls and Procedures                                                                    |       | 25         |       |
|                                                                                                      |       |       |       |
| **PART  II — OTHER INFORMATION**                                                                     |       | 26         |       |
| ** **                                                                                                | ** ** | ** ** | ** ** |
| Item  1 — Legal Proceedings                                                                          |       | 26         |       |
| Item 1A  — Risk Factors                                                                              |       | 26         |       |
| Item 2 — Unregistered Sales of Equity Securities and  Use of Proceeds                                |       | 26         |       |
| Item 3 — Defaults Upon Senior Securities                                                             |       | 26         |       |
| Item 4 — Submission of Matters to a Vote of Security  Holders                                        |       | 26         |       |
| Item  5 — Other Information                                                                          |       | 26         |       |
| Item 6 —  Exhibits                                                                                   |       | 26         |       |
| SIGNATURES                                                                                                |       | 29         |       |

 

2

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**INFORMATIONREGARDING FORWARD-LOOKING STATEMENTS**

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

Any forward-looking statements included in MD&A,or elsewhere in this report, reflect our managing general partner’s bestjudgment based on known factors, but involve risks and uncertainties.  Actual results could differ materially fromthose anticipated in any forward-looking statements as a result of a number offactors, including but not limited to those described in our filings with theSecurities and Exchange Commission, particularly our most recent annual reporton Form 10-K, which was filed on March 28, 2007.  Any forward-looking information provided byus pursuant to the safe harbor established by the Private Securities LitigationReform Act of 1995 should be evaluated in the context of these factors.

 

3

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**PART I — FINANCIAL INFORMATION**

**Item 1 — FinancialStatements**

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

**Consolidated Balance Sheets as of March 31, 2007 andDecember 31, 2006**
| ** **                                                                                                                   | ** ** | **(Unaudited)**          | ** **  | ** **                  | ** ** |
|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|-------------|-----------------------------|------------|
| ** **                                                                                                                   | ** ** | **March 31,  2007** | ** **  | **December 31,  2006** | ** ** |
| **ASSETS:**                                                                                                                  | ** ** | ** **               | ** **  | ** **                  | ** ** |
| Cash and equivalents                                                                                                         |       | $                        | 140,932     |                        | $          | 28,250 |   |
| Cash and  equivalents - restricted                                                                                           |       | 1,948,742                |        | 465,517                     |       |
| Accounts  receivable, net of allowance for doubtful accounts of $61,573 at March 31,  2007 and $346,526 at December 31, 2006 |       | 1,309,480                |        | 1,515,955                   |       |
| Deposits                                                                                                                     |       | —                   |        | 300,000                     |       |
| Land, buildings  and amenities, net                                                                                          |       | 318,651,294              |        | 275,504,920                 |       |
| Long-lived  assets held for sale                                                                                             |       | 13,927,558               |        | 27,577,468                  |       |
| Other assets                                                                                                                 |       | 4,309,859                |        | 3,859,291                   |       |
|                                                                                                                         |       |                     |        |                        |       |
| **Total  assets**                                                                                                            |       | $                        | 340,287,865 |                        | $          | 309,251,401 |   |
|                                                                                                                         |       |                     |        |                        |       |
| **LIABILITIES:**                                                                                                             |       |                     |        |                        |       |
| Mortgages and  notes payable                                                                                                 |       | $                        | 237,796,059 |                        | $          | 220,932,189 |   |
| Accounts payable  and accrued expenses                                                                                       |       | 2,777,341                |        | 3,864,505                   |       |
| Accounts payable  and accrued expenses due to affiliate                                                                      |       | 420,318                  |        | 756,086                     |       |
| Distributions  payable                                                                                                       |       | 1,138,076                |        | 2,276,322                   |       |
| Security  deposits                                                                                                           |       | 973,282                  |        | 896,545                     |       |
| Long-lived  liabilities held for sale                                                                                        |       | 121,147                  |        | 274,195                     |       |
| Other  liabilities                                                                                                           |       | 4,816,319                |        | 2,776,853                   |       |
|                                                                                                                         |       |                     |        |                        |       |
| **Total  liabilities**                                                                                                       |       | 248,042,542              |        | 231,776,695                 |       |
|                                                                                                                         |       |                     |        |                        |       |
| **MINORITY INTEREST**                                                                                                        |       | 4,567,705                |        | —                      |       |
|                                                                                                                         |       |                     |        |                        |       |
| COMMITMENTS AND  CONTINGENCIES (NOTE 11)                                                                                     |       |                     |        |                        |       |
|                                                                                                                         |       |                     |        |                        |       |
| **PARTNERS’ EQUITY**                                                                                                    |       | 87,677,618               |        | 77,474,706                  |       |
|                                                                                                                         |       |                     |        |                        |       |
| **Total liabilities and partners’  equity**                                                                             |       | $                        | 340,287,865 |                        | $          | 309,251,401 |   |

 

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### ConsolidatedStatement of Partners’ Equity as of March 31, 2007

(Unaudited)
| ** **                                  | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**   | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|-----------------------|------------|-------------|------------|
| **PARTNERS’  EQUITY:**                 | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** **            | ** ** | ** **  | ** ** |
| Initial equity                              |       | 714,491                         |       | 10,667,117                       |       | $                    | 3,131,381  |                  | $          | 46,750,444  |       | $ | 49,881,825 |   |
| Net income prior years                      |       | —                          |       | —                           |       | 2,446,660            |       | 36,527,829            |       | 38,974,489  |       |
| Net income current year                     |       | —                          |       | —                           |       | 711,994              |       | 10,628,994            |       | 11,340,988  |       |
| Cash distributions declared to date         |       | —                          |       | —                           |       | (785,993             | )          | (11,733,691           | )          | (12,519,684 | )          |
| Retirement of limited partnership interests |       | —                          |       | (848                             | )          | —               |       | —                |       | —      |       |
|                                        |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Balances on  March 31, 2007                 |       | 714,491                         |       | 10,666,269                       |       | $                    | 5,504,042  |                  | $          | 82,173,576  |       | $ | 87,677,618 |   |

 

The accompanyingnotes to consolidated financial statements are an integral part of thesestatements.

4

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### ConsolidatedStatements of Operations for the Three Months Ended March 31, 2007 and 2006

(Unaudited)
| ** **                                                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                             | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **REVENUE:**                                                           | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Rental income                                                          |       | $                                                | 10,038,641 |   | $ | 7,335,543 |   |
| Tenant reimbursements                                                  |       | 458,396                                          |       | 430,197 |   |
|                                                                   |       |                                             |       |   |   |
| **Total  revenue**                                                     |       | 10,497,037                                       |       | 7,765,740 |   |
|                                                                   |       |                                             |       |   |   |
| **EXPENSES:**                                                          | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Operating  expenses                                                    |       | 2,119,902                                        |       | 1,447,120 |   |
| Operating  expenses reimbursed to affiliate                            |       | 1,259,980                                        |       | 918,688 |   |
| Management fees                                                        |       | 526,407                                          |       | 404,985 |   |
| Property taxes  and insurance                                          |       | 1,179,773                                        |       | 855,487 |   |
| Professional and  administrative expenses                              |       | 326,068                                          |       | 579,533 |   |
| Professional and  administrative expenses reimbursed to affiliate      |       | 507,109                                          |       | 405,886 |   |
| Depreciation and  amortization                                         |       | 3,737,974                                        |       | 2,563,574 |   |
|                                                                   |       |                                             |       |   |   |
| **Total operating  expenses**                                          |       | 9,657,213                                        |       | 7,175,273 |   |
|                                                                   |       |                                             |       |   |   |
| **OPERATING INCOME**                                                   |       | 839,824                                          |       | 590,467 |   |
|                                                                   |       |                                             |       |   |   |
| Interest and other  income                                             |       | 53,364                                           |       | 92,251 |   |
| Interest expense                                                       |       | (3,041,501                                       | )          | (2,082,362 | ) |
| Loss on disposal of  assets                                            |       | (56,792                                          | )          | (86,938 | ) |
| Minority interest                                                      |       | 7,468                                            |       | — |   |
|                                                                   |       |                                             |       |   |   |
| **LOSS FROM CONTINUING OPERATIONS**                                    |       | (2,197,637                                       | )          | (1,486,582 | ) |
| Discontinued  operations, net                                          |       | 56,334                                           |       | 297,468 |   |
| Gain on sale of  discontinued operations                               |       | 13,482,291                                       |       | 48,271,343 |   |
|                                                                   |       |                                             |       |   |   |
| **NET INCOME**                                                         |       | $                                                | 11,340,988 |   | $ | 47,082,229 |   |
|                                                                   |       |                                             |       |   |   |
| **Loss from continuing operations  allocated to limited partners**     |       | $                                                | (2,059,668 | ) | $ | (1,393,260 | ) |
| Discontinued  operations, net allocated to limited partners            |       | 52,797                                           |       | 278,794 |   |
| Gain on sale of  discontinued operations allocated to limited partners |       | 12,635,865                                       |       | 45,241,064 |   |
| ** **                                                             | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **NET INCOME ALLOCATED TO LIMITED  PARTNERS**                          |       | $                                                | 10,628,994 |   | $ | 44,126,598 |   |
|                                                                   |       |                                             |       |   |   |
| **Loss from continuing operations  per limited partnership unit**      |       | $                                                | (0.19      | ) | $ | (0.13 | ) |
| Discontinued  operations, net per limited partnership unit             |       | 0.01                                             |       | 0.03 |   |
| Gain on sale of discontinued  operations per limited partnership unit  |       | 1.18                                             |       | 4.24 |   |
|                                                                   |       |                                             |       |   |   |
| **NET INCOME PER LIMITED  PARTNERSHIP UNIT**                           |       | $                                                | 1.00       |   | $ | 4.14 |   |
|                                                                   |       |                                             |       |   |   |
| **Weighted average number of limited partnership  interests**          |       | 10,666,488                                       |       | 10,667,117 |   |

 

The accompanyingnotes to consolidated financial statements are an integral part of thesestatements.

5

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### ConsolidatedStatements of Cash Flows for the Three Months Ended March 31, 2007 and 2006

(Unaudited)
| ** **                                                                                   | ** ** | **2007**    | ** ** | **2006**     | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|
| **OPERATING ACTIVITIES:**                                                                    | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Net  income**                                                                              |       | $           | 11,340,988 |         | $          | 47,082,229 |   |
| Adjustments to  reconcile net income to net cash (used in) provided by operating activities: |       |        |       |         |       |
| Gain from sale  of discontinued assets                                                       |       | (13,482,291 | )          | (48,271,343  | )          |
| Loss on disposal  of assets                                                                  |       | 56,792      |       | 97,671       |       |
| Depreciation and  amortization                                                               |       | 3,933,423   |       | 3,130,820    |       |
| Minority  interest                                                                           |       | (7,468      | )          | —       |       |
| **Changes  in assets and liabilities:**                                                      | ** ** | ** **  | ** ** | ** **   | ** ** |
| Cash and  equivalents - restricted                                                           |       | (1,483,225  | )          | (49,641      | )          |
| Accounts  receivable                                                                         |       | 510,989     |       | (74,533      | )          |
| Other assets                                                                                 |       | 516,350     |       | (306,412     | )          |
| Accounts payable  and accrued expenses                                                       |       | (1,087,164  | )          | (143,039     | )          |
| Accounts payable  and accrued expenses due to affiliate                                      |       | (335,768    | )          | 1,142,504    |       |
| Distributions  declared payable                                                              |       | (1,138,246  | )          | (1,138,161   | )          |
| Security  deposits                                                                           |       | (55,998     | )          | 194,975      |       |
| Other  liabilities                                                                           |       | 880,907     |       | 142,654      |       |
|                                                                                         |       |        |       |         |       |
| **Net  cash (used in) provided by operating activities**                                     |       | (350,711    | )          | 1,807,724    |       |
|                                                                                         |       |        |       |         |       |
| **INVESTING ACTIVITIES:**                                                                    | ** ** | ** **  | ** ** | ** **   | ** ** |
| Additions to  land, buildings and amenities                                                  |       | (1,172,284  | )          | (1,395,715   | )          |
| Proceeds from  sale of discontinued operations                                               |       | 26,102,758  |       | 66,687,685   |       |
| Investment in  joint venture by minority interest, net                                       |       | 4,575,173   |       | —       |       |
| Acquisitions                                                                                 |       | (45,944,506 | )          | (131,162,176 | )          |
| Deposits on  property acquisitions                                                           |       | 300,000     |       | —       |       |
| Cash and  equivalents - restricted                                                           |       | —      |       | 874,079      |       |
|                                                                                         |       |        |       |         |       |
| **Net  cash used in investing activities**                                                   |       | (16,138,859 | )          | (64,996,127  | )          |
|                                                                                         |       |        |       |         |       |
| **FINANCING ACTIVITIES:**                                                                    | ** ** | ** **  | ** ** | ** **   | ** ** |
| Proceeds from  mortgages and notes payable                                                   |       | 36,000,000  |       | 42,500,000   |       |
| Proceeds from  revolving note payable                                                        |       | 10,143,746  |       | 28,625,190   |       |
| Principal  payments on mortgages and notes payable                                           |       | (8,079,876  | )          | (13,193,823  | )          |
| Additional  payments on mortgage payable                                                     |       | (21,200,000 | )          | —       |       |
| Additions to  loan costs                                                                     |       | (261,788    | )          | (130,932     | )          |
| Cash  distributions                                                                          |       | 170         |       | —       |       |
|                                                                                         |       |        |       |         |       |
| **Net  cash provided by financing activities**                                               |       | 16,602,252  |       | 57,800,435   |       |
|                                                                                         |       |        |       |         |       |
| **NET INCREASE (DECREASE) IN CASH  AND EQUIVALENTS**                                         |       | 112,682     |       | (5,387,968   | )          |
|                                                                                         |       |        |       |         |       |
| **CASH AND EQUIVALENTS, beginning  of period**                                               |       | 28,250      |       | 5,409,318    |       |
|                                                                                         |       |        |       |         |       |
| **CASH AND EQUIVALENTS, end of  period**                                                     |       | $           | 140,932    |         | $          | 21,350 |   |
| ** **                                                                                   | ** ** | ** **  | ** ** | ** **   | ** ** |
| **NON-CASH INVESTING AND  FINANCING ACTIVITIES:**                                            | ** ** | ** **  | ** ** | ** **   | ** ** |
| Acquisitions of  land, buildings and amenities by debt assumption                            |       | $           | —     |         | $          | (33,377,982 | ) |
| Mortgage payable  assumed in acquisition                                                     |       | $           | —     |         | $          | 33,377,982 |   |

 

The accompanyingnotes to consolidated financial statements are an integral part of thesestatements.

6

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**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

### Notes toConsolidated Financial Statements

(Unaudited)

The unaudited consolidated financial statementsincluded herein should be read in conjunction with NTS Realty Holdings LimitedPartnership’s (“NTS Realty”) 2006 annual report on Form 10-K as filed with theSecurities and Exchange Commission on March 28, 2007.  In the opinion of NTS Realty Capital, Inc.,our managing general partner, all adjustments, consisting only of normalrecurring accruals, necessary for a fair presentation have been made to theaccompanying consolidated financial statements for the three months ended March31, 2007 and 2006.  The results ofoperations for the interim periods are not necessarily indicative of theresults that may be expected for the full year or any other interimperiod.  As used in this quarterly reporton Form 10-Q, the terms “we,” “us” or “our,” as the context requires, may referto NTS Realty or its interests in its properties and joint venture.

**Note 1 — Summaryof Significant Accounting Policies**

***Organization and DistributionPolicy***

We are in the business of developing, constructing,owning and operating multifamily properties, commercial and retail real estateand land leases.  At March 31, 2007, weowned wholly or through a joint venture twenty-eight properties, comprised often multifamily properties, fourteen office and business centers, three retailproperties, and one ground lease.  Theproperties are located in and around Louisville (16) and Lexington (1),Kentucky, Fort Lauderdale (3), Florida, Indianapolis (4), Indiana, Nashville(2), Tennessee, Richmond (1), Virginia, and Atlanta (1), Georgia.  Our office and business centers aggregateapproximately 1.5 million square feet. We own multifamily properties containing approximately 3,020 units andretail properties containing approximately 210,000 square feet of space, aswell as one ground lease associated with a 120-space parking lot attached toone of our properties.

We pay distributions if and when authorized by our managinggeneral partner.  We are required to paydistributions on a quarterly basis, equal to sixty-five percent (65%) of our “netcash flow from operations” as this term is defined in regulations promulgatedby the Treasury Department under the Internal Revenue Code of 1986, as amended;provided that if a law is enacted or existing law is modified or interpreted ina manner that subjects us to taxation as a corporation or otherwise subjects usto entity level taxation for federal, state or local income tax purposes, wewill adjust the amount distributed to reflect our obligation to pay tax.  Any distribution other than a distributionwith respect to the final quarter of a calendar year will be made no later thanforty-five (45) days after the last day of such quarter based on our estimateof “net cash flow from operations” for the year.  Any distribution with respect to the finalquarter of a calendar year will be made no later than ninety (90) days afterthe last day of such quarter based on actual “net cash flow from operations”for the year, adjusted for any excess or insufficient distributions made withrespect to the first three quarters of the calendar year.

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

We paid quarterly distributions of $0.10 per unit tolimited partners on April 13, 2007.

***Consolidation Policy and MinorityInterest***

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

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

7

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

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

Certain reclassifications have been made to the March31, 2006 financial statements to conform to the March 31, 2007classifications.  These reclassificationshave no effect on previously reported operating results or partners’ equity.

**Note 3 — RealEstate Transactions**

***Acquisitions***

We account for our acquisitions using the purchasemethod of accounting in accordance with Statement of Financial AccountingStandards (“SFAS”) No. 141 “Business Combinations”.  The assets and liabilities purchased are recordedat their fair market value at the date of the acquisition.  We allocate the purchase price for each ofthe properties to net tangible and identified intangible assets acquired basedon fair values (including land, buildings, tenant improvements, acquired aboveand below market leases and the origination cost of acquired in-place leases)and acquired liabilities.  The intangibleassets recorded in relation to our multifamily property will be amortized overa period of one year, which approximates the weighted average lease lives.  No above or below market leases exist.  No customer relationship intangiblesexist.  At the date of the acquisition,the carrying value of mortgages and other liabilities approximated fair marketvalue.  We retained an independentappraiser to assess fair value based on estimated cash flow projections thatutilize discount and capitalizations rates deemed appropriate and availablemarket information.

During the three months ended March 31, 2007, we madethe following property acquisition:
| **Property - Multifamily** | ** ** | **Location**    | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|--------------------------------------|------------|-----------------|------------|-----------|------------|----------------------------|------------|-------------------------|------------|
| The Overlook at  St. Thomas (1)      |       | Louisville,  KY |       | 484       |       | March  14, 2007            |       | $                       | 46,000,000 |   |
|                                      |            |                 |            |           |            |                            |            |                         |            |  |

----

(1)          Acquired a mortgage of $36.0 million. Ownership percentage at March 31, 2007 was 60%.

8

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***Pro Forma Information***

The following table presents our unaudited pro formaresults of operations and per unit amounts as if we had consummated our 2007acquisition as of the beginning of each period presented.
| ** **                                                     | ** ** | **(Unaudited)**                                  | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended  March 31,** | ** ** |
| ** **                                                     | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Revenues                                                       |       | $                                                | 11,515,514 |   | $ | 9,031,674 |   |
| Expenses and  other income, net                                |       | 14,210,143                                       |       | 10,836,060 |   |
|                                                           |       |                                             |       |   |   |
| Loss from  continuing operations                               |       | $                                                | (2,694,629 | ) | $ | (1,804,386 | ) |
|                                                           |       |                                             |       |   |   |
| Net income                                                     |       | $                                                | 10,843,996 |   | $ | 46,764,425 |   |
|                                                           |       |                                             |       |   |   |
| Loss from  continuing operations allocated to limited partners |       | $                                                | (2,525,459 | ) | $ | (1,691,114 | ) |
|                                                           |       |                                             |       |   |   |
| Net income  allocated to limited partners                      |       | $                                                | 10,163,203 |   | $ | 43,828,745 |   |
|                                                           |       |                                             |       |   |   |
| Loss from  continuing operations per limited partnership unit  |       | $                                                | (0.24      | ) | $ | (0.16 | ) |
|                                                           |       |                                             |       |   |   |
| Net income per  limited partnership unit                       |       | $                                                | 0.95       |   | $ | 4.11 |   |
| ** **                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Weighted average number  of limited partnership interests      |       | 10,666,488                                       |       | 10,667,117 |   |

 

***Dispositions***

During the three months ended March 31, 2007, we madethe following property dispositions:
| **Property — Commercial** | ** ** | **Location**    | ** ** | **Square Feet** | ** ** | **Date of Sale** | ** ** | **Sale Price** | ** ** |
|------------------------------------------|------------|-----------------|------------|----------------------|------------|----------------------------|------------|---------------------|------------|
| Springs Medical  Office Center (1) (3)   |       | Louisville,  KY |       | 100,565              |       | February  12, 2007         |       | $                   | 15,150,000 |   |
| Springs Office  Center(2) (3)            |       | Louisville, KY  |       | 125,964              |       | February 12, 2007          |       | 13,750,000          |       |
|                                          |            |                 |            |                      |            |                            |            |                     |            |  |

----

(1)          Gain of approximately $8.8 million.

(2)          Gain of approximately $4.6 million.

(3)          We used proceeds from this disposition to make additional principalpayments of $10.6 million on a mortgage payable to a bank and to acquire 60% ofThe Overlook at St. Thomas.

9

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***Discontinued Operations and LongLived Assets and Liabilities Held for Sale***

We have presented separately as discontinuedoperations in all periods the results of operations for Golf Brook Apartments,Sabal Park Apartments, Commonwealth Business Center Phases I and II,Blankenbaker Business Center I and II, Springs Medical Office Center, andSprings Office Center.  These assets andliabilities held for sale have been separately identified on our balance sheetsat March 31, 2007 and December 31, 2006.

The components of discontinued operations are outlinedbelow and include the results of operations for the respective periods in whichwe owned such assets during the three months ended March 31, 2007 and 2006.
| ** **                                                         | ** ** | **(Unaudited)**                                  | ** ** |
|--------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
| ** **                                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **REVENUE:**                                                       | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Rental income                                                      |       | $                                                | 834,717    |   | $ | 2,151,215 |   |
| Tenant reimbursements                                              |       | 64,586                                           |       | 110,763 |   |
|                                                               |       |                                             |       |   |   |
| **Total revenue**                                                  |       | 899,303                                          |       | 2,261,978 |   |
|                                                               |       |                                             |       |   |   |
| **EXPENSES:**                                                      | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Operating expenses and operating expenses reimbursed  to affiliate |       | 313,512                                          |       | 765,048 |   |
| Management fees                                                    |       | 52,876                                           |       | 104,789 |   |
| Property taxes and insurance                                       |       | 84,431                                           |       | 195,641 |   |
| Depreciation and amortization                                      |       | 3,386                                            |       | 376,129 |   |
|                                                               |       |                                             |       |   |   |
| **Total expenses**                                                 |       | 454,205                                          |       | 1,441,607 |   |
|                                                               |       |                                             |       |   |   |
| **DISCONTINUED  OPERATING INCOME**                                 |       | 445,098                                          |       | 820,371 |   |
|                                                               |       |                                             |       |   |   |
| Interest and  other income                                         |       | 8,764                                            |       | 3,311 |   |
| Interest expense                                                   |       | (397,528                                         | )          | (515,481 | ) |
| Loss on disposal  of assets                                        |       | —                                           |       | (10,733 | ) |
| ** **                                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Discontinued operations, net**                                   |       | $                                                | 56,334     |   | $ | 297,468 |   |

 

The components of long-lived assets held for saleconsisted primarily of land, buildings and amenities for the properties beingsold.  The components of long-livedliabilities held for sale included the accrued property tax liabilities andsecurity deposit liabilities for the properties being sold.

**Note 4 —Concentration of Credit Risk**

We own and operate, either wholly or through a jointventure, multifamily properties, commercial and retail real estate and a landlease in Louisville and Lexington, Kentucky, Fort Lauderdale, Florida,Indianapolis, Indiana, Nashville, Tennessee, Richmond, Virginia and Atlanta,Georgia.

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

10

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**Note 5 — Cash andEquivalents**

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

**Note 6 — Cash andEquivalents - Restricted**

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

**Note 7 — Propertyand Depreciation**

Land, buildings and amenities are stated at cost.  Costs directly associated with theacquisition, development and construction of a project arecapitalized.  Depreciation is computedusing the straight-line method over the estimated useful lives of the assetswhich are generally 5-30 years for land improvements, 7-30 years for buildingsand improvements and 5-30 years for amenities. Tenant improvements are generally depreciated over the life of theinitial or renewal term of the respective tenant lease.  Depreciation expense on continuing operationsfor the three months ended March 31, 2007 and 2006 was approximately $3,589,000and $2,416,000, respectively.

SFAS No. 144 “Accounting for the Impairment orDisposal of Long-Lived Assets,” specifies circumstances in which certainlong-lived assets must be reviewed for impairment.  If the carrying amount of an asset exceedsthe sum of its expected future cash flows, the asset’s carrying value must bewritten down to fair value.  Indetermining the value of an investment property and whether the investmentproperty is impaired, management considers several factors such as projectedrental and vacancy rates, property operating expenses, capital expenditures andinterest rates.  The capitalization rateused to determine property valuation is based on the market in which theinvestment property is located, length of leases, tenant financial strength,the economy in general, demographics, environment, property location,visibility, age and physical condition among others.  All of these factors are considered bymanagement in determining the value of any particular investment property.  The value of any particular investmentproperty is sensitive to the actual results of any of these factors, eitherindividually or taken as a whole.  If theactual results differ from management’s judgment, the valuation could benegatively or positively affected. Application of this standard during the three months ended March 31,2007 and 2006 did not result in an impairment loss.

11

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**Note 8 — Mortgagesand Notes Payable**

Mortgages and notes payable consist of the following:
| ** **                                                                                                                                                                                                                                                                                                                                              | ** ** | **(Unaudited)**              | ** **  | ** **                      | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|-------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                              | ** ** | **March 31, 2007** | ** **  | **December 31, 2006** | ** ** |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.07%, maturing on March 15, 2015, secured by  certain land and buildings, with a carrying value of $47,014,662                                                                                                                       |       | $                            | 28,743,553  |                            | $          | 28,907,648 |   |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at a variable rate based on LIBOR one-month rate plus 2.50%,  currently 7.82%, due January 1, 2008, secured by certain land and buildings,  with a carrying value of $16,804,585. The mortgage is guaranteed by Mr.  Nichols (75%) and Mr. Lavin (25%) |       | 13,428,000                   |        | 13,494,000                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.98%, maturing January 15, 2015, secured by  certain land and buildings, with a carrying value of $159,000,522                                                                                                                       |       | 72,924,959                   |        | 73,178,299                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.35%, maturing January 15, 2015, secured by  certain land and buildings, with a carrying value of $159,000,522                                                                                                                       |       | 32,876,186                   |        | 32,994,574                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Revolving  note payable to a bank for $24.0 million, with interest payable in monthly  installments, unsecured, at a variable rate based on LIBOR plus 1.75%,  currently 7.07%, due August 24, 2007                                                                                                                                                     |       | 19,691,145                   |        | 16,878,031                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at 9.00%, maturing August 1, 2010, secured by certain land and a  building, with a carrying value of $2,810,572                                                                                                                                        |       | 2,602,115                    |        | 2,626,870                       |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 8.45%, maturing November 1, 2015, secured by  certain land and a building, with a carrying value of $2,332,521                                                                                                                        |       | 2,672,182                    |        | 2,723,982                       |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 8.375%, maturing December 1, 2010, secured by  certain land, a building and amenities, with a carrying value of $2,672,320                                                                                                            |       | 2,691,341                    |        | 2,717,182                       |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at 5.11%, maturing December 1, 2014, secured by certain land and  buildings, with a carrying value of $14,509,697                                                                                                                                      |       | 11,888,681                   |        | 11,933,706                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to a bank, with interest payable in monthly installments, bearing  interest at LIBOR plus 1.75%, currently 7.07%, maturing November 15, 2007,  secured by certain land and buildings, with a carrying value of $16,620,905                                                                                                            |       | 14,277,897                   |        | 35,477,897                      |       |
|                                                                                                                                                                                                                                                                                                                                                    |       |                         |        |                            |       |
| Mortgage  payable to a bank in monthly installments of principal and interest at 5.72%,  maturing April 11, 2017, secured by certain land, buildings and amenities,  with a carrying value of $45,692,535                                                                                                                                               |       | 36,000,000                   |        | —                          |       |
| ** **                                                                                                                                                                                                                                                                                                                                              | ** ** | ** **                   | ** **  | ** **                      | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                              |       | $                            | 237,796,059 |                            | $          | 220,932,189 |   |

 

Based on the borrowing rates currently available to usfor loans with similar terms and average maturities, the fair value oflong-term debt on March 31, 2007 was approximately $221.2 million.

Our borrowing base limitation on the revolving notepayable has been reduced to approximately $22,448,000 due to the sale ofCommonwealth Business Center Phases I and II.

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

Interest paid for the three months ended March 31,2007 and 2006 was approximately $3,406,000 and $2,319,000, respectively.

12

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Our mortgages may be prepaid but are generally subjectto a yield-maintenance premium.  Certainmortgages and notes payable contain covenants and requirements that we maintainspecified debt limits and ratios related to our debt balances and propertyvalues.  We complied with all covenantsand requirements at March 31, 2007.  Weintend to renew or refinance our mortgage and revolving note payable coming duein the next twelve months.

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

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

**Note 10 — RelatedParty Transactions**

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

Employee costs are allocated among NTS Realty, otheraffiliates of our managing general partner and for the benefit of thirdparties, so that a full time employee can be shared by multipleproperties.  Each employee services whichare dedicated to a particular entity’s operations are allocated as a percentageof each employee costs to that entity. We do not have any employee’s. Pursuant to our management agreement, NTS Development Company providesits employee’s to us.  We only reimbursecharges from NTS Development Company for actual costs of employee servicesincurred for our benefit.

We were charged the following amounts pursuant to ourmanagement agreement with NTS Development Company for the three months endedMarch 31, 2007 and 2006.  These chargesinclude items which have been expensed as operating expenses reimbursed toaffiliate or professional and administrative expenses reimbursed to affiliateand items which have been capitalized as other assets or as land, buildings andamenities.  Certain of these items areincluded in our results of discontinued operations.

13

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| ** **                                                        | ** ** | **(Unaudited)**                                                        | ** ** |
|-------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months Ended March 31,** | ** ** |
| ** **                                                        | ** ** | **2007**                                                               | ** ** | **2006** | ** ** |
| Property  management fees                                         | ** ** | $                                                                      | 526,407    |   | $ | 404,984 |   |
|                                                              |       |                                                                   |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 796,772                                                                |       | 548,086 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 92,517                                                                 |       | 66,688 |   |
| Operating  expenses reimbursement - Administrative                |       | 342,491                                                                |       | 286,586 |   |
| Operating expenses  reimbursement - Other                         |       | 28,200                                                                 |       | 17,328 |   |
|                                                              |       |                                                                   |       |   |   |
| Total operating expenses reimbursed to affiliate                  |       | 1,259,980                                                              |       | 918,688 |   |
|                                                              |       |                                                                   |       |   |   |
| Professional and  administrative expenses reimbursed to affiliate |       | 507,109                                                                |       | 405,886 |   |
|                                                              |       |                                                                   |       |   |   |
| Construction  supervision fees                                    |       | 42,889                                                                 |       | 40,844 |   |
| Commercial  leasing fees                                          |       | 31,266                                                                 |       | 24,474 |   |
|                                                              |       |                                                                   |       |   |   |
| **Total  related party transactions**                             |       | $                                                                      | 2,367,651  |   | $ | 1,794,876 |   |

 

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

During the three months ended March 31, 2007 and 2006,we were charged approximately $28,000 and $24,000, respectively, for propertymaintenance fees from affiliates of NTS Development Company.

NTS Development Company leased 20,368 square feet inNTS Center at a rental rate of $14.50 per square foot.  We received rental payments from NTSDevelopment Company of approximately $74,000 during each of the three monthsended March 31, 2007 and 2006.  Theaverage per square foot rental rate for similar space in NTS Center as of March31, 2007 was $13.73 per square foot.

NTS Development Company leased 1,604 square feet inCommonwealth Business Center Phase I at a rental rate of $5.50 per squarefoot.  We received rental payments ofapproximately $2,000 from NTS Development Company during the three months endedMarch 31, 2006.  Commonwealth BusinessCenter Phase I was sold to an unaffiliated third party on May 18, 2006.

Pursuant to the agreement with us, NTS DevelopmentCompany received a disposition fee equal to 2%, or $303,000, of the sale priceof Springs Medical Office Center and 2%, or $275,000, of the sale price ofSprings Office Center during the three months ended March 31, 2007.  NTS Development Company received adisposition fee equal to 1%, or $715,000, of the sale price of Golf BrookApartments and Sabal Park Apartments during the three months ended March 31,2006. These disposition fees are included in our gain on sale of discontinuedoperations on our statement of operations.

**Note 11 —Commitments and Contingencies**

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

14

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***Litigation***

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

**Note 12 — SegmentReporting**

Our reportable operating segments include — Land,Retail, Commercial and Multifamily Real Estate Operations.  The following unaudited financial informationof the operating segments has been prepared using a management approach, whichis consistent with the basis and manner in which our management internallydisaggregates financial information for the purpose of assisting in makinginternal operating decisions.  Weevaluate performance based on stand-alone operating segment net income orloss.  Expenses at the Partnership levelare represented in the nonsegment column.
| ** **                                                                                                      | ** ** | **(Unaudited)**                                                | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended March 31, 2007** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                       | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                              | 9,042      |   | $ | 324,976 |   | $ | 2,359,805 |   | $ | 7,415,786 |   | $ | (70,968 | ) | $ | 10,038,641 |   |
| Tenant  reimbursements                                                                                          |       | —                                                         |       | 18,504 |   | 439,892 |   | — |   | — |   | 458,396 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 9,042                                                          |       | 343,480 |   | 2,799,697 |   | 7,415,786 |   | (70,968 | ) | 10,497,037 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 135                                                            |       | 36,716 |   | 952,155 |   | 2,390,876 |   | — |   | 3,379,882 |   |
| Management fees                                                                                                 |       | 452                                                            |       | 16,891 |   | 139,629 |   | 369,435 |   | — |   | 526,407 |   |
| Property taxes  and insurance                                                                                   |       | 523                                                            |       | 10,925 |   | 295,196 |   | 839,392 |   | 33,737 |   | 1,179,773 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                         |       | — |   | — |   | — |   | 833,177 |   | 833,177 |   |
| Depreciation and  amortization                                                                                  |       | 652                                                            |       | 67,802 |   | 730,351 |   | 2,939,169 |   | — |   | 3,737,974 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 1,762                                                          |       | 132,334 |   | 2,117,331 |   | 6,538,872 |   | 866,914 |   | 9,657,213 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | 7,280                                                          |       | 211,146 |   | 682,366 |   | 876,914 |   | (937,882 | ) | 839,824 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | —                                                         |       | — |   | 5,005 |   | 31,483 |   | 16,876 |   | 53,364 |   |
| Interest expense                                                                                                |       | —                                                         |       | (102,900 | ) | (594,542 | ) | (2,201,314 | ) | (142,745 | ) | (3,041,501 | ) |
| Loss on disposal  of assets                                                                                     |       | —                                                         |       | — |   | (49,134 | ) | (7,658 | ) | — |   | (56,792 | ) |
| Minority interest                                                                                               |       | —                                                         |       | — |   | — |   | 7,468 |   | — |   | 7,468 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | 7,280                                                          |       | 108,246 |   | 43,695 |   | (1,293,107 | ) | (1,063,751 | ) | (2,197,637 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                         |       | — |   | 56,334 |   | — |   | — |   | 56,334 |   |
| Gain on sale of  discontinued operations                                                                        |       | —                                                         |       | — |   | 13,482,291 |   | — |   | — |   | 13,482,291 |   |
| ** **                                                                                                      | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                                              | 7,280      |   | $ | 108,246 |   | $ | 13,582,320 |   | $ | (1,293,107 | ) | $ | (1,063,751 | ) | $ | 11,340,988 |   |
| ** **                                                                                                      | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land, buildings and  amenities, net                                                                             |       | $                                                              | 155,667    |   | $ | 7,626,648 |   | $ | 44,651,563 |   | $ | 266,217,416 |   | $ | — |   | $ | 318,651,294 |   |

 

15

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| ** **                                                                                                      | ** ** | **(Unaudited)**                                                | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended March 31, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                                       | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                                              | 9,042      |   | $ | 346,083 |   | $ | 2,344,517 |   | $ | 4,705,684 |   | $ | (69,783 | ) | $ | 7,335,543 |   |
| Tenant  reimbursements                                                                                          |       | —                                                         |       | 19,782 |   | 410,415 |   | — |   | — |   | 430,197 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Total revenue**                                                                                               |       | 9,042                                                          |       | 365,865 |   | 2,754,932 |   | 4,705,684 |   | (69,783 | ) | 7,765,740 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | 135                                                            |       | 31,842 |   | 904,495 |   | 1,429,336 |   | — |   | 2,365,808 |   |
| Management fees                                                                                                 |       | 452                                                            |       | 18,968 |   | 138,098 |   | 247,467 |   | — |   | 404,985 |   |
| Property taxes  and insurance                                                                                   |       | 414                                                            |       | 10,298 |   | 279,873 |   | 529,181 |   | 35,721 |   | 855,487 |   |
| Professional and  administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | —                                                         |       | — |   | — |   | — |   | 985,419 |   | 985,419 |   |
| Depreciation and  amortization                                                                                  |       | 652                                                            |       | 71,461 |   | 754,201 |   | 1,737,260 |   | — |   | 2,563,574 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Total operating expenses**                                                                                    |       | 1,653                                                          |       | 132,569 |   | 2,076,667 |   | 3,943,244 |   | 1,021,140 |   | 7,175,273 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | 7,389                                                          |       | 233,296 |   | 678,265 |   | 762,440 |   | (1,090,923 | ) | 590,467 |   |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | —                                                         |       | — |   | 55,833 |   | 6,681 |   | 29,737 |   | 92,251 |   |
| Interest expense                                                                                                |       | —                                                         |       | (99,089 | ) | (507,980 | ) | (1,198,750 | ) | (276,543 | ) | (2,082,362 | ) |
| Loss on disposal  of assets                                                                                     |       | —                                                         |       | — |   | (24,745 | ) | (62,193 | ) | — |   | (86,938 | ) |
|                                                                                                            |       |                                                           |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | 7,389                                                          |       | 134,207 |   | 201,373 |   | (491,822 | ) | (1,337,729 | ) | (1,486,582 | ) |
| Discontinued  operations, net                                                                                   |       | —                                                         |       | — |   | 288,936 |   | 8,532 |   | — |   | 297,468 |   |
| Gain on sale of  discontinued operations                                                                        |       | —                                                         |       | — |   | — |   | 48,271,343 |   | — |   | 48,271,343 |   |
| ** **                                                                                                      | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                                              | 7,389      |   | $ | 134,207 |   | $ | 490,309 |   | $ | 47,788,053 |   | $ | (1,337,729 | ) | $ | 47,082,229 |   |
| ** **                                                                                                      | ** ** | ** **                                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land, buildings and  amenities, net                                                                             |       | $                                                              | 158,274    |   | $ | 7,888,416 |   | $ | 45,468,669 |   | $ | 231,154,075 |   | $ | — |   | $ | 284,669,434 |   |

 

**ITEM2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONS**

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

**CriticalAccounting Policies**

***General***

A critical accounting policy is one that wouldmaterially affect our operations or financial condition, and requiresmanagement to make estimates or judgments in certain circumstances.  These judgments often result from the need tomake estimates about the effect of matters that are inherently uncertain.  Critical accounting policies discussed inthis section are not to be confused with accounting principles and methodsdisclosed in accordance with U.S. generally accepted accounting principles (“GAAP”).  GAAP requires information in financialstatements about accounting principles, methods used and disclosures pertainingto significant estimates.  The followingdisclosure discusses judgments known to management pertaining to trends, eventsor uncertainties known which were taken into consideration upon the applicationof those policies and the likelihood that materially different amounts would bereported upon taking into consideration different conditions and assumptions.

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***Impairment andValuation***

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

Our property acquisitions were accounted for using thepurchase method of accounting in accordance with SFAS No. 141 “BusinessCombinations.” Each property’s assets and liabilities acquired fromunaffiliated third parties was adjusted to reflect its fair market value. Inaccordance with SFAS No. 141, we have allocated the purchase price of eachacquired investment property among land, buildings and improvements, otherintangibles, including acquired above market leases, acquired below marketleases and acquired in-place lease origination cost which is the market costavoidance of executing the acquired leases. Allocation of the purchase price isan area that requires complex judgments and significant estimates. We used theinformation contained in a third-party appraisal as the primary basis forallocating the purchase price between land and buildings. A pro rata portion ofthe purchase price was allocated to the value of avoiding a lease-up period foracquired in-place leases. The value of in-place leases is amortized to expenseover the remaining initial term of the respective leases. A portion of thepurchase price was allocated to the estimated lease origination cost based onestimated lease execution costs for similar leases and considered variousfactors including geographic location and size of leased space. We thenevaluated acquired leases based upon current market rates at the acquisitiondate and various other factors including geographic location, size and thelocation of leased space within the property, tenant profile and the creditrisk of the tenant in determining whether the acquired lease is above or belowmarket. After acquired leases were determined to be at, above or below market,we allocated a pro rata portion of the purchase price to any acquired above orbelow market lease based upon the present value of the difference between thecontractual lease rate and the estimated market rate. We also consider anallocation of purchase price to in-place leases that have a customerrelationship intangible value. The characteristics we consider in allocatingthese values include the nature and extent of existing business relationshipswith the tenant, growth prospects for developing new business with the tenantand the tenant’s credit quality and expectations of lease renewals. We did nothave any tenants with whom we have identified a developed relationship that webelieve had any intangible value.

***Recognition ofRental Income***

Under GAAP, we are required to recognize rental incomebased on the effective monthly rent for each lease. The effective monthly rentis equal to the average monthly rent during the term of the lease, not thestated rent for any particular month. The process, known as “straight-lining”or “stepping” rent, has the effect of increasing rental revenues during theearly phases of a lease and decreasing rental revenues in the latter phases ofa lease if the stated rent progressively increases over the term of the lease. Dueto the impact of “straight-lining,” the cash collected exceeded the rentalincome for rent by approximately $69,900 and $59,600 for the three months endedMarch 31, 2007 and 2006, respectively. If rental income calculated on astraight-line basis exceeds the cash rent due under the lease, the differenceis recorded as an increase in deferred rent receivable and included as acomponent of accounts receivable on the relevant balance sheet. If the cashrent due under the lease exceeds rental income calculated on a straight-linebasis, the difference is recorded as a decrease in deferred rent receivable andis recorded as a decrease of accounts receivable on the relevant balance sheet.We defer recognition of contingent rental income, such as percentage or excessrent, until the breakpoint that triggers the contingent rental income isachieved. We periodically review the collectability of outstanding receivables.Allowances are generally taken for tenants with outstanding balances due for aperiod greater than ninety days and tenants with outstanding balances due for aperiod less than ninety days if we believe these balances may be uncollectible.

17

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***Recognition ofLease Termination Income***

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

***CostCapitalization and Depreciation Policies***

We review all expenditures and capitalize any itemexceeding $2,500 deemed to be an upgrade or a tenant improvement with anexpected useful life greater than one year. Land, buildings and amenities arestated at cost. Depreciation expense is computed using the straight-line methodover the estimated useful lives of the assets. Generally, buildings andimprovements have estimated useful lives between 7-30 years, land improvementshave estimated useful lives between 5-30 years and amenities have estimated usefullives between 5-30 years. Acquired above and below market leases are amortizedon a straight-line basis over the life of the related leases as an adjustmentto rental income. Acquired in-place lease origination cost is amortized overthe life of the lease as a component of amortization expense.

**Results ofOperations**

At March 31, 2007, we owned wholly or through a jointventure twenty-eight properties, comprised of ten multifamily properties,fourteen office and business centers, three retail properties and one groundlease. We generate substantially all of our operating income from propertyoperations.

Net loss from continuing operations for the threemonths ended March 31, 2007 and 2006 was approximately $2,198,000 and$1,487,000, respectively. The increase in net loss was primarily due toincreased interest expense related to the loans obtained for the acquisition ofCastle Creek Apartments and Lake Clearwater Apartments in 2006.

The following tables include certain selectedsummarized operating data for the three months ended March 31, 2007 and 2006. Thisdata should be read in conjunction with our financial statements, including thenotes attached hereto.
| ** **                                                         | ** ** | **(Unaudited)**                       | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended March 31, 2007** | ** ** |
| ** **                                                         | ** ** | ** **                            | ** ** |
| ** **                                                         | ** ** | **Land**                              | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                     | 9,042      |   | $ | 343,480 |   | $ | 2,799,697 |   | $ | 7,415,786 |   | $ | (70,968 | ) | $ | 10,497,037 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 135                                   |       | 36,716 |   | 952,155 |   | 2,390,876 |   | — |   | 3,379,882 |   |
| Depreciation and  amortization                                     |       | 652                                   |       | 67,802 |   | 730,351 |   | 2,939,169 |   | — |   | 3,737,974 |   |
| Total interest  expense                                            |       | —                                |       | (102,900 | ) | (594,542 | ) | (2,201,314 | ) | (142,745 | ) | (3,041,501 | ) |
| Net income (loss)                                                  |       | 7,280                                 |       | 108,246 |   | 13,582,320 |   | (1,293,107 | ) | (1,063,751 | ) | 11,340,988 |   |
|                                                                    |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                       | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended March 31, 2006** | ** ** |
| ** **                                                         | ** ** | ** **                            | ** ** |
| ** **                                                         | ** ** | **Land**                              | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total revenues                                                     |       | $                                     | 9,042      |   | $ | 365,865 |   | $ | 2,754,932 |   | $ | 4,705,684 |   | $ | (69,783 | ) | $ | 7,765,740 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 135                                   |       | 31,842 |   | 904,495 |   | 1,429,336 |   | — |   | 2,365,808 |   |
| Depreciation and  amortization                                     |       | 652                                   |       | 71,461 |   | 754,201 |   | 1,737,260 |   | — |   | 2,563,574 |   |
| Total interest  expense                                            |       | —                                |       | (99,089 | ) | (507,980 | ) | (1,198,750 | ) | (276,543 | ) | (2,082,362 | ) |
| Net income (loss)                                                  |       | 7,389                                 |       | 134,207 |   | 490,309 |   | 47,788,053 |   | (1,337,729 | ) | 47,082,229 |   |
|                                                                    |            |                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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Occupancy levels at our continuing properties bysegment as of March 31, 2007 and 2006 were as follows:
| ** **  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 70.6     | %          | 69.8     | %          |
| Multifamily |       | 95.7     | %          | 94.2     | %          |
| Retail      |       | 98.2     | %          | 100      | %          |
| Land        |       | N/A      |       | N/A      |       |

 

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

The average occupancy levels at our continuingproperties by segment for the three months ended March 31, 2007 and 2006 wereas follows:
| ** **  | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------|------------|------------------------------------------------------|------------|
| ** **  | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Commercial  |       | 70.8                                                 | %          | 70.2 | % |
| Multifamily |       | 95.4                                                 | %          | 93.1 | % |
| Retail      |       | 98.2                                                 | %          | 100 | % |
| Land        |       | N/A                                                  |       | N/A |   |

 

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

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

At our multifamily properties, we have on-site leasingstaff, who are employees of NTS Development Company, at each of the multifamilyproperties. The staff handles all on-site visits from potential tenants,coordinates local advertising with NTS Development Company’s marketing staff,makes visits to local companies to promote fully furnished apartments, andnegotiates lease renewals with current residents.

The following discussion relating to changes in ourresults of operations includes only material line items within our Statementsof Operations or line items for which there was a material change between thethree months ended March 31, 2007 and 2006.

***Rental Income andTenant Reimbursements***

Rental income and tenant reimbursements fromcontinuing operations for the three months ended March 31, 2007 and 2006 wereapproximately $10,497,000 and $7,766,000, respectively. The increase of$2,731,000, or 35%, was primarily the result of acquiring The Groves atRichland Apartments, The Groves at Swift Creek Apartments, The Groves atWhitworth Apartments (February 2006), Castle Creek Apartments and LakeClearwater Apartments (March 2006).

***Operating Expensesand Operating Expenses Reimbursed to Affiliate***

Operating expenses from continuing operations for thethree months ended March 31, 2007 and 2006 were approximately $2,120,000 and$1,447,000, respectively. The increase of $673,000, or 47%, was primarily dueto the 2006 acquisitions of the Grove at Richland Apartments, the Grove atSwift Creek Apartments, The Grove at Whitworth Apartments, Castle CreekApartments and Lake Clearwater Apartments.

Operating expenses reimbursed to affiliate fromcontinuing operations for the three months ended March 31, 2007 and 2006 wereapproximately $1,260,000 and $919,000, respectively. The increase of $341,000,or 37%, was primarily due to acquiring the five apartments in 2006 (The Groveat Richland Apartments, The Grove at Swift Creek Apartments, The Grove atWhitworth Apartments, Castle Creek Apartments and Lake Clearwater Apartments).

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We do not have any employees.

Pursuant to our management agreement, NTS DevelopmentCompany employs many of the individuals who provide services necessary tooperate our properties and conduct our business. NTS Development Companyprovides employees that may also perform services for other properties andbusiness enterprises. In the situation where a particular employee benefitsmultiple operations, the employee’s cost is proportionately charged out to theentity receiving the services. The cost of services provided to us by NTSDevelopment Company’s employees are classified in our consolidated Statementsof Operations as “Operating expenses reimbursed to affiliate”. The servicesprovided by others are classified as “Operating Expenses”.

Operating expenses reimbursed to affiliate are for theservices performed by employees of NTS Development Company, an affiliate of ourgeneral partners. These employee services include property management, leasing,maintenance, security and other services necessary to manage and operate ourbusiness.

Operating expensesreimbursed to affiliate consisted approximately of the following:
| ** **           | ** ** | **(Unaudited)**                                      | ** ** |
|----------------------|------------|------------------------------------------------------|------------|
| ** **           | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Property             |       | $                                                    | 797,000    |   | $ | 548,000 |   |
| Multifamily  Leasing |       | 93,000                                               |       | 67,000 |   |
| Administrative       |       | 342,000                                              |       | 287,000 |   |
| Other                |       | 28,000                                               |       | 17,000 |   |
| ** **           |       |                                                 |       |   |   |
| **Total**            |       | $                                                    | 1,260,000  |   | $ | 919,000 |   |

 

***Management Fees***

Management fees from continuing operations for thethree months ended March 31, 2007 and 2006 were approximately $526,000 and$405,000, respectively. The increase of $121,000 or 30%, was primarily due tothe 2006 acquisitions of The Grove at Richland Apartments, The Grove at SwiftCreek Apartments, The Grove at Whitworth Apartments, Castle Creek Apartments,and Lake Clearwater Apartments.

Pursuant to our management agreement, NTS DevelopmentCompany receives property management fees equal to 5% of the gross collectedrevenue from our properties. Management fees are calculated as a percentage ofcash collections, however, for revenue reporting purposes are recorded on theaccrual basis. As a result, the fluctuations in revenue between years willdiffer from the fluctuations of management fee expense.

***Property Taxes andInsurance***

Property taxes and insurance from continuingoperations for the three months ended March 31, 2007 and 2006 were approximately$1,180,000 and $855,000, respectively. The increase of $325,000 or 38%, wasprimarily due to the February 2006 acquisitions of The Grove at RichlandApartments, The Grove at Swift Creek Apartments and The Grove at WhitworthApartments and the March 2006 acquisitions of Castle Creek Apartments and LakeClearwater Apartments.

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

Professional and administrative expenses fromcontinuing operations for the three months ended March 31, 2007 and 2006 wereapproximately $326,000 and $580,000, respectively. The decrease of $254,000 or44%, was primarily due to decreased legal and professional fees related to theclass action litigation, general legal fees and decreased audit fees.

Professional and administrative expenses reimbursed toaffiliate from continuing operations for the three months ended March 31, 2007and 2006 were approximately $507,000 and $406,000 respectively. The increase of$101,000 or 25%, was primarily due to increased personnel costs.

We do not have any employees.

Pursuant to our management agreement, NTS DevelopmentCompany employs many of the individuals who provide services necessary tooperate our properties and conduct our business. NTS Development Companyprovides employees that may also perform services for other properties andbusiness enterprises. In the situation where a particular employee benefitsmultiple operations, the employee’s cost is proportionately charged out to the entityreceiving the services. The cost of services provided to us by NTS DevelopmentCompany’s employees are classified in our consolidated Statements of Operationsas “Professional and Administrative expenses reimbursed to affiliate”. Theservices provided by others are classified as “Professional and Administrative”.

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

Professional and administrative expenses reimbursed toaffiliate consisted approximately of the following:
| ** **          | ** ** | **(Unaudited)**                                      | ** ** |
|---------------------|------------|------------------------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **          | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Finance             |       | $                                                    | 127,000    |   | $ | 108,000 |   |
| Accounting          |       | 215,000                                              |       | 213,000 |   |
| Investor  Relations |       | 127,000                                              |       | 55,000 |   |
| Human Resources     |       | 5,000                                                |       | 4,000 |   |
| Overhead            |       | 33,000                                               |       | 26,000 |   |
|                |       |                                                 |       |   |   |
| **Total**           |       | $                                                    | 507,000    |   | $ | 406,000 |   |

 

***Depreciation and Amortization***

Depreciation and amortization expense from continuingoperations for the three months ended March 31, 2007 and 2006 was approximately$3,738,000 and $2,564,000, respectively. The increase of $1,174,000 or 46% wasprimarily due to the 2006 acquisitions of The Grove at Richland Apartments, TheGrove at Swift Creek Apartments, The Grove at Whitworth Apartments, CastleCreek Apartments and Lake Clearwater Apartments.

***Interest and OtherIncome***

Interest and other income for the three months endedMarch 31, 2007 and 2006 was approximately $53,000 and $92,000, respectively. Thedecrease of $39,000 or 42%, was primarily the result of a forfeited deposit dueto the cancellation of the sales agreement for the Sears Office Building,partially offset by increased interest earned on investments.

***Interest Expense***

Interest expense from continuing operations for thethree months ended March 31, 2007 and 2006 was approximately $3,042,000 and$2,082,000, respectively. The increase of $960,000 or 46%, is primarily relatedto the loans obtained for the acquisition of Castle Creek Apartments and LakeClearwater Apartments in 2006.

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***Losson Disposal of Assets***

The loss ondisposal of assets from continuing operations for the three months ended March31, 2007 and 2006 can be attributed to assets that were not fully depreciatedat the time of replacement, spread primarily amongst the commercial properties.These replacements include heating and air conditioning units and common arearenovations.

***DiscontinuedOperations***

Discontinuedoperations, net for the three months ended March 31, 2007 and 2006 wereapproximately $56,000 and $297,000, respectively. The decrease of $241,000 or81%, was primarily due to the sale of Golf Brook Apartments and Sabal ParkApartments on February 2, 2006, the sale of Commonwealth Business Center PhasesI and II on May 18, 2006 and the sale of Springs Medical Office Center andSprings Office Center on February 12, 2007.

***Gainon Sale of Discontinued Operations***

Gain on sale ofdiscontinued operations for the three months ended March 31, 2007 wasapproximately $13,482,000 due to the sale of Springs Medical Office Center andSprings Office Center on February 12, 2007. Gain on sale of discontinuedoperations for the three months ended March 31, 2006 was approximately$48,271,000 due to the sale of Golf Brook and Sabal Park Apartments on February2, 2006.

**Liquidity and Capital Resources**

Our most liquidasset is our cash and equivalents, which consist of cash and short-terminvestments, but do not include any restricted cash. Operating income generatedby the properties will be the primary source from which we generate cash. Othersources of cash include the proceeds from mortgage loans and notes payable. Ourmain uses of cash will relate to capital expenditures, required payments ofmortgages and notes payable, distributions and property taxes.
| ** **                                           | ** ** | **(Unaudited)**                                      | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                           | ** ** | **Three Months Ended March 31,** | ** ** |
| ** **                                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| Operating activities                                 |       | $                                                    | (350,711   | ) | $ | 1,807,724 |   |
| Investing activities                                 |       | (16,138,859                                          | )          | (64,996,127 | ) |
| Financing activities                                 |       | 16,602,252                                           |       | 57,800,435 |   |
|                                                 |       |                                                 |       |   |   |
| **Net increase (decrease) in cash  and equivalents** |       | $                                                    | 112,682    |   | $ | (5,387,968 | ) |

 

***CashFlow from Operating Activities***

Net cash providedby operating activities was approximately $1,808,000 for the three months endedMarch 31, 2006. For the three months ended March 31, 2007, we usedapproximately $351,000 in net cash from operating activities. The change wasprimarily due to funds restricted from the sale of Springs Medical OfficeCenter and Springs Office Center.

***CashFlow from Investing Activities***

Net cash used ininvesting activities decreased from approximately $64,996,000 to $16,139,000for the three months ended March 31, 2006 and 2007, respectively. The decreasewas primarily due to changes in investing activities from property acquisitionsand dispositions.

***CashFlow from Financing Activities***

Net cash providedby financing activities decreased from approximately $57,880,000 to $16,602,000for the three months ended March 31, 2006 and 2007, respectively. The changewas primarily the result of additional payments on a mortgage payable of $21.2million and a decrease in proceeds from the revolving note payable.

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***FutureLiquidity***

Our futureliquidity depends significantly on our properties’ occupancy and operatingresults remaining at a level which provides for debt payments, distributions toour limited partners and adequate working capital, currently and in the future.If occupancy were to fall below that level and remain at or below that levelfor a significant period of time, our ability to make payments due under ourdebt agreements and to continue paying daily operational costs would be greatlyimpaired. In the next twelve months, we intend to operate the properties in asimilar manner to their operation in recent years. Cash reserves, which consistof unrestricted cash as shown on our balance sheet, were approximately $141,000on March 31, 2007.

On March 19, 2007,we announced that the board of directors of our managing general partnerapproved a quarterly distribution of $0.10 per unit on our limited partnershipunits. The distribution was paid on April 13, 2007, to limited partners ofrecord at the close of business on March 31, 2007.

We expect to incurexpenditures of approximately $6.0 million funded by borrowings on our debtduring the next twelve months primarily for renovations and tenant originationcosts necessary to continue leasing our properties. On April 27, 2007, wenegotiated a new lease with a sole tenant to lease approximately 62,000 squarefeet at Anthem Office Center. As part of the lease, we estimate thatapproximately $3.3 million in expenditures will be required. This discussion offuture liquidity details our material commitments. We anticipate seekingrenewal or refinancing of our notes payable coming due in the next twelvemonths.

Our borrowing baselimitation on the revolving note payable has been reduced to approximately$22,448,000 due to the sale of Commonwealth Business Center Phases I and II.

***PropertyTransactions***

During the threemonths ended March 31, 2007 we made the following property transactions:

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

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(1)Assumed a mortgage of $36.0 million. Ownership percentage at March 31, 2007 was60%.

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

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(1)          Gain of approximately $8.8 million.

(2)          Gain of approximately $4.6 million.

(3)          We used proceeds from this disposition to make additional principalpayments of $10.6 million on a mortgage payable to a bank and to acquire 60% ofThe Overlook at St. Thomas.

We may engage intransactions structured as “like kind exchanges” of property to obtainfavorable tax treatment under Section 1031 of the Internal Revenue Code. If weare able to structure an exchange of properties as a “like kind exchange,” thenany gain we realize from the exchange would not be recognized for federalincome tax purposes. The test for determining whether exchanged properties areof “like kind” is whether the properties are of the same nature or character.

We were unable touse approximately $1.3 million of the proceeds from the sale of Springs MedicalOffice Center and Springs Office Center in the purchase of The Overlook at St.Thomas. Under Section 1031 of the Internal Revenue Code certain taxconsequences will result for the limited partners of record due to ourinability to use these funds in a “like kind exchange”. The primary consequencewill be the recognition of gain or loss on the transaction and related taxattributes.

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**Website Information**

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

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**Item 3 — Quantitative and QualitativeDisclosures About Market Risk**

Our primary marketrisk exposure with regard to financial instruments is expected to be ourexposure to changes in interest rates. We refinanced substantially all of ourdebt acquired at the time of our merger with instruments which bear interest ata fixed rate, with the exception of approximately $47.4 million at variablerates. We anticipate that a hypothetical 100 basis point increase in interestrates would result in an approximate $10.1 million decrease in the fair valueof our fixed rate debt while increasing interest expense on our variable ratedebt by approximately $474,000 annually.

**Item 4 —Controls and Procedures**

Our managinggeneral partner has established disclosure controls and procedures to ensurethat our material information is made known to the officers of our managinggeneral partner who certify our financial reports, to our management and to theboard of directors of our managing partner.

Our managinggeneral partner’s Chief Executive Officer and Chief Financial Officer haveevaluated the effectiveness of our disclosure controls and procedures as ofMarch 31, 2007. Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective as of March 31, 2007. There were no material changes in our internalcontrol over financial reporting during the three months ended March 31, 2007.

**Item 4T —Controls and Procedures**

There were nomaterial changes in our internal control over financial reporting during thethree months ended March 31, 2007.

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**PART II —OTHER INFORMATION**

**Item 1 —Legal Proceedings**

None.

**Item 1A —Risk Factors**

There have notbeen material changes to our Risk Factors as disclosed in our most recentannual report on Form 10-K as filed with the Securities and Exchange Commissionon March 28, 2007.

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

None.

**Item 3 —Defaults Upon Senior Securities**

None.

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

None.

**Item 5 —Other Information**

None.

**Item 6 —Exhibits**

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| Exhibit No. | ** ** | ** **                                                                                                                                                                                                                                                                             | ** ** | ** ** | ** ** |
|------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|
| 2.01             |       | Agreement  and Plan of Merger by and among NTS Realty Holdings Limited Partnership,  NTS-Properties III, NTS-Properties IV, NTS-Properties V, a Maryland limited  partnership, NTS-Properties VI, a Maryland limited partnership and  NTS-Properties VII, Ltd., dated February 3, 2004 |       | (3         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 2.02             |       | Contribution  Agreement by and between NTS Realty Holdings Limited Partnership and ORIG,  LLC, dated February 3, 2004                                                                                                                                                                  |       | (3         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 3.01             |       | Certificate  of Limited Partnership of NTS Realty Holdings Limited Partnership                                                                                                                                                                                                         |       | (1         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 3.02             |       | Amended  and Restated Agreement of Limited Partnership of NTS Realty Holdings Limited  Partnership, dated as of December 29, 2005                                                                                                                                                      |       | (7         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 3.03             |       | Certificate  of Incorporation of NTS Realty Capital, Inc.                                                                                                                                                                                                                              |       | (8         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 3.04             |       | By-Laws  of NTS Realty Capital, Inc.                                                                                                                                                                                                                                                   |       | (2         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.01            |       | Amended  and Restated Management Agreement between NTS Realty Holdings Limited  Partnership and NTS Development Company, dated as of December 29, 2005                                                                                                                                 |       | (6         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.02            |       | Form  of Lease Agreement between NTS Realty Holdings Limited Partnership and SHPS,  Inc.                                                                                                                                                                                               |       | (4         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.03            |       | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and  Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Golf Brook  Apartments)                                                                                                            |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.04            |       | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and  Investors Capital Mortgage Group, Inc., dated September 30, 2005 (Sabal Park  Apartments)                                                                                                            |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.05            |       | Agreement  for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and  NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at  Richland and The Grove at Whitworth)                                                                           |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.06            |       | Agreement  for Purchase and Sale between Schaedle Worthington Hyde Properties, L.P. and  NTS Realty Holdings Limited Partnership, dated November 1, 2005 (The Grove at  Swift Creek)                                                                                                   |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.07            |       | Purchase  and Sale Agreement between AMLI at Castle Creek, L.P. and AMLI Residential  Properties, L.P. and NTS Realty Holdings Limited Partnership, dated February  7, 2006 (Castle Creek and Lake Clearwater)                                                                         |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.08            |       | Unconditional  and Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor  of National City Bank, dated March 23, 2006                                                                                                                                                |       | (5         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.09            |       | Amended  and Restated Master Loan Agreements between NTS Realty Holding Limited  Partnership and The Northwestern Mutual Life Insurance Company and between  NTS Realty Holdings Limited Partnership and National City Bank, dated October  4, 2006                                    |       | (9         | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.10            |       | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and  Meridian Realty Investments, LLC, dated November 10, 2006 (Springs Medical  Office Center)                                                                                                           |       | (10        | )          |
|             |       |                                                                                                                                                                                                                                                                                   |       |       |       |
| 10.11            |       | Purchase  and Sale Agreement between NTS Realty Holdings Limited Partnership and  Meridian Realty Investments, LLC, dated November 10, 2006 (Springs Office  Center)                                                                                                                   |       | (10        | )          |

 

27

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| 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    | )      |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 14.01  |   | Code  of Conduct and Ethics of NTS Realty Holdings Limited Partnership, adopted as of  December 28, 2004                                                                                                                      |   | (4     | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 31.1   |   | Certification  of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of  the Securities Exchange Act, as amended                                                                                           |   | (12    | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 31.2   |   | Certification  of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of  the Securities Exchange Act, as amended                                                                                           |   | (12    | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 32.1   |   | Certification  of Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                   |   | (12    | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 32.2   |   | Certification  of Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                   |   | (12    | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 99.01  |   | Form  of Lock-Up Agreement by and between NTS Realty Holdings Limited Partnership  and each of the executive officers of NTS Realty Capital, Inc.                                                                             |   | (1     | )      |
|   |   |                                                                                                                                                                                                                          |   |   |   |
| 99.02  |   | Registration Statement  on Form S-4/A (Amendment No. 5), as filed by the Registrant with the  Securities and Exchange Commission on October 27, 2004                                                                          |   | (3     | )      |

----

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

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

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

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

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

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

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

(8)                                  Incorporatedby reference to the Registrant’s Quarterly Report on Form 10-Q for the quarterended March 31, 2006, as filed with the Securities and Exchange Commission onMay 15, 2006.

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

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

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

(12)                            Filedherewith

28

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|        | **NTS REALTY HOLDINGS LIMITED PARTNERSHIP** |
|--------|---------------------------------------------|
|   |                                        |
|   | By:                                         | NTS REALTY CAPITAL, INC. |
|   |                                        | Its: | Managing General Partner |
|   |                                        |   |   |
|   |                                        | By: | /s/ *Brian F. Lavin* |
|   |                                        |   | Brian F. Lavin |
|   |                                        |   | Its: | President and Chief Executive Officer |
|   |                                        |   | Date: | May 10, 2007 |
|   |                                        |   |   |   |
|   |                                        | By: | /s/ *Gregory A. Wells* |
|   |                                        |   | Gregory A. Wells |
|   |                                        |   | Its: | Chief Financial Officer |
|   |                                        |   | Date: | May 10, 2007 |

 

29

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