**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For thequarterly period ended September 30, 2007**

 

**OR**

 

**o****TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For thetransition period from                  to                   **

 

**Commissionfile number 001-32389**

 

**NTS REALTY HOLDINGS LIMITEDPARTNERSHIP**

(Exact name of registrant as specified in its charter)

 

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

 

**(502)426-4800**

(Registrant’s telephone number, including area code)

 

**Notapplicable**

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

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.  (Checkone):

Large accelerated filer  o        Acceleratedfiler  o        Non-acceleratedfiler  x

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

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

 

**APPLICABLE ONLY TO CORPORATE ISSUERS**

 

As of October 31, 2007, there were 11,380,760 of the registrant’slimited partnership units outstanding.

 

 

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

 

**FORM 10-Q**

 

**TABLE OF CONTENTS**

 
| **PART I – FINANCIAL INFORMATION**                                                                 | 4                                                                                                   |
|---------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
|                                                                                                    |                                                                                                |
| Item 1                                                                                                  |                                                                                                | 4 |
| Consolidated  Balance Sheets as of September 30, 2007 and December 31, 2006                             | 4                                                                                                   |
| Consolidated  Statement of Partners’ Equity as of September 30, 2007                               | 4                                                                                                   |
| Consolidated  Statements of Operations for the Three and Nine Months Ended September 30,  2007 and 2006 | 5                                                                                                   |
| Consolidated  Statements of Cash Flows for the Nine Months Ended September 30, 2007 and  2006           | 6                                                                                                   |
| Notes  to Consolidated Financial Statements                                                             | 7                                                                                                   |
| Item 2                                                                                                  | –  Management’s Discussion and Analysis of Financial Condition and Results of  Operations | 20 |
| Item 3                                                                                                  | –  Quantitative and Qualitative Disclosures About Market Risk                                  | 31 |
| Item 4                                                                                                  | – Controls and  Procedures                                                                     | 32 |
| Item 4T                                                                                                 | – Controls and  Procedures                                                                     | 32 |
|                                                                                                    |                                                                                                |   |
| **PART II – OTHER  INFORMATION**                                                                   | **33**                                                                                              |
| ** **                                                                                              | ** **                                                                                          | ** ** |
| Item  1                                                                                                 | – Legal Proceedings                                                                            | 33 |
| Item  1A                                                                                                | – Risk Factors                                                                                 | 33 |
| Item 2                                                                                                  | –  Unregistered Sales of Equity Securities and Use of Proceeds                                 | 33 |
| Item 3                                                                                                  | – Defaults  Upon Senior Securities                                                             | 33 |
| Item 4                                                                                                  | –  Submission of Matters to a Vote of Security Holders                                         | 33 |
| Item  5                                                                                                 | – Other Information                                                                            | 33 |
| Item 6                                                                                                  | – Exhibits                                                                                     | 34 |
| SIGNATURES                                                                                              | 36                                                                                                  |

 

2

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**INFORMATION REGARDING FORWARD-LOOKING STATEMENTS**

** **

Some of the statements included in this quarterly report on Form 10-Q,particularly those included in Part I, Item 2 – Management’s Discussion andAnalysis of Financial Condition and Results of Operations (“MD&A”), may beconsidered “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 inthis report, reflect our managing general partner’s best judgment based onknown 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 by us pursuant to the safe harborestablished by the Private Securities Litigation Reform Act of 1995 should beevaluated 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 September 30, 2007 and December 31, 2006

 
| ** **                                                                                                                       | ** ** | **(Unaudited)**         | ** **  | ** **            | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                       | ** ** | **September 30,  2007** | ** **  | **December 31, 2006** | ** ** |
| **ASSETS:**                                                                                                                      | ** ** | ** **              | ** **  | ** **            | ** ** |
| Cash and  equivalents                                                                                                            |       | $                       | 494,719     |                  | $          | 28,250 |   |
| Cash and  equivalents - restricted                                                                                               |       | 1,168,047               |        | 465,517               |       |
| Accounts  receivable, net of allowance for doubtful accounts of $65,333 at September  30, 2007 and $346,526 at December 31, 2006 |       | 815,792                 |        | 1,216,925             |       |
| Deposits                                                                                                                         |       | 500,000                 |        | 300,000               |       |
| Land,  buildings and amenities, net                                                                                              |       | 324,409,000             |        | 256,605,137           |       |
| Long-lived  assets held for sale                                                                                                 |       | 37,640,830              |        | 47,585,805            |       |
| Other assets                                                                                                                     |       | 3,522,934               |        | 3,049,767             |       |
|                                                                                                                             |       |                    |        |                  |       |
| **Total  assets**                                                                                                                |       | $                       | 368,551,322 |                  | $          | 309,251,401 |   |
|                                                                                                                             |       |                    |        |                  |       |
| **LIABILITIES:**                                                                                                                 |       |                    |        |                  |       |
| Mortgages  and note payable                                                                                                      |       | $                       | 264,725,356 |                  | $          | 218,215,007 |   |
| Accounts  payable and accrued expenses                                                                                           |       | 3,214,132               |        | 3,864,505             |       |
| Accounts  payable and accrued expenses due to affiliate                                                                          |       | 720,536                 |        | 756,086               |       |
| Distributions  payable                                                                                                           |       | 1,138,076               |        | 2,276,322             |       |
| Security  deposits                                                                                                               |       | 829,545                 |        | 766,344               |       |
| Long-lived  liabilities held for sale                                                                                            |       | 3,242,341               |        | 3,229,376             |       |
| Other  liabilities                                                                                                               |       | 4,886,963               |        | 2,669,055             |       |
|                                                                                                                             |       |                    |        |                  |       |
| **Total  liabilities**                                                                                                           |       | 278,756,949             |        | 231,776,695           |       |
|                                                                                                                             |       |                    |        |                  |       |
| **MINORITY  INTEREST**                                                                                                           |       | 9,423,351               |        | -                     |       |
|                                                                                                                             |       |                    |        |                  |       |
| COMMITMENTS  AND CONTINGENCIES (NOTE 11)                                                                                         |       |                    |        |                  |       |
|                                                                                                                             |       |                    |        |                  |       |
| **PARTNERS’  EQUITY**                                                                                                       |       | 80,371,022              |        | 77,474,706            |       |
|                                                                                                                             |       |                    |        |                  |       |
| **Total  liabilities and partners’ equity**                                                                                 |       | $                       | 368,551,322 |                  | $          | 309,251,401 |   |

 

**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

Consolidated Statement of Partners’ Equity asof September 30, 2007

(Unaudited)

 
| ** **                                   | ** ** | **General  Partner  Interests** | ** ** | **Limited  Partners  Interests** | ** ** | **General  Partner** | ** ** | **Limited  Partners** | ** ** | **Total**   | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|----------------------|------------|-----------------------|------------|-------------|------------|
| **PARTNERS’  EQUITY:**                  | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **           | ** ** | ** **            | ** ** | ** **  | ** ** |
| Initial  equity                              |       | 714,491                         |       | 10,667,117                       |       | $                    | 3,131,381  |                  | $          | 46,750,444  |       | $ | 49,881,825 |   |
| Net income  prior years                      |       | -                               |       | -                                |       | 2,446,660            |       | 36,527,829            |       | 38,974,489  |       |
| Net income  current year                     |       | -                               |       | -                                |       | 396,140              |       | 5,914,404             |       | 6,310,544   |       |
| Cash  distributions declared to date         |       | -                               |       | -                                |       | (928,892             | )          | (13,866,944           | )          | (14,795,836 | )          |
| Retirement  of limited partnership interests |       | -                               |       | (848                             | )          | -                    |       | -                     |       | -           |       |
|                                         |       |                            |       |                             |       |                 |       |                  |       |        |       |
| Balances on  September 30, 2007              |       | 714,491                         |       | 10,666,269                       |       | $                    | 5,045,289  |                  | $          | 75,325,733  |       | $ | 80,371,022 |   |

 

The accompanying notes to consolidated financial statements are anintegral part of these statements.

 

4

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

Consolidated Statements of Operations for theThree and Nine Months Ended September 30, 2007 and 2006

(Unaudited)

 
| ** **                                                             | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                             | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUE:**                                                           | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental income                                                          |       | $                                     | 10,456,066 |                                 | $          | 8,407,685 |   | $ | 29,074,325 |   | $ | 22,845,744 |   |
| Tenant  reimbursements                                                 |       | 395,220                               |       | 382,081                              |       | 1,204,469 |   | 1,142,738 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **Total  revenue**                                                     |       | 10,851,286                            |       | 8,789,766                            |       | 30,278,794 |   | 23,988,482 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **EXPENSES:**                                                          | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expenses                                                    |       | 2,492,720                             |       | 2,338,768                            |       | 6,928,509 |   | 5,334,798 |   |
| Operating  expenses reimbursed to affiliate                            |       | 1,285,828                             |       | 1,060,464                            |       | 3,659,229 |   | 2,861,377 |   |
| Management  fees                                                       |       | 511,469                               |       | 440,984                              |       | 1,472,656 |   | 1,219,379 |   |
| Property  taxes and insurance                                          |       | 1,305,322                             |       | 1,065,294                            |       | 3,954,860 |   | 2,933,442 |   |
| Professional  and administrative expenses                              |       | 336,369                               |       | 546,452                              |       | 1,009,024 |   | 1,510,004 |   |
| Professional  and administrative expenses reimbursed to affiliate      |       | 405,778                               |       | 389,360                              |       | 1,315,241 |   | 1,197,736 |   |
| Depreciation  and amortization                                         |       | 4,215,378                             |       | 3,487,044                            |       | 11,655,511 |   | 9,202,391 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **Total  operating expenses**                                          |       | 10,552,864                            |       | 9,328,366                            |       | 29,995,030 |   | 24,259,127 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **OPERATING  INCOME (LOSS)**                                           |       | 298,422                               |       | (538,600                             | )          | 283,764 |   | (270,645 | ) |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| Interest and  other income                                             |       | 18,564                                |       | 16,737                               |       | 80,781 |   | 141,628 |   |
| Interest  expense                                                      |       | (3,318,895                            | )          | (2,862,088                           | )          | (9,194,896 | ) | (7,545,689 | ) |
| Loss on  disposal of assets                                            |       | (8,225                                | )          | (33,904                              | )          | (57,144 | ) | (136,027 | ) |
| Minority  interest                                                     |       | (375,648                              | )          | -                                    |       | (667,944 | ) | - |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **LOSS  FROM CONTINUING OPERATIONS**                                   |       | (2,634,486                            | )          | (3,417,855                           | )          | (8,219,551 | ) | (7,810,733 | ) |
| Discontinued  operations, net                                          |       | 671,808                               |       | 319,425                              |       | 1,047,804 |   | 1,063,615 |   |
| Gain on sale  of discontinued operations                               |       | -                                     |       | -                                    |       | 13,482,291 |   | 49,950,486 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **NET  (LOSS) INCOME**                                                 |       | $                                     | (1,962,678 | )                                    | $          | (3,098,430 | ) | $ | 6,310,544 |   | $ | 43,203,368 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **Loss  from continuing operations allocated to limited partners**     |       | $                                     | (2,469,091 | )                                    | $          | (3,203,296 | ) | $ | (7,703,575 | ) | $ | (7,320,408 | ) |
| Discontinued  operations, net allocated to limited partners            |       | 629,631                               |       | 299,373                              |       | 982,029 |   | 996,846 |   |
| Gain on sale  of discontinued operations allocated to limited partners |       | -                                     |       | -                                    |       | 12,635,950 |   | 46,814,798 |   |
| ** **                                                             | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **NET  (LOSS) INCOME ALLOCATED TO LIMITED PARTNERS**                   |       | $                                     | (1,839,460 | )                                    | $          | (2,903,923 | ) | $ | 5,914,404 |   | $ | 40,491,236 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **Loss  from continuing operations per limited partnership unit**      |       | $                                     | (0.23      | )                                    | $          | (0.30 | ) | $ | (0.72 | ) | $ | (0.69 | ) |
| Discontinued  operations, net per limited partnership unit             |       | 0.06                                  |       | 0.03                                 |       | 0.09 |   | 0.09 |   |
| Gain on sale  of discontinued operations per limited partnership unit  |       | -                                     |       | -                                    |       | 1.18 |   | 4.40 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **NET  (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT**                    |       | $                                     | (0.17      | )                                    | $          | (0.27 | ) | $ | 0.55 |   | $ | 3.80 |   |
|                                                                   |       |                                  |       |                                 |       |   |   |   |   |
| **Weighted  average number of limited partnership interests**          |       | 10,666,269                            |       | 10,667,117                           |       | 10,666,341 |   | 10,667,117 |   |

 

Theaccompanying notes to consolidated financial statements are an integral part ofthese statements.

 

5

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### Consolidated Statements of Cash Flows for the NineMonths Ended September 30, 2007 and 2006

(Unaudited)

 
| ** **                                                                         | ** ** | **2007**    | ** ** | **2006**     | ** ** |
|------------------------------------------------------------------------------------|------------|-------------|------------|--------------|------------|
| **OPERATING  ACTIVITIES:**                                                         | ** ** | ** **  | ** ** | ** **   | ** ** |
| **Net  income**                                                                    |       | $           | 6,310,544  |         | $          | 43,203,368 |   |
| Adjustments  to reconcile net income to net cash provided by operating activities: |       |        |       |         |       |
| Gain from  sale of discontinued assets                                             |       | (13,482,291 | )          | (49,950,486  | )          |
| Loss on  disposal of assets                                                        |       | 101,430     |       | 233,148      |       |
| Depreciation  and amortization                                                     |       | 13,004,216  |       | 11,937,980   |       |
| Minority  interest                                                                 |       | (667,944    | )          | -            |       |
| **Changes  in assets and liabilities:**                                            | ** ** | ** **  | ** ** | ** **   | ** ** |
| Cash and  equivalents - restricted                                                 |       | (702,530    | )          | (220,561     | )          |
| Accounts  receivable                                                               |       | 696,755     |       | (4,215       | )          |
| Other assets                                                                       |       | (626,063    | )          | (629,305     | )          |
| Accounts  payable and accrued expenses                                             |       | (650,373    | )          | 573,759      |       |
| Accounts  payable and accrued expenses due to affiliate                            |       | (35,550     | )          | 10,970       |       |
| Security  deposits                                                                 |       | (71,746     | )          | 159,327      |       |
| Other  liabilities                                                                 |       | 2,444,990   |       | 2,746,470    |       |
|                                                                               |       |        |       |         |       |
| **Net cash  provided by operating activities**                                     |       | 6,321,438   |       | 8,060,455    |       |
|                                                                               |       |        |       |         |       |
| **INVESTING  ACTIVITIES:**                                                         | ** ** | ** **  | ** ** | ** **   | ** ** |
| Additions to  land, buildings and amenities                                        |       | (4,783,782  | )          | (3,576,206   | )          |
| Proceeds  from sale of discontinued operations                                     |       | 26,102,758  |       | 77,483,821   |       |
| Investment  in joint ventures by minority interest, net                            |       | 10,091,295  |       | -            |       |
| Acquisitions                                                                       |       | (78,352,173 | )          | (131,111,503 | )          |
| Deposits on  property acquisitions                                                 |       | (200,000    | )          | -            |       |
| Cash and  equivalents - restricted                                                 |       | -           |       | 874,079      |       |
|                                                                               |       |        |       |         |       |
| **Net cash  used in investing activities**                                         |       | (47,141,902 | )          | (56,329,809  | )          |
|                                                                               |       |        |       |         |       |
| **FINANCING  ACTIVITIES:**                                                         | ** ** | ** **  | ** ** | ** **   | ** ** |
| Proceeds  from mortgages payable                                                   |       | 63,250,000  |       | 42,500,000   |       |
| Proceeds  from revolving note payable                                              |       | 6,804,736   |       | 14,565,022   |       |
| Principal  payments on mortgages payable                                           |       | (2,423,557  | )          | (9,099,180   | )          |
| Additional  payments on mortgage payable                                           |       | (21,200,000 | )          | -            |       |
| Additions to  loan costs                                                           |       | (591,772    | )          | (190,932     | )          |
| Cash  distributions                                                                |       | (4,552,474  | )          | (4,552,643   | )          |
|                                                                               |       |        |       |         |       |
| **Net cash  provided by financing activities**                                     |       | 41,286,933  |       | 43,222,267   |       |
|                                                                               |       |        |       |         |       |
| **NET  INCREASE (DECREASE) IN CASH AND EQUIVALENTS**                               |       | 466,469     |       | (5,047,087   | )          |
|                                                                               |       |        |       |         |       |
| **CASH AND  EQUIVALENTS, beginning of period**                                     |       | 28,250      |       | 5,409,318    |       |
|                                                                               |       |        |       |         |       |
| **CASH AND  EQUIVALENTS, end of period**                                           |       | $           | 494,719    |         | $          | 362,231 |   |
| ** **                                                                         | ** ** | ** **  | ** ** | ** **   | ** ** |
| **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 |   |

 

Theaccompanying notes to consolidated financial statements are an integral part ofthese statements.

 

6

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**NTS REALTY HOLDINGS LIMITED PARTNERSHIP**

### Notes to Consolidated Financial Statements

(Unaudited)

 

The unaudited consolidated financial statements included herein shouldbe read in conjunction with NTS Realty Holdings Limited Partnership’s (“NTSRealty”) 2006 annual report on Form 10-K as filed with the Securities andExchange Commission on March 28, 2007. In the opinion of NTS Realty Capital, Inc., our managing generalpartner, all adjustments, consisting only of normal recurring accruals,necessary for a fair presentation have been made to the accompanying consolidatedfinancial statements for the three and nine months ended September 30, 2007 and2006.  The results of operations for theinterim periods are not necessarily indicative of the results that may beexpected for the full year or any other interim period.  As used in this quarterly report on Form 10-Q,the terms “we,” “us” or “our,” as the context requires, may refer to NTS Realtyor its interests in its properties and joint ventures.

 

**Note 1 – Summary of Significant AccountingPolicies**

 

***Organization and Distribution Policy***

*** ***

We are in the business of developing, constructing, owning andoperating multifamily properties, commercial and retail real estate and landleases.  At September 30, 2007, we owned whollyor as a tenant in common with an unaffiliated third party, twenty-nineproperties, comprised of eleven multifamily properties, fourteen office andbusiness centers, three retail properties, and one ground lease.  The properties are located in and aroundLouisville (16) and Lexington (1), Kentucky, Fort Lauderdale (3), Florida,Indianapolis (4), Indiana, Nashville (2), Tennessee, Richmond (2), Virginia,and Atlanta (1), Georgia.  Our office andbusiness centers aggregate approximately 1.5 million square feet.  We own multifamily properties containing 3,222units, retail properties containing approximately 210,000 square feet of space andone ground lease associated with a 120-space parking lot attached to one of ourproperties.

 

We pay distributions if and when authorized by our managing general partner.  We are required to pay distributions on aquarterly basis, equal to sixty-five percent (65%) of our “net cash flow fromoperations” as this term is defined in regulations promulgated by the TreasuryDepartment under the Internal Revenue Code of 1986, as amended; provided thatif a law is enacted or existing law is modified or interpreted in a manner thatsubjects us to taxation as a corporation or otherwise subjects us to entitylevel taxation for federal, state or local income tax purposes, we will adjustthe 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 the amount ofreserves as determined by us each quarter. Our managing general partner will establish these reserves for, amongother things, working capital or capital improvement needs.  Therefore, there is no assurance that we willhave “net cash flow from operations” from which to pay distributions in thefuture.  For example, our partnershipagreement permits our managing general partner to reinvest sales or refinancingproceeds in new and existing properties or to create reserves to fund futurecapital expenditures.  Because “net cashflow from operations” is calculated after reinvesting sales or refinancingproceeds or establishing reserves, we may not have any “net cash flow fromoperations” from which to pay distributions.

 

We paid quarterly distributions of $0.10 per unit to limited partners onApril 13, 2007, July 13, 2007 and October 16, 2007.

 

7

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***Consolidation Policy and Minority Interest***

*** ***

The consolidated financial statements include the accounts of allwholly-owned properties and properties owned as a tenant in common with anunaffiliated third party where we are the majority owner.  Intercompany transactions and balances havebeen eliminated.

 

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

 

**Note 2 – Use of Estimates andReclassifications in the Preparation of Financial Statements**

 

The preparation of financial statements in accordance with U.S.generally accepted accounting principles requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from those estimates.

 

Certain reclassifications have been made to the prior period financialstatements to conform to the September 30, 2007 classifications.  These reclassifications have no effect onpreviously reported operating results or partners’ equity.

 

**Note 3 – Real Estate Transactions**

 

***Acquisitions***

 

We account for our acquisitions using the purchase method of accountingin accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141“Business Combinations”.  The assets andliabilities purchased are recorded at their fair market value at the date ofthe acquisition.  We allocate thepurchase price for each of the properties to net tangible and identifiedintangible assets acquired based on fair values (including land, buildings,tenant improvements, acquired above and below market leases and the originationcost of acquired in-place leases) and acquired liabilities.  The intangible assets recorded in relation toour multifamily properties will be amortized over a period of one year, whichapproximates the weighted average lease lives. No above or below market leases exist. No customer relationship intangibles exist.  At the date of the acquisition, the carryingvalue of mortgages and other liabilities approximated fair market value.  We retained an independent appraiser toassess fair value based on estimated cash flow projections that utilizediscount and capitalizations rates deemed appropriate and available marketinformation.

 

During the nine months ended September 30, 2007, we made the following propertyacquisitions:

 
| **Property  - Multifamily**           | ** ** | **Location**   | ** ** | **Units** | ** ** | **Date of  Purchase** | ** ** | **Purchase Price** | ** ** |
|---------------------------------------|------------|----------------|------------|-----------|------------|-----------------------|------------|--------------------|------------|
| The Overlook  at St. Thomas (1)       |       | Louisville, KY |       | 484       |       | March 14, 2007        |       | $                  | 46,000,000 |   |
| Creek’s Edge  at Stony Point (2) |       | Richmond, VA   |       | 202       |       | August 14, 2007       |       |               | 32,300,000 |   |

 

----

(1)          Acquired a new mortgage of $36.0 million to purchase the property.  At September 30, 2007 we owned a 60% tenantin common interest.  NTS Realty’sliability under this mortgage is limited to its ownership percentage.

(2)          Acquired a new mortgage of $22.75 million to purchase the property.  At September 30, 2007 we owned a 51% tenant incommon interest.  NTS Realty’s liability isjoint and several under this mortgage.

 

8

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***Pro Forma Information***

 

The following table presents our unaudited pro forma results ofoperations and per unit amounts as if we had consummated our 2007 acquisitionsas of the beginning of each period presented.

 
| ** **                                                     | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                      | ** ** |
|----------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                     | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
| ** **                                                     | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| Revenues                                                       |       | $                                     | 11,058,155 |                                 | $          | 10,244,307 |   | $ | 32,331,616 |   | $ | 28,100,629 |   |
| Expenses and  other income, net                                |       | 13,897,217                            |       | 14,457,928                           |       | 41,892,590 |   | 38,044,375 |   |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Loss from  continuing operations                               |       | $                                     | (2,839,062 | )                                    | $          | (4,213,621 | ) | $ | (9,560,974 | ) | $ | (9,943,746 | ) |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Net (loss)  income                                             |       | $                                     | (2,167,254 | )                                    | $          | (3,894,196 | ) | $ | 4,969,121 |   | $ | 41,070,354 |   |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Loss from  continuing operations allocated to limited partners |       | $                                     | (2,660,824 | )                                    | $          | (3,949,107 | ) | $ | (8,960,730 | ) | $ | (9,319,518 | ) |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Net (loss)  income allocated to limited partners               |       | $                                     | (2,031,193 | )                                    | $          | (3,649,734 | ) | $ | 4,657,157 |   | $ | 38,492,124 |   |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Loss from  continuing operations per limited partnership unit  |       | $                                     | (0.25      | )                                    | $          | (0.37 | ) | $ | (0.84 | ) | $ | (0.87 | ) |
|                                                           |       |                                  |       |                                 |       |   |   |   |   |
| Net (loss)  income per limited partnership unit                |       | $                                     | (0.19      | )                                    | $          | (0.34 | ) | $ | 0.44 |   | $ | 3.61 |   |
| ** **                                                     | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted  average number of limited partnership interests      |       | 10,666,269                            |       | 10,667,117                           |       | 10,666,341 |   | 10,667,117 |   |

 

***Dispositions***

 

During the nine months ended September 30, 2007, we made the followingproperty dispositions:

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

 

----

(1)          Gain of approximately $8.8 million.

(2)          Gain of approximately $4.6 million.

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

 

9

----

 

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

 

On June 12, 2007, the board of directors of NTS Realty Capital, Inc.,our managing general partner, authorized the sale of Atrium Center,Blankenbaker Business Center I, Blankenbaker Business Center II, Anthem OfficeCenter, NTS Center, Plainview Center, Plainview Point Office Center Phase I andII, Plainview Point Office Center Phase III, and the ITT Parking Lot (the “OfficePortfolio”).  These properties have beenclassified as held for sale on our balance sheet and discontinued operations onour statements of operations at September 30, 2007 and all comparative datesand periods presented.

 

On August 2, 2007, we announced that we entered into an agreement tosell the Office Portfolio.  Pursuant tothe agreement, we will receive $66,550,000 in proceeds.  We intend to use the sale proceeds to repayoutstanding debt on the properties and to purchase properties in a manner thatwould qualify as a tax deferred exchange under Section 1031 of the InternalRevenue Code.  The sale of the OfficePortfolio is expected to close on or prior to February 1, 2008, although therecan be no assurance that the sale will occur by that date or at all.

 

We have presented separately as discontinued operations in all periodsthe results of operations for the following properties:

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

 

The assets and liabilities held for sale have been separatelyidentified on our balance sheets at September 30, 2007 and December 31, 2006.

 

10

----

 

The components of discontinued operations are outlined below andinclude the results of operations for the respective periods in which we ownedsuch assets during the three and nine months ended September 30, 2007 and 2006.

 
| ** **                                                         | ** ** | **(Unaudited)**                       | ** ** | **(Unaudited)**                      | ** ** |
|--------------------------------------------------------------------|------------|---------------------------------------|------------|--------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|                                                               | ** ** | **2007**                              | ** ** | **2006**                             | ** ** | **2007** | ** ** | **2006** | ** ** |
| **REVENUE:**                                                       | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rental  income                                                     |       | $                                     | 2,136,558  |                                 | $          | 2,810,304 |   | $ | 6,276,359 |   | $ | 9,033,716 |   |
| Tenant  reimbursements                                             |       | 97,418                                |       | 136,958                              |       | 321,276 |   | 496,107 |   |
|                                                               |       |                                  |       |                                 |       |   |   |   |   |
| **Total  revenue**                                                 |       | 2,233,976                             |       | 2,947,262                            |       | 6,597,635 |   | 9,529,823 |   |
|                                                               |       |                                  |       |                                 |       |   |   |   |   |
| **EXPENSES:**                                                      | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Operating  expenses and operating expenses reimbursed to affiliate |       | 676,274                               |       | 901,485                              |       | 2,134,739 |   | 2,990,650 |   |
| Management  fees                                                   |       | 111,564                               |       | 142,343                              |       | 336,629 |   | 464,404 |   |
| Property  taxes and insurance                                      |       | 166,229                               |       | 198,211                              |       | 524,486 |   | 695,263 |   |
| Depreciation  and amortization                                     |       | 17,289                                |       | 599,228                              |       | 700,717 |   | 2,009,824 |   |
|                                                               |       |                                  |       |                                 |       |   |   |   |   |
| **Total  expenses**                                                |       | 971,356                               |       | 1,841,267                            |       | 3,696,571 |   | 6,160,141 |   |
|                                                               |       |                                  |       |                                 |       |   |   |   |   |
| **DISCONTINUED  OPERATING INCOME**                                 |       | 1,262,620                             |       | 1,105,995                            |       | 2,901,064 |   | 3,369,682 |   |
|                                                               |       |                                  |       |                                 |       |   |   |   |   |
| Interest and  other income                                         |       | 15,411                                |       | 5,834                                |       | 44,689 |   | 20,537 |   |
| Interest  expense                                                  |       | (606,223                              | )          | (723,391                             | )          | (1,853,664 | ) | (2,229,484 | ) |
| Loss on  disposal of assets                                        |       | -                                     |       | (69,013                              | )          | (44,285 | ) | (97,120 | ) |
| ** **                                                         | ** ** | ** **                            | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Discontinued  operations, net**                                  |       | $                                     | 671,808    |                                 | $          | 319,425 |   | $ | 1,047,804 |   | $ | 1,063,615 |   |

 

The components of long-lived assets held for sale consist primarily ofland, buildings and amenities for the properties being sold.  The components of long-lived liabilities heldfor sale include the accrued property tax liabilities and security depositliabilities for the properties being sold. One property in the Office Portfoliois subject to a stand alone mortgage which has been included in our long-livedliabilities held for sale.

 

11

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**Note 4 – Concentration of Credit Risk**

 

We own and operate, either wholly or as a tenant in common with anunaffiliated third party, multifamily properties, commercial and retail realestate and a land lease in Louisville and Lexington, Kentucky, Fort Lauderdale,Florida, Indianapolis, Indiana, Nashville, Tennessee, Richmond, Virginia andAtlanta, Georgia.

 

Our financial instruments that are exposed to concentrations of creditrisk consist of cash and equivalents.  Wemaintain our cash accounts primarily with banks located in Kentucky.  The total cash balances are insured by theFDIC up to $100,000 per bank account.  Wemay at times, in certain accounts, have deposits in excess of $100,000.

 

**Note 5 – Cash and Equivalents**

 

Cash and equivalents include cash on hand and short-term, highly liquidinvestments with initial maturities of three months or less.  We have a cash management program whichprovides for the overnight investment of excess cash balances.  Under an agreement with a bank, excess cashis invested in a mutual fund for U.S. government and agency securities eachnight.

 

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

 

Cash and equivalents - restricted represents cash on hand andshort-term, highly liquid investments with initial maturities of three monthsor less which have been escrowed with certain mortgage companies and banks forproperty taxes, insurance and tenant improvements in accordance with certain loanand lease agreements and certain security deposits.

 

**Note 7 – Property and Depreciation**

 

Land, buildings and amenities are stated at cost.  Costs directly associated with theacquisition, development and construction of a project are capitalized.  Depreciation is computed using thestraight-line method over the estimated useful lives of the assets which are generally5-30 years for land improvements, 7-30 years for buildings and improvements and5-30 years for amenities.  Tenantimprovements are generally depreciated over the life of the initial or renewal termof the respective tenant lease.  Depreciationexpense from continuing operations for the three months ended September 30,2007 and 2006 was approximately $4,110,000 and $3,267,000, respectively.  Depreciation expense from continuingoperations for the nine months ended September 30, 2007 and 2006 wasapproximately $11,320,000 and $8,628,000, respectively.

 

SFAS No. 144 “Accounting for the Impairment or Disposal of Long-LivedAssets,” specifies circumstances in which certain long-lived assets must bereviewed for impairment.  If the carryingamount of an asset exceeds the sum of its expected future cash flows, the asset’scarrying value must be written down to fair value.  In determining the value of an investmentproperty and whether the investment property is impaired, management considersseveral factors such as projected rental and vacancy rates, property operatingexpenses, capital expenditures and interest rates.  The capitalization rate used to determineproperty valuation is based on the market in which the investment property islocated, length of leases, tenant financial strength, the economy in general,demographics, environment, property location, visibility, age and physicalcondition among others.  All of thesefactors are considered by management in determining the value of any particularinvestment property.  The value of anyparticular investment property is sensitive to the actual results of any ofthese factors, either individually or taken as a whole.  If the actual results differ from management’sjudgment, the valuation could be negatively or positively affected.  Application of this standard during the threeand nine months ended September 30, 2007 and 2006 did not result in animpairment loss.

 

12

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**Note 8 – Mortgages and Note Payable**

 

Mortgages and note payable consist of the following:

 
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | **(Unaudited)**        | ** **  | ** **            | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|-------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | **September 30, 2007** | ** **  | **December 31, 2006** | ** ** |
| Mortgage  payable to an insurance company in monthly installments of principal and  interest, bearing interest at 5.07%, maturing on March 15, 2015, secured by  certain land and buildings, with a carrying value of $45,675,976                                                                                                                    |       | $                      | 28,409,069  |                  | $          | 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 1.80%,  currently 7.47%, due June 1, 2009, secured by certain land and buildings,  with a carrying value of $16,415,568. The mortgage is guaranteed by Mr.  Nichols (75%) and Mr. Lavin (25%) |       | 17,818,000             |        | 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 $155,227,490                                                                                                                    |       | 72,406,804             |        | 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 $155,227,490                                                                                                                    |       | 32,634,618             |        | 32,994,574            |       |
|                                                                                                                                                                                                                                                                                                                                                 |       |                   |        |                  |       |
| Revolving  note payable to a bank for $28.0 million, with interest payable in monthly  installments, unsecured, at a variable rate based on LIBOR plus 1.75%,  currently 6.88%, due January 1, 2008                                                                                                                                                  |       | 23,682,766             |        | 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 $2,762,896                                                                                                                                     |       | 2,550,910              |        | 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 $2,253,612                                                                                                                     |       | 2,565,253              |        | 2,723,982             |       |
|                                                                                                                                                                                                                                                                                                                                                 |       |                   |        |                  |       |
| Mortgage payable  to an insurance company in monthly installments of principal and interest,  bearing interest at 8.375%, maturing December 1, 2010, secured by certain  land, a building and amenities, with a carrying value of $2,623,796                                                                                                         |       | 2,638,012              |        | 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 $14,025,341                                                                                                                                   |       | 11,803,629             |        | 11,933,706            |       |
|                                                                                                                                                                                                                                                                                                                                                 |       |                   |        |                  |       |
| Mortgage payable  to a bank, with interest payable in monthly installments, bearing interest at  LIBOR plus 1.75%, currently 6.88%, maturing November 15, 2007, secured by  certain land and buildings, with a carrying value of $16,540,997                                                                                                         |       | 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 $44,340,078                                                                                                                                            |       | 35,826,410             |        | -                     |       |
|                                                                                                                                                                                                                                                                                                                                                 |       |                   |        |                  |       |
| Mortgage  payable to a bank in monthly installments of principal and interest, bearing  interest at 5.99%, maturing October 15, 2017, secured by certain land,  buildings and amenities, with a carrying value of $32,141,010                                                                                                                        |       | 22,750,000             |        | -                     |       |
| ** **                                                                                                                                                                                                                                                                                                                                           | ** ** | ** **             | ** **  | ** **            | ** ** |
| ** **                                                                                                                                                                                                                                                                                                                                           |       | $                      | 267,363,368 |                  | $          | 220,932,189 |   |

 

Our mortgage payable to an insurance company, maturing December 1,2010, has been included in our long-lived liabilities held for sale.

 

Based on the borrowing rates currently available to us for loans withsimilar terms and average maturities, the fair value of long-term debt on September30, 2007 was approximately $251.5 million.

 

Our borrowing base limitation on the revolving note payable wasapproximately $28.0 million at September 30, 2007.

 

13

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On February 13, 2007, we paid down $21.2 million on the mortgagepayable to a bank, maturing November 15, 2007, in connection with the sale ofSprings Medical Office Center and Springs Office Center.  We are currently seeking an extension ofmaturity of this loan.

 

Interest paid for the nine months ended September 30, 2007 and 2006 wasapproximately $10.6 million and $9.1 million, respectively.

 

Our mortgages may be prepaid but are generally subject to ayield-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 September 30, 2007. We intend to renew or refinance our mortgages and revolving note payablecoming due in the next twelve months.

 

We entered into an interest rate swap agreement beginning in September2007 that effectively converts $18 million of our variable-rate debt bearinginterest at the LIBOR one month rate to a 5.05% fixed rate basis for the nexttwo years, thus reducing the impact of interest rate changes on future interestexpense.  Approximately $17.8 million, or7%, of our outstanding debt had its interest payments converted to the interestrate swap agreement at September 30, 2007.

 

The fair value of the interest rate swap agreement at September 30,2007 was approximately $166,000 and is included in Other Assets on ourConsolidated Balance Sheet.

 

During the quarter ended September 30, 2007, we recognized a net gainof approximately $166,000 to record the swap agreement at fair value.

 

**Note 9 – Accounts Payable and AccruedExpenses Due to Affiliate**

 

Accounts payable and accrued expenses due to affiliate includes amountsowed to NTS Development Company for reimbursement of employee costs andoverhead expenses and fees for services rendered as provided for in ourmanagement agreement.

 

**Note 10 – Related Party Transactions**

 

Pursuant to our management agreement, NTS Development Company receives feesfor a variety of services performed for our benefit.  NTS Development Company also receives feesunder separate management agreements for each of our properties owned as atenant in common with an unaffiliated third party.  Property management fees are paid in an amountequal to 5% of the gross collected revenue from our wholly-owned properties and3.5% of the gross collected revenue from our properties owned as a tenant incommon with an unaffiliated third party. We were the beneficiary of a preferential ownership interest,disproportionately greater than our initial cash investment in each propertyowned as a tenant in common with an unaffiliated third party.  Construction supervision fees are paid in anamount equal to 5% of the costs incurred which relate to capitalimprovements.  These constructionsupervision fees are capitalized as part of land, buildings and amenities.  Also pursuant to the agreement, NTSDevelopment Company receives commercial leasing fees equal to 4% of the grossrental amount for new leases and 2% of the gross rental amount for new leasesin which a broker is used and for renewals or extensions.  Disposition fees are paid to NTS DevelopmentCompany in an amount of 1% to 4% of the aggregate sales price of a propertypursuant to our management agreement and up to a 6% fee upon disposition on ourproperties owned as a tenant in common with an unaffiliated third party underseparate management agreements.  NTSDevelopment Company is reimbursed its actual costs for services rendered to NTSRealty.  NTS Development Company hasagreed to accept a lower management fee for the properties we own as a tenantin common with an unaffiliated third party in exchange for a larger potentialdisposition fee.

 

Employee costs are allocated among NTS Realty, other affiliates of ourmanaging general partner and for the benefit of third parties, so that a fulltime employee can be shared by multiple properties.  Each employee’s services which are dedicatedto a particular entity’s operations are allocated as a percentage of eachemployee’s costs to that entity.  We donot have any employees.  Pursuant to ourmanagement agreement, NTS Development Company provides its employees tous.  We only reimburse charges from NTSDevelopment Company for actual costs of employee services incurred for ourbenefit.

 

14

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We were charged the following amounts pursuant to our management agreementwith NTS Development Company for the three and nine months ended September 30,2007 and 2006.  These charges includeitems which have been expensed as operating expenses reimbursed to affiliate orprofessional and administrative expenses reimbursed to affiliate and itemswhich have been capitalized as other assets or as land, buildings and amenities.  Certain of these items are included in ourresults of discontinued operations.

 
| ** **                                                        | ** ** | **(Unaudited)**                              | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Three Months Ended September 30,** | ** ** |
| ** **                                                        | ** ** | **2007**                                     | ** ** | **2006** | ** ** |
| Property  management fees                                         | ** ** | $                                            | 623,033    |   | $ | 583,327 |   |
|                                                              |       |                                         |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 964,593                                      |       | 841,854 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 138,472                                      |       | 107,261 |   |
| Operating  expenses reimbursement - Administrative                |       | 357,771                                      |       | 345,203 |   |
| Operating  expenses reimbursement - Other                         |       | 24,311                                       |       | 28,833 |   |
|                                                              |       |                                         |       |   |   |
| Total operating  expenses reimbursed to affiliate                 |       | 1,485,147                                    |       | 1,323,151 |   |
|                                                              |       |                                         |       |   |   |
| Professional  and administrative expenses reimbursed to affiliate |       | 405,778                                      |       | 389,360 |   |
|                                                              |       |                                         |       |   |   |
| Construction  supervision fees                                    |       | 92,019                                       |       | 74,856 |   |
| Commercial  leasing fees                                          |       | 34,677                                       |       | 120,029 |   |
|                                                              |       |                                         |       |   |   |
| **Total  related party transactions**                             |       | $                                            | 2,640,654  |   | $ | 2,490,723 |   |

 
| ** **                                                        | ** ** | **(Unaudited)**                             | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                        | ** ** | **For the Nine Months Ended September 30,** | ** ** |
| ** **                                                        | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Property  management fees                                         | ** ** | $                                           | 1,809,284  |   | $ | 1,683,784 |   |
|                                                              |       |                                        |       |   |   |
| Operating  expenses reimbursement - Property                      |       | 2,773,211                                   |       | 2,485,143 |   |
| Operating  expenses reimbursement - Multifamily Leasing           |       | 373,982                                     |       | 307,638 |   |
| Operating  expenses reimbursement - Administrative                |       | 1,085,419                                   |       | 1,118,835 |   |
| Operating  expenses reimbursement - Other                         |       | 88,106                                      |       | 83,145 |   |
|                                                              |       |                                        |       |   |   |
| Total  operating expenses reimbursed to affiliate                 |       | 4,320,718                                   |       | 3,994,761 |   |
|                                                              |       |                                        |       |   |   |
| Professional  and administrative expenses reimbursed to affiliate |       | 1,315,241                                   |       | 1,197,736 |   |
|                                                              |       |                                        |       |   |   |
| Construction  supervision fees                                    |       | 213,929                                     |       | 180,428 |   |
| Commercial  leasing fees                                          |       | 307,726                                     |       | 265,344 |   |
|                                                              |       |                                        |       |   |   |
| **Total  related party transactions**                             |       | $                                           | 7,966,898  |   | $ | 7,322,053 |   |

 

Property, multifamily leasing, administrative and other operatingexpenses reimbursed include employee costs charged to us by NTS DevelopmentCompany and other actual costs incurred by NTS Development Company on ourbehalf, which were reimbursed by us.

 

During the three months ended September 30, 2007 and 2006, we werecharged approximately $15,000 and $13,000, respectively, for propertymaintenance fees from affiliates of NTS Development Company.  During the nine months ended September 30,2007 and 2006, we were charged approximately $64,000 and $66,000, respectively,for property maintenance fees from affiliates of NTS Development Company.

 

15

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NTS Development Company leased 20,368 square feet in NTS Center at arental rate of $14.50 per square foot. We received rental payments from NTS Development Company ofapproximately $73,834 and $221,502 during each of the three and nine monthsended September 30, 2007 and 2006, respectively.  The average per square foot rental rate forsimilar space in NTS Center as of September 30, 2007 was $14.40 per squarefoot.

 

NTS Development Company leased 1,604 square feet in CommonwealthBusiness Center Phase I at a rental rate of $5.50 per square foot.  We received rental payments of approximately $0and $3,676 from NTS Development Company during the three and nine months ended September30, 2006, respectively.  Commonwealth BusinessCenter Phase I was sold to an unaffiliated third party on May 18, 2006.

 

Pursuant to our management agreement, NTS Development Company receiveda disposition fee equal to 2%, or $303,000, of the sale price of SpringsMedical Office Center and 2%, or $275,000, of the sale price of Springs OfficeCenter during the nine months ended September 30, 2007.  NTS Development Company received adisposition fee equal to 1%, or $715,000, of the sale price of Golf BrookApartments and Sabal Park Apartments during the nine months ended September 30,2006. These disposition fees are included in our gain on sale of discontinuedoperations on our statement of operations.

 

**Note 11 – Commitments and Contingencies**

 

We, as an owner of real estate, are subject to various environmentallaws of federal, state and local governments. Our compliance with existing laws has not had a material adverse effecton our financial condition and results of operations.  However, we cannot predict the impact of newor changed laws or regulations on our current properties or on properties thatwe may acquire in the future.

 

***Litigation***

 

We do not believe there is any litigation threatened against us otherthan routine litigation arising out of the ordinary course of business, some ofwhich is expected to be covered by insurance, none of which is expected to havea material effect on our financial position or results of operations.

 

16

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**Note 12 – Segment Reporting**

 

Our reportable operating segments include – Land, Retail, Commercialand Multifamily Real Estate Operations. The following unaudited financial information of the operating segmentshas been prepared using a management approach, which is consistent with thebasis and manner in which our management internally disaggregates financialinformation for the purpose of assisting in making internal operatingdecisions.  We evaluate performance basedon stand-alone operating segment net income or loss.

 
| ** **                                                                                                      | ** ** | **(Unaudited)**                           | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended September 30, 2007** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                  | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                         | -          |   | $ | 324,976 |   | $ | 1,028,433 |   | $ | 9,133,628 |   | $ | (30,971 | ) | $ | 10,456,066 |   |
| Tenant  reimbursements                                                                                          |       | -                                         |       | 19,357 |   | 375,863 |   | - |   | - |   | 395,220 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                         |       | 344,333 |   | 1,404,296 |   | 9,133,628 |   | (30,971 | ) | 10,851,286 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                         |       | 37,447 |   | 497,704 |   | 3,243,397 |   | - |   | 3,778,548 |   |
| Management  fees                                                                                                |       | -                                         |       | 16,874 |   | 70,428 |   | 424,167 |   | - |   | 511,469 |   |
| Property  taxes and insurance                                                                                   |       | -                                         |       | 13,971 |   | 199,554 |   | 1,058,060 |   | 33,737 |   | 1,305,322 |   |
| Professional  and administrative expenses and professional and administrative expenses reimbursed  to affiliate |       | -                                         |       | - |   | - |   | - |   | 742,147 |   | 742,147 |   |
| Depreciation  and amortization                                                                                  |       | -                                         |       | 67,802 |   | 386,162 |   | 3,761,414 |   | - |   | 4,215,378 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                         |       | 136,094 |   | 1,153,848 |   | 8,487,038 |   | 775,884 |   | 10,552,864 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                         |       | 208,239 |   | 250,448 |   | 646,590 |   | (806,855 | ) | 298,422 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                         |       | - |   | 301 |   | 18,263 |   | - |   | 18,564 |   |
| Interest  expense                                                                                               |       | -                                         |       | (113,243 | ) | (197,962 | ) | (2,880,744 | ) | (126,946 | ) | (3,318,895 | ) |
| Loss on  disposal of assets                                                                                     |       | -                                         |       | - |   | (8,225 | ) | - |   | - |   | (8,225 | ) |
| Minority  interest                                                                                              |       | -                                         |       | - |   | - |   | (375,648 | ) | - |   | (375,648 | ) |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                         |       | 94,996 |   | 44,562 |   | (1,840,243 | ) | (933,801 | ) | (2,634,486 | ) |
| Discontinued  operations, net                                                                                   |       | 8,067                                     |       | - |   | 663,741 |   | - |   | - |   | 671,808 |   |
| ** **                                                                                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                         | 8,067      |   | $ | 94,996 |   | $ | 708,303 |   | $ | (1,840,243 | ) | $ | (933,801 | ) | $ | (1,962,678 | ) |
| ** **                                                                                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  buildings and amenities, net                                                                             |       | $                                         | 155,015    |   | $ | 7,495,763 |   | $ | 59,717,685 |   | $ | 291,409,895 |   | $ | - |   | $ | 358,778,358 |   |

 

17

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| ** **                                                                                                      | ** ** | **(Unaudited)**                           | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Three Months Ended September 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                  | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental income                                                                                                   |       | $                                         | -          |   | $ | 341,950 |   | $ | 1,025,912 |   | $ | 7,113,621 |   | $ | (73,798 | ) | $ | 8,407,685 |   |
| Tenant  reimbursements                                                                                          |       | -                                         |       | 19,560 |   | 362,521 |   | - |   | - |   | 382,081 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                         |       | 361,510 |   | 1,388,433 |   | 7,113,621 |   | (73,798 | ) | 8,789,766 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                         |       | 33,218 |   | 471,375 |   | 2,894,639 |   | - |   | 3,399,232 |   |
| Management  fees                                                                                                |       | -                                         |       | 17,652 |   | 71,031 |   | 352,301 |   | - |   | 440,984 |   |
| Property  taxes and insurance                                                                                   |       | -                                         |       | 10,599 |   | 203,946 |   | 828,346 |   | 22,403 |   | 1,065,294 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                         |       | - |   | - |   | - |   | 935,812 |   | 935,812 |   |
| Depreciation  and amortization                                                                                  |       | -                                         |       | 70,293 |   | 408,488 |   | 3,008,263 |   | - |   | 3,487,044 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                         |       | 131,762 |   | 1,154,840 |   | 7,083,549 |   | 958,215 |   | 9,328,366 |   |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                         |       | 229,748 |   | 233,593 |   | 30,072 |   | (1,032,013 | ) | (538,600 | ) |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                         |       | - |   | 359 |   | 16,378 |   | - |   | 16,737 |   |
| Interest  expense                                                                                               |       | -                                         |       | (97,357 | ) | (269,641 | ) | (2,256,261 | ) | (238,829 | ) | (2,862,088 | ) |
| Loss on  disposal of assets                                                                                     |       | -                                         |       | - |   | (33,904 | ) | - |   | - |   | (33,904 | ) |
|                                                                                                            |       |                                      |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                         |       | 132,391 |   | (69,593 | ) | (2,209,811 | ) | (1,270,842 | ) | (3,417,855 | ) |
| Discontinued  operations, net                                                                                   |       | 7,181                                     |       | - |   | 312,244 |   | - |   | - |   | 319,425 |   |
| ** **                                                                                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                         | 7,181      |   | $ | 132,391 |   | $ | 242,651 |   | $ | (2,209,811 | ) | $ | (1,270,842 | ) | $ | (3,098,430 | ) |
| ** **                                                                                                      | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  buildings and amenities, net                                                                             |       | $                                         | 156,970    |   | $ | 7,757,532 |   | $ | 69,525,894 |   | $ | 225,735,360 |   | $ | - |   | $ | 303,175,756 |   |
|                                                                                                                 |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

18

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| ** **                                                                                                      | ** ** | **(Unaudited)**                          | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                 | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                        | -          |   | $ | 1,038,911 |   | $ | 3,154,494 |   | $ | 25,208,128 |   | $ | (327,208 | ) | $ | 29,074,325 |   |
| Tenant  reimbursements                                                                                          |       | -                                        |       | 59,185 |   | 1,145,284 |   | - |   | - |   | 1,204,469 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                        |       | 1,098,096 |   | 4,299,778 |   | 25,208,128 |   | (327,208 | ) | 30,278,794 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                        |       | 112,577 |   | 1,386,320 |   | 9,088,841 |   | - |   | 10,587,738 |   |
| Management  fees                                                                                                |       | -                                        |       | 53,827 |   | 214,299 |   | 1,204,530 |   | - |   | 1,472,656 |   |
| Property  taxes and insurance                                                                                   |       | -                                        |       | 41,868 |   | 604,083 |   | 3,207,699 |   | 101,210 |   | 3,954,860 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                        |       | - |   | - |   | - |   | 2,324,265 |   | 2,324,265 |   |
| Depreciation  and amortization                                                                                  |       | -                                        |       | 203,405 |   | 1,160,827 |   | 10,291,279 |   | - |   | 11,655,511 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                        |       | 411,677 |   | 3,365,529 |   | 23,792,349 |   | 2,425,475 |   | 29,995,030 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                        |       | 686,419 |   | 934,249 |   | 1,415,779 |   | (2,752,683 | ) | 283,764 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                        |       | - |   | 841 |   | 63,063 |   | 16,877 |   | 80,781 |   |
| Interest  expense                                                                                               |       | -                                        |       | (329,645 | ) | (857,441 | ) | (7,664,349 | ) | (343,461 | ) | (9,194,896 | ) |
| Loss on  disposal of assets                                                                                     |       | -                                        |       | - |   | (46,438 | ) | (10,706 | ) | - |   | (57,144 | ) |
| Minority interest                                                                                               |       | -                                        |       | - |   | - |   | (667,944 | ) | - |   | (667,944 | ) |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                        |       | 356,774 |   | 31,211 |   | (5,528,269 | ) | (3,079,267 | ) | (8,219,551 | ) |
| Discontinued  operations, net                                                                                   |       | 22,493                                   |       | - |   | 1,025,311 |   | - |   | - |   | 1,047,804 |   |
| Gain on sale  of discontinued operations                                                                        |       | -                                        |       | - |   | 13,482,291 |   | - |   | - |   | 13,482,291 |   |
| ** **                                                                                                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                        | 22,493     |   | $ | 356,774 |   | $ | 14,538,813 |   | $ | (5,528,269 | ) | $ | (3,079,267 | ) | $ | 6,310,544 |   |
| ** **                                                                                                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  buildings and amenities, net                                                                             |       | $                                        | 155,015    |   | $ | 7,495,763 |   | $ | 59,717,685 |   | $ | 291,409,895 |   | $ | - |   | $ | 358,778,358 |   |

 

19

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| ** **                                                                                                      | ** ** | **(Unaudited)**                          | ** ** |
|-----------------------------------------------------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                                                                      | ** ** | **Nine Months Ended September 30, 2006** | ** ** |
| ** **                                                                                                      | ** ** | **Land**                                 | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Rental  income                                                                                                  |       | $                                        | -          |   | $ | 1,029,851 |   | $ | 3,178,416 |   | $ | 18,854,856 |   | $ | (217,379 | ) | $ | 22,845,744 |   |
| Tenant  reimbursements                                                                                          |       | -                                        |       | 59,708 |   | 1,083,030 |   | - |   | - |   | 1,142,738 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Total  revenue**                                                                                              |       | -                                        |       | 1,089,559 |   | 4,261,446 |   | 18,854,856 |   | (217,379 | ) | 23,988,482 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Operating  expenses and operating expenses reimbursed to affiliate                                              |       | -                                        |       | 98,255 |   | 1,396,020 |   | 6,701,900 |   | - |   | 8,196,175 |   |
| Management  fees                                                                                                |       | -                                        |       | 54,668 |   | 209,068 |   | 955,643 |   | - |   | 1,219,379 |   |
| Property taxes  and insurance                                                                                   |       | -                                        |       | 30,902 |   | 587,470 |   | 2,223,871 |   | 91,199 |   | 2,933,442 |   |
| Professional  and administrative expenses and professional and administrative expenses  reimbursed to affiliate |       | -                                        |       | - |   | - |   | - |   | 2,707,740 |   | 2,707,740 |   |
| Depreciation  and amortization                                                                                  |       | -                                        |       | 215,551 |   | 1,222,760 |   | 7,764,080 |   | - |   | 9,202,391 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Total  operating expenses**                                                                                   |       | -                                        |       | 399,376 |   | 3,415,318 |   | 17,645,494 |   | 2,798,939 |   | 24,259,127 |   |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Operating  income (loss)**                                                                                    |       | -                                        |       | 690,183 |   | 846,128 |   | 1,209,362 |   | (3,016,318 | ) | (270,645 | ) |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| Interest and  other income                                                                                      |       | -                                        |       | 6,572 |   | 51,861 |   | 28,458 |   | 54,737 |   | 141,628 |   |
| Interest  expense                                                                                               |       | -                                        |       | (294,021 | ) | (757,515 | ) | (5,731,625 | ) | (762,528 | ) | (7,545,689 | ) |
| Loss on  disposal of assets                                                                                     |       | -                                        |       | - |   | (57,479 | ) | (78,548 | ) | - |   | (136,027 | ) |
|                                                                                                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |
| **Income  (loss) from continuing operations**                                                                   |       | -                                        |       | 402,734 |   | 82,995 |   | (4,572,353 | ) | (3,724,109 | ) | (7,810,733 | ) |
| Discontinued  operations, net                                                                                   |       | 21,959                                   |       | - |   | 1,031,889 |   | 9,767 |   | - |   | 1,063,615 |   |
| Gain on sale  of discontinued operations                                                                        |       | -                                        |       | - |   | 1,679,143 |   | 48,271,343 |   | - |   | 49,950,486 |   |
| ** **                                                                                                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net  income (loss)**                                                                                          |       | $                                        | 21,959     |   | $ | 402,734 |   | $ | 2,794,027 |   | $ | 43,708,757 |   | $ | (3,724,109 | ) | $ | 43,203,368 |   |
| ** **                                                                                                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Land,  buildings and amenities, net                                                                             |       | $                                        | 156,970    |   | $ | 7,757,532 |   | $ | 69,525,894 |   | $ | 225,735,360 |   | $ | - |   | $ | 303,175,756 |   |

 

**Item 2 – Management’s Discussion and Analysis of Financial Conditionand Results of Operations**

 

Management’s Discussion and Analysis of Financial Condition and Resultsof Operations should be read in conjunction with the financial statements inItem 1 and the cautionary statements below.

 

**Critical Accounting Policies**

 

***General***

 

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

 

20

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***Impairment and Valuation***

 

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

 

Our property acquisitions were accounted for using the purchase methodof accounting in accordance with SFAS No. 141 “Business Combinations.”  Each property’s assets and liabilitiesacquired from unaffiliated third parties was adjusted to reflect its fairmarket value.  In accordance with SFASNo. 141, we have allocated the purchase price of each acquired investmentproperty among land, buildings and improvements, other intangibles, includingacquired above market leases, acquired below market leases and acquired in-placelease origination cost which is the market cost avoidance of executing theacquired leases.  Allocation of thepurchase price is an area that requires complex judgments and significantestimates.  We used the informationcontained in a third-party appraisal as the primary basis for allocating thepurchase price between land and buildings. A pro rata portion of the purchase price was allocated to the value ofavoiding a lease-up period for acquired in-place leases.  The value of in-place leases is amortized toexpense over the remaining initial term of the respective leases.  A portion of the purchase price was allocatedto the estimated lease origination cost based on estimated lease executioncosts for similar leases and considered various factors including geographiclocation and size of leased space.  Wethen evaluated acquired leases based upon current market rates at theacquisition date and various other factors including geographic location, sizeand the location of leased space within the property, tenant profile and thecredit risk of the tenant in determining whether the acquired lease is above orbelow market.  After acquired leases weredetermined to be at, above or below market, we allocated a pro rata portion ofthe purchase price to any acquired above or below market lease based upon thepresent value of the difference between the contractual lease rate and theestimated market rate.  We also consideran allocation of purchase price to in-place leases that have a customerrelationship intangible value.  Thecharacteristics we consider in allocating these values include the nature andextent of existing business relationships with the tenant, growth prospects fordeveloping new business with the tenant and the tenant’s credit quality andexpectations of lease renewals.  We didnot have any tenants with whom we have identified a developed relationship thatwe believe had any intangible value.

 

***Recognition of Rental Income***

 

Under GAAP, we are required to recognize rental income based on theeffective monthly rent for each lease. The effective monthly rent is equal to the average monthly rent duringthe term of the lease, not the stated rent for any particular month.  The process, known as “straight-lining” or “stepping”rent, has the effect of increasing rental revenues during the early phases of alease and decreasing rental revenues in the latter phases of a lease if thestated rent progressively increases over the term of the lease.  Due to the impact of “straight-lining,” thecash collected exceeded the rental income for rent by approximately $38,000 and$315,000 for the three and nine months ended September 30, 2007, respectively.  For the three and nine months ended September30, 2006, the cash collected exceeded the rental income for rent byapproximately $65,000 and $187,000, respectively.  If rental income calculated on astraight-line basis exceeds the cash rent due under the lease, the differenceis recorded as an increase in deferred rent receivable and included as acomponent of accounts receivable on the relevant balance sheet.  If the cash rent due under the lease exceedsrental income calculated on a straight-line basis, the difference is recordedas a decrease in deferred rent receivable and is recorded as a decrease ofaccounts receivable on the relevant balance sheet.  We defer recognition of contingent rentalincome, such as percentage or excess rent, until the breakpoint that triggersthe contingent rental income is achieved. We periodically review the collectability of outstandingreceivables.  Allowances are generallytaken for tenants with outstanding balances due for a period greater thanninety days and tenants with outstanding balances due for a period less than ninetydays if we believe these balances may be uncollectible.

 

21

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***Recognition of Lease Termination Income***

 

We recognize lease termination income upon receipt of the income.  We accrue lease termination income if thereis a signed termination agreement, all of the conditions of the agreement havebeen met and the tenant is no longer occupying the property.

 

***Cost Capitalization and Depreciation Policies***

 

We review all expenditures and capitalize any item exceeding $2,500deemed to be an upgrade or a tenant improvement with an expected useful lifegreater than one year.  Land, buildingsand amenities are stated at cost. Depreciation expense is computed using the straight-line method over theestimated useful lives of the assets.  Generally,buildings and improvements have estimated useful lives between 7-30 years, landimprovements have estimated useful lives between 5-30 years and amenities haveestimated useful lives between 5-30 years. Acquired above and below market leases are amortized on a straight-linebasis over the life of the related leases as an adjustment to rentalincome.  Acquired in-place leaseorigination cost is amortized over the life of the lease as a component ofamortization expense.

 

**Results of Operations**

 

At September 30, 2007, we owned wholly or as a tenant in common with anunaffiliated third party, twenty-nine properties, comprised of elevenmultifamily properties, fourteen office and business centers, three retailproperties and one ground lease. Discontinued operations consisted of eight office and business centersand one ground lease.  We generatesubstantially all of our operating income from property operations.

 

Net loss from continuing operations for the three months ended September30, 2007 and 2006 was approximately $2,634,000 and $3,418,000,respectively.  The decrease in net losswas primarily due to increased revenue which was partially offset by increasedoperating expenses and interest due to the 2007 acquisitions of The OverlookApartments and Creek’s Edge Apartments.  Netloss from continuing operations for the nine months ended September 30, 2007and 2006 was approximately $8,220,000 and $7,811,000, respectively.  The increase in net loss was primarily due toincreased operating expense, property tax and insurance, depreciation and interestexpense, which was partially offset by increased revenue related to the 2007acquisitions of The Overlook Apartments and Creek’s Edge Apartments, and the2006 acquisitions of Castle Creek Apartments, Lake Clearwater Apartments, TheGrove at Richland Apartments, The Grove at Swift Creek Apartments, and TheGrove at Whitworth Apartments.

 

The following tables include certain selectedsummarized operating data for the three and nine months ended September 30,2007 and 2006.  This data should be readin conjunction with our financial statements, including the notes attachedhereto.

 
| ** **                                                         | ** ** | **(Unaudited)**                           | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                  | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                         | -          |   | $ | 344,333 |   | $ | 1,404,296 |   | $ | 9,133,628 |   | $ | (30,971 | ) | $ | 10,851,286 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                         |       | 37,447 |   | 497,704 |   | 3,243,397 |   | - |   | 3,778,548 |   |
| Depreciation  and amortization                                     |       | -                                         |       | 67,802 |   | 386,162 |   | 3,761,414 |   | - |   | 4,215,378 |   |
| Total  interest expense                                            |       | -                                         |       | (113,243 | ) | (197,962 | ) | (2,880,744 | ) | (126,946 | ) | (3,318,895 | ) |
| Net income  (loss)                                                 |       | 8,067                                     |       | 94,996 |   | 708,303 |   | (1,840,243 | ) | (933,801 | ) | (1,962,678 | ) |
|                                                                    |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                           | ** ** |
|--------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                         | ** ** | **Three Months Ended September 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                  | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                         | -          |   | $ | 361,510 |   | $ | 1,388,433 |   | $ | 7,113,621 |   | $ | (73,798 | ) | $ | 8,789,766 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                         |       | 33,218 |   | 471,375 |   | 2,894,639 |   | - |   | 3,399,232 |   |
| Depreciation  and amortization                                     |       | -                                         |       | 70,293 |   | 408,488 |   | 3,008,263 |   | - |   | 3,487,044 |   |
| Total  interest expense                                            |       | -                                         |       | (97,357 | ) | (269,641 | ) | (2,256,261 | ) | (238,829 | ) | (2,862,088 | ) |
| Net income  (loss)                                                 |       | 7,181                                     |       | 132,391 |   | 242,651 |   | (2,209,811 | ) | (1,270,842 | ) | (3,098,430 | ) |
|                                                                    |            |                                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

22

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| ** **                                                         | ** ** | **(Unaudited)**                          | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2007** | ** ** |
| ** **                                                         | ** ** | **Land**                                 | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                        | -          |   | $ | 1,098,096 |   | $ | 4,299,778 |   | $ | 25,208,128 |   | $ | (327,208 | ) | $ | 30,278,794 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                        |       | 112,577 |   | 1,386,320 |   | 9,088,841 |   | - |   | 10,587,738 |   |
| Depreciation  and amortization                                     |       | -                                        |       | 203,405 |   | 1,160,827 |   | 10,291,279 |   | - |   | 11,655,511 |   |
| Total  interest expense                                            |       | -                                        |       | (329,645 | ) | (857,441 | ) | (7,664,349 | ) | (343,461 | ) | (9,194,896 | ) |
| Gain on sale  of discontinued operations                           |       | -                                        |       | - |   | 13,482,291 |   | - |   | - |   | 13,482,291 |   |
| Net income  (loss)                                                 |       | 22,493                                   |       | 356,774 |   | 14,538,813 |   | (5,528,269 | ) | (3,079,267 | ) | 6,310,544 |   |
|                                                                    |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                                         | ** ** | **(Unaudited)**                          | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------|------------|
| ** **                                                         | ** ** | **Nine Months Ended September 30, 2006** | ** ** |
| ** **                                                         | ** ** | **Land**                                 | ** ** | **Retail** | ** ** | **Commercial** | ** ** | **Multifamily** | ** ** | **Partnership** | ** ** | **Total** | ** ** |
| Total  revenues                                                    |       | $                                        | -          |   | $ | 1,089,559 |   | $ | 4,261,446 |   | $ | 18,854,856 |   | $ | (217,379 | ) | $ | 23,988,482 |   |
| Operating  expenses and operating expenses reimbursed to affiliate |       | -                                        |       | 98,255 |   | 1,396,020 |   | 6,701,900 |   | - |   | 8,196,175 |   |
| Depreciation  and amortization                                     |       | -                                        |       | 215,551 |   | 1,222,760 |   | 7,764,080 |   | - |   | 9,202,391 |   |
| Total  interest expense                                            |       | -                                        |       | (294,021 | ) | (757,515 | ) | (5,731,625 | ) | (762,528 | ) | (7,545,689 | ) |
| Gain on sale  of discontinued operations                           |       | -                                        |       | - |   | 1,679,143 |   | 48,271,343 |   | - |   | 49,950,486 |   |
| Net income  (loss)                                                 |       | 21,959                                   |       | 402,734 |   | 2,794,027 |   | 43,708,757 |   | (3,724,109 | ) | 43,203,368 |   |
|                                                                    |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

Occupancy levels at our continuing properties by segment as of September30, 2007 and 2006 were as follows:

 
| ** **  | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Commercial  |       | 72.6%    |       | 73.5%    |       |
| Multifamily |       | 94.7%    |       | 94.7%    |       |
| Retail      |       | 98.2%    |       | 100%     |       |
| Land        |       | N/A      |       | N/A      |       |

 

We believe the changes in occupancy on September 30 from year to yearare temporary effects of each property’s specific mix of lease maturities and arenot indicative of any known trend or uncertainty.

 

The average occupancy levels at our continuing properties by segment forthe three and nine months ended September 30, 2007 and 2006 were as follows:

 
| ** **  | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|-------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **  | ** ** | **2007**                             | ** ** | **2006**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Commercial  |       | 73.0%                                |       | 72.9%                               |       | 74.0% |   | 73.9% |   |
| Multifamily |       | 95.3%                                |       | 94.6%                               |       | 95.2% |   | 94.2% |   |
| Retail      |       | 98.2%                                |       | 99.6%                               |       | 98.2% |   | 99.8% |   |
| Land        |       | N/A                                  |       | N/A                                 |       | N/A |   | N/A |   |

 

We believe the changes in average occupancy from period to period aretemporary effects of each property’s specific mix of lease maturities and arenot indicative of any known trend or uncertainty.

 

The leasing and renewal negotiations for our commercial and retail propertiesare primarily handled by leasing agents that are employees of NTS DevelopmentCompany.  All advertising for thecommercial and retail properties is coordinated by NTS Development Company’smarketing staff located in Louisville, Kentucky.

 

We have on-site leasing staff, who are employees of NTS DevelopmentCompany, at each of the multifamily properties. The staff handles all on-site visits from potential tenants, coordinateslocal advertising with NTS Development Company’s marketing staff, makes visitsto local companies to promote fully furnished apartments, and negotiates leaserenewals with current residents.

 

23

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The following discussion relating to changes in our results ofoperations includes only material line items within our Statements of Operationsor line items for which there was a material change between the three and nine monthsended September 30, 2007 and 2006.

*** ***

***Rental Income and Tenant Reimbursements***

 

Rental income and tenant reimbursements from continuing operations forthe three months ended September 30, 2007 and 2006 were approximately$10,851,000 and $8,790,000, respectively. Rental income and tenant reimbursements from continuing operations forthe nine months ended September 30, 2007 and 2006 were approximately$30,279,000 and $23,988,000, respectively. The increases of $2,061,000, or 23%, and $6,291,000, or 26%,respectively, were primarily due to the 2007 acquisitions of The OverlookApartments and Creek’s Edge Apartments, and the 2006 acquisitions of CastleCreek Apartments, Lake Clearwater Apartments, The Grove at Richland Apartments,The Grove at Swift Creek Apartments, and The Grove at Whitworth Apartments.

 

***Operating Expenses and Operating ExpensesReimbursed to Affiliate***

 

Operating expenses from continuing operations for the three monthsended September 30, 2007 and 2006 were approximately $2,493,000 and $2,339,000,respectively.  Operating expenses fromcontinuing operations for the nine months ended September 30, 2007 and 2006were approximately $6,929,000 and $5,335,000, respectively.  The increases of $154,000, or 7%, and$1,594,000, or 30%, respectively, were primarily due to the 2007 acquisitionsof The Overlook Apartments and Creek’s Edge Apartments, and the 2006acquisitions of Castle Creek Apartments, Lake Clearwater Apartments, The Groveat Richland Apartments, The Grove at Swift Creek Apartments, and The Grove atWhitworth Apartments.

 

Operating expenses reimbursed to affiliate from continuing operationsfor the three months ended September 30, 2007 and 2006 were approximately$1,286,000 and $1,060,000, respectively. Operating expenses reimbursed to affiliate from continuing operationsfor the nine months ended September 30, 2007 and 2006 were approximately$3,659,000 and $2,861,000, respectively. The increases of $226,000, or 21%, and $798,000, or 28%, respectively,were primarily due to the 2007 acquisitions of The Overlook Apartments andCreek’s Edge Apartments, and the 2006 acquisitions of Castle Creek Apartments,Lake Clearwater Apartments, The Grove at Richland Apartments, The Grove atSwift Creek Apartments, and The Grove at Whitworth Apartments.

 

We do not have any employees.  Pursuantto our management agreement, NTS Development Company employs the individuals whoprovide services necessary to operate our properties and conduct ourbusiness.  NTS Development Companyprovides employees that may also perform services for other properties andbusiness enterprises.  In the situationwhere a particular employee benefits multiple operations, the employee’s cost isproportionately charged out to the entity receiving the services.  The cost of services provided to us by NTSDevelopment Company’s employees are classified in our consolidated Statementsof Operations as “Operating expenses reimbursed to affiliate”.  The services provided by others areclassified as “Operating expenses”.

 

Operating expenses reimbursed to affiliate are for the servicesperformed by employees of NTS Development Company, an affiliate of our generalpartners.  These employee servicesinclude property management, leasing, maintenance, security and other servicesnecessary to manage and operate our business.

 

Operating expenses reimbursed to affiliate consisted approximately ofthe following:

*** ***
| ** **           | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)**                     | ** ** |
|----------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **           | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **           | ** ** | **2007**                             | ** ** | **2006**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Property             |       | $                                    | 836,000    |                                | $          | 673,000 |   | $ | 2,364,000 |   | $ | 1,767,000 |   |
| Multifamily  Leasing |       | 138,000                              |       | 107,000                             |       | 374,000 |   | 276,000 |   |
| Administrative       |       | 291,000                              |       | 266,000                             |       | 860,000 |   | 785,000 |   |
| Other                |       | 21,000                               |       | 14,000                              |       | 61,000 |   | 33,000 |   |
|                 |       |                                 |       |                                |       |   |   |   |   |
| **Total**            |       | $                                    | 1,286,000  |                                | $          | 1,060,000 |   | $ | 3,659,000 |   | $ | 2,861,000 |   |

 

24

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***Management Fees***

 

Management fees from continuing operations for the three months endedSeptember 30, 2007 and 2006 were approximately $511,000 and $441,000,respectively.  Management fees fromcontinuing operations for the nine months ended September 30, 2007 and 2006were approximately $1,473,000 and $1,219,000, respectively.  The increases of $70,000, or 16%, and$254,000, or 21%, respectively, were primarily due to the 2007 acquisitions ofThe Overlook Apartments and Creek’s Edge Apartments, and the 2006 acquisitionsof Castle Creek Apartments, Lake Clearwater Apartments, The Grove at RichlandApartments, The Grove at Swift Creek Apartments, and The Grove at WhitworthApartments.

 

Pursuant to our management agreement, NTS Development Company receivesproperty management fees equal to 5% of the gross collected revenue from our wholly-ownedproperties.  NTS Development Companyreceives property management fees from our properties owned as a tenant incommon with an unaffiliated third party equal to 3.5% of their gross collectedrevenue under separate management agreements. We were the beneficiary of a preferential ownership interest,disproportionately greater than our initial cash investment in each propertyowned as a tenant in common with an unaffiliated third party.  NTS Development Company has agreed to accepta lower management fee for the properties we own as a tenant in common with anunaffiliated third party in exchange for a larger potential dispositionfee.  Disposition fees of up to 6% of thegross sales price may be paid to NTS Development Company for the sale of one ofour properties owned as a tenant in common with an unaffiliated thirdparty.  Management fees are calculated asa percentage of cash collections and are recorded on the accrual basis.  As a result, the fluctuations in revenuebetween years will differ from the fluctuations of management fee expense.

*** ***

***Property Taxes and Insurance***

 

Property taxes and insurance from continuing operations for the threemonths ended September 30, 2007 and 2006 were approximately $1,305,000 and$1,065,000, respectively.  Property taxesand insurance from continuing operations for the nine months ended September30, 2007 and 2006 were approximately $3,955,000 and $2,933,000,respectively.  The increases of $240,000,or 23%, and $1,022,000, or 35%, respectively, were primarily due to the 2007acquisitions of The Overlook Apartments and Creek’s Edge Apartments, and the2006 acquisitions of Castle Creek Apartments, Lake Clearwater Apartments, TheGrove at Richland Apartments, The Grove at Swift Creek Apartments, and TheGrove at Whitworth Apartments.

 

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

 

Professional and administrative expenses from continuing operations forthe three months ended September 30, 2007 and 2006 were approximately $336,000and $546,000, respectively.  Professionaland administrative expenses from continuing operations for the nine monthsended September 30, 2007 and 2006 were approximately $1,009,000 and $1,510,000,respectively.  The decreases of $210,000,or 38%, and $501,000, or 33%, were primarily due to decreased legal andprofessional fees related to the class action litigation, general legal feesand legal fees associated with the “like kind exchange” of properties.

 

Professional and administrative expenses reimbursed to affiliate fromcontinuing operations for the three months ended September 30, 2007 and 2006were approximately $406,000 and $389,000, respectively.  Professional and administrative expenses reimbursedto affiliate from continuing operations for the nine months ended September 30,2007 and 2006 were approximately $1,315,000 and $1,198,000, respectively.  The increases of $17,000, or 4%, and$117,000, or 10%, was primarily due to increased personnel costs reimbursed toNTS Development Company.

 

We do not have any employees.  Pursuantto our management agreement, NTS Development Company employs the individuals whoprovide services necessary to operate our properties and conduct ourbusiness.  NTS Development Companyprovides employees that may also perform services for other properties andbusiness enterprises.  In the situationwhere a particular employee benefits multiple operations, the employee’s costis proportionately charged out to the entity receiving the services.  The cost of services provided to us by NTSDevelopment Company’s employees are classified in our consolidated Statementsof Operations as “Professional and administrative expenses reimbursed toaffiliate”.  The services provided byothers are classified as “Professional and administrative”.

 

25

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Professional and administrative expenses reimbursed to affiliate arefor the services performed by employees of NTS Development Company, anaffiliate of our general partners.  Theseemployee services include legal, financial and other services necessary tomanage and operate our business.

 

Professional and administrative expenses reimbursedto affiliate consisted approximately of the following:

 
| ** **          | ** ** | **(Unaudited)**                      | ** ** | **(Unaudited)**                     | ** ** |
|---------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
| ** **          | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **          | ** ** | **2007**                             | ** ** | **2006**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Finance             |       | $                                    | 95,000     |                                | $          | 100,000 |   | $ | 319,000 |   | $ | 311,000 |   |
| Accounting          |       | 204,000                              |       | 203,000                             |       | 616,000 |   | 621,000 |   |
| Investor  Relations |       | 69,000                               |       | 53,000                              |       | 265,000 |   | 171,000 |   |
| Human  Resources    |       | 4,000                                |       | 5,000                               |       | 14,000 |   | 14,000 |   |
| Overhead            |       | 34,000                               |       | 28,000                              |       | 101,000 |   | 81,000 |   |
|                |       |                                 |       |                                |       |   |   |   |   |
| **Total**           |       | $                                    | 406,000    |                                | $          | 389,000 |   | $ | 1,315,000 |   | $ | 1,198,000 |   |

 

***Depreciation and Amortization***

 

Depreciation and amortization from continuing operations for the threemonths ended September 30, 2007 and 2006 were approximately $4,215,000 and$3,487,000, respectively.  Depreciationand amortization from continuing operations for the nine months ended September30, 2007 and 2006 were approximately $11,656,000 and $9,202,000,respectively.  The increases of $728,000,or 21%, and $2,454,000, or 27%, were primarily due to the 2007 acquisitions of TheOverlook Apartments and Creek’s Edge Apartments, and the 2006 acquisitions ofCastle Creek Apartments, Lake Clearwater Apartments, The Grove at RichlandApartments, The Grove at Swift Creek Apartments, and The Grove at WhitworthApartments.

*** ***

***Interest and Other Income***

 

Interest and other income from continuing operations for the threemonths ended September 30, 2007 and 2006 were approximately $19,000 and$17,000, respectively.  The increase wasnot significant and there were no material offsetting changes.  Interest and other income from continuingoperations for the nine months ended September 30, 2007 and 2006 wereapproximately $81,000 and $142,000, respectively.  The decrease of $61,000, or 43%, wasprimarily the result of a forfeited deposit due to the cancellation of thesales agreement for the Sears Office Building in 2006.

 

***Interest Expense***

 

Interest expense from continuing operations for the three months endedSeptember 30, 2007 and 2006 were approximately $3,319,000 and $2,862,000,respectively.  Interest expense fromcontinuing operations for the nine months ended September 30, 2007 and 2006were approximately $9,195,000 and $7,546,000, respectively.  The increases of $457,000, or 16%, and $1,649,000,or 22%, are primarily related to the loans obtained for the 2007 acquisitionsof The Overlook Apartments and Creek’s Edge Apartments, and the 2006 acquisitionsof Castle Creek Apartments, Lake Clearwater Apartments, The Grove at RichlandApartments, The Grove at Swift Creek Apartments, and The Grove at WhitworthApartments.

*** ***

***Loss on Disposal of Assets***

 

The loss on disposal of assets from continuing operations for the threeand nine months ended September 30, 2007 and 2006 can be attributed to assetsthat were not fully depreciated at the time of replacement, primarily at ourcommercial and multifamily properties. These replacements include roof replacements, stairwell upgrades and heatingand air conditioning units.

 

26

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***Minority Interest***

 

Minority interest for the three and nine months ended September 30,2007 includes the net operating loss attributable to the minority holder of thetenant in common interests in our properties acquired in 2007 as a tenant incommon with an unaffiliated third party. The properties are The Overlook Apartments and Creek’s Edge Apartments.

*** ***

***Discontinued Operations***

 

Discontinued operations, net for the three months ended September 30,2007 and 2006 were approximately $672,000 and $319,000, respectively.  Discontinued operations, net for the ninemonths ended September 30, 2007 and 2006 were approximately $1,048,000 and $1,064,000,respectively.  Discontinued operationsfor the nine months ended September 30, 2007 includes the net operating resultsfor the properties previously sold and currently held for sale as listedbelow.  The increase of $353,000, or 111%,for the three months ended September 30, 2007 is primarily due to discontinueddepreciation on the properties presently held for sale.  Discontinued Operations includes the netoperating results of the following properties:

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

 

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

 

Gain on sale of discontinued operations for the nine months ended September30, 2007 was approximately $13,482,000 due to the sale of Springs MedicalOffice Center and Springs Office Center on February 12, 2007.  Gain on sale of discontinued operations forthe nine months ended September 30, 2006 was approximately $49,950,000 due tothe sale of Golf Brook and Sabal Park Apartments on February 2, 2006 andCommonwealth Business Center Phases I and II on May 18, 2006.

 

**Liquidity and Capital Resources**

 

Our most liquid asset is our cash and equivalents, which consist ofcash and short-term investments, but do not include any restricted cash.  Operating income generated by the propertieswill be the primary source from which we generate cash.  Other sources of cash include the proceedsfrom mortgage loans and notes payable.  Ourmain uses of cash will relate to capital expenditures, required payments ofmortgages and notes payable, distributions and property taxes.

 

27

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The following table summarizes our approximate sources/uses of cashflow for the nine months ended September 30, 2007 and 2006:

 
| ** **                                           | ** ** | **(Unaudited)**                     | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                           | ** ** | **Nine Months Ended September 30,** | ** ** |
| ** **                                           | ** ** | **2007**                            | ** ** | **2006** | ** ** |
| Operating  activities                                |       | $                                   | 6,321,000  |   | $ | 8,061,000 |   |
| Investing  activities                                |       | (47,142,000                         | )          | (56,330,000 | ) |
| Financing  activities                                |       | 41,287,000                          |       | 43,222,000 |   |
|                                                 |       |                                |       |   |   |
| **Net  increase (decrease) in cash and equivalents** |       | $                                   | 466,000    |   | $ | (5,047,000 | ) |

 

***Cash Flow from Operating Activities***

 

Net cash provided by operating activities decreased to approximately $6.3million from $8.1 million for the nine months ended September 30, 2007 and 2006,respectively.  The change was primarilydue to funds restricted from the sale of Springs Medical Office Center andSprings Office Center along with an increase in minority interest due to the2007 acquisitions of The Overlook Apartments and Creek’s Edge Apartments.

 

***Cash Flow from Investing Activities***

 

Net cash used in investing activities decreased to approximately $47.1million from $56.3 million for the nine months ended September 30, 2007 and 2006,respectively.  The decrease was primarilydue to changes in investing activities from property acquisitions anddispositions.

 

***Cash Flow from Financing Activities***

 

Net cash provided by financing activities decreased to approximately $41.3million from $43.2 million for the nine months ended September 30, 2007 and 2006,respectively.  The change was primarilythe result of additional payments on a mortgage payable of $21.2 million and adecrease in proceeds from the revolving note payable.  The decrease is partially offset by anincrease in mortgages payable due to property acquisitions.

 

***Future Liquidity***

 

Our future liquidity depends significantly on our properties’ occupancyand operating results remaining at a level which provides for debt payments,distributions to our limited partners and adequate working capital, currentlyand in the future.  If occupancy were tofall below that level and remain at or below that level for a significantperiod of time, our ability to make payments due under our debt agreements andto continue paying daily operational costs would be greatly impaired.  In the next twelve months, we intend tooperate the properties in a similar manner to their operation in recentyears.  Cash reserves, which consist ofunrestricted cash as shown on our balance sheet, were approximately $495,000 onSeptember 30, 2007.

 

On March 19, 2007, we announced that the board of directors of our managinggeneral partner approved a quarterly distribution of $0.10 per unit on ourlimited partnership units.  Thedistribution was paid on April 13, 2007, to limited partners of record at theclose of business on March 31, 2007.

 

On June 12, 2007, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.10 per unit onour limited partnership units.  Thedistribution was paid on July 13, 2007, to limited partners of record at theclose of business on June 30, 2007.

 

On September 17, 2007, we announced that the board of directors of ourmanaging general partner approved a quarterly distribution of $0.10 per unit onour limited partnership units.  Thedistribution was paid on October 16, 2007, to limited partners of record at theclose of business on September 28, 2007.

 

As a result of increased real estate and franchise taxes on certain ofthe Company’s properties and legal expenses necessary to conclude the classaction litigation involving the Company and its predecessors, among others, theamount of the Company’s fourth quarter 2007 distribution may be lower than thecorresponding distribution in 2006.

 

28

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We expect to incur expenditures of approximately $6.4 million funded byborrowings on our debt during the next twelve months primarily for renovationsand tenant origination costs necessary to continue leasing our properties.  This discussion of future liquidity detailsour material commitments.  We anticipateseeking renewal or refinancing of our notes payable coming due in the nexttwelve months.

 

Our borrowing base limitation on the revolving note payable wasapproximately $28.0 million at September 30, 2007.

 

***Property Transactions***

 

During the nine months ended September 30, 2007, we made the followingproperty transactions:

 

***Acquisitions***

 
| **Property**                          | ** ** | **Location**   | ** ** | **Units** | ** ** | **Date of Purchase** | ** ** | **Purchase Price** | ** ** |
|---------------------------------------|------------|----------------|------------|-----------|------------|----------------------|------------|--------------------|------------|
| The Overlook  at St. Thomas (1)       |       | Louisville, KY |       | 484       |       | March 14, 2007       |       | $                  | 46,000,000 |   |
| Creek’s Edge  at Stony Point (2) |       | Richmond, VA   |       | 202       |       | August 14, 2007      |       |               | 32,300,000 |   |

 

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(1)          Assumed a mortgage of $36.0 million.  At September 30, 2007 we owned a 60% tenantin common interest.  NTS Realty’sliability under this mortgage is limited to its ownership percentage.

(2)          Acquired a new mortgage $22.75 million topurchase the property.  At September 30,2007 we owned a 51% tenant in common interest. NTS Realty’s liability is joint and several under this mortgage.

 

***Dispositions***

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

 

----

(1)          Gain of approximately $8.8 million.

(2)          Gain of approximately $4.6 million.

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

 

On June 12, 2007, the board of directors of NTS Realty Capital, Inc.,our managing general partner, authorized the sale of Atrium Center,Blankenbaker Business Center I, Blankenbaker Business Center II, Anthem OfficeCenter, NTS Center, Plainview Center, Plainview Point Office Center Phase I andII, Plainview Point Office Center Phase III, and the ITT Parking Lot (the “OfficePortfolio”).  These properties have beenclassified as held for sale on our balance sheet and discontinued operations onour statements of operations at September 30, 2007 and all comparative datesand periods presented.

 

On August 2, 2007, we announced that we entered into an agreement tosell the Office Portfolio.  Pursuant tothe agreement, we will receive $66,550,000 in proceeds.  We intend to use the sale proceeds to repayoutstanding debt on the properties and to purchase properties in a manner thatwould qualify as a tax deferred exchange under Section 1031 of the InternalRevenue Code.

 

We may engage in transactions structured as “like-kind exchanges” ofproperty to obtain favorable tax treatment under Section 1031 of the InternalRevenue Code.  If we are able tostructure an exchange of properties as a “like-kind exchange,” then any gain werealize from the exchange would not be recognized for federal income taxpurposes.  The test for determiningwhether exchanged properties are of “like-kind” is whether the properties areof the same nature or character.

 

We were unable to use approximately $1.3 million of the proceeds fromthe sale of Springs Medical Office Center and Springs Office Center in thepurchase of The Overlook at St. Thomas. Under Section 1031 of the Internal Revenue Code certain tax consequencesmay result for the limited partners of record due to our inability to use thesefunds in a “like-kind exchange”.  Theconsequences include the recognition of gain or loss on the transaction andrelated tax attributes.

 

29

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**Website Information**

 

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

 

30

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

 

Our primary market risk exposure with regard to financial instrumentsis expected to be our exposure to changes in interest rates.  We refinanced substantially all of our debtacquired at the time of our merger with instruments which bear interest at afixed rate, with the exception of approximately $78.5 million at variablerates.  We anticipate that a hypothetical100 basis point increase in interest rates would result in an approximate $9.9million decrease in the fair value of our fixed rate debt while increasinginterest expense on our variable rate debt by approximately $785,000 annually.

 

We entered into an interest rate swap agreement beginning in September2007 that effectively converts $18 million of our variable-rate debt bearinginterest at the LIBOR one month rate to a 5.05% fixed rate basis for the nexttwo years, thus reducing the impact of interest rate changes on future interestexpense.  Approximately $17.8 million, or7%, of our outstanding debt had its interest payments converted to the interestrate swap agreement at September 30, 2007.

 

The fair value of the interest rate swap agreement at September 30,2007 was approximately $166,000 and is included in Other Assets on our ConsolidatedBalance Sheet.

 

During the quarter ended September 30, 2007, we recognized a net gainof approximately $166,000 to record the swap agreement at fair value.

 

**Contractual Obligations and CommercialCommitments**

 

The following table represents our obligations and commitments to makefuture payments as of September 30, 2007 under contracts, such as debt andlease agreements, and under contingent commitments, such as debt guarantees.

 
| ** **                              | *** *** | **Total**  | ** **  | **Within  One Year** | ** ** | **One - Three  Years** | ** ** | **Three - Five  Years** | ** ** | **After Five  Years** | ** ** |
|-----------------------------------------|--------------|------------|-------------|----------------------|------------|------------------------|------------|-------------------------|------------|-----------------------|------------|
| **Contractual  Obligations**            | ** **   | ** ** | ** **  | ** **           | ** ** | ** **             | ** ** | ** **              | ** ** | ** **            | ** ** |
| Mortgages  and note payable             |         | $          | 267,363,368 |                 | $          | 41,314,836             |       | $                       | 27,596,347 |                  | $          | 10,553,813 |   | $ | 187,898,372 |   |
| Capital  lease obligations              |         | -          |        | -                    |       | -                      |       | -                       |       | -                     |       |
| Operating  leases (1)                   |         | -          |        | -                    |       | -                      |       | -                       |       | -                     |       |
| Other  long-term obligations (2)        |         | -          |        | -                    |       | -                      |       | -                       |       | -                     |       |
|                                    |         |       |        |                 |       |                   |       |                    |       |                  |       |
| **Total  contractual cash obligations** |         | $          | 267,363,368 |                 | $          | 41,314,836             |       | $                       | 27,596,347 |                  | $          | 10,553,813 |   | $ | 187,898,372 |   |

 

----

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

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

 
| ** **                                | ** ** | **Total**              | ** ** | **Amount of Commitment Expiration Per Period** | ** ** |
|-------------------------------------------|------------|------------------------|------------|------------------------------------------------|------------|
| ** **                                | ** ** | **Amounts  Committed** | ** ** | **Within  One Year**                           | ** ** | **One - Three  Years** | ** ** | **Three - Five  Years** | ** ** | **After Five  Years** | ** ** |
| **Other  Commercial Commitments**         | ** ** | ** **             | ** ** | ** **                                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Line of  credit                           |       | $                      | -          |                                           | $          | - |   | $ | - |   | $ | - |   | $ | - |   |
| Standby  letters of credit and guarantees |       | -                      |       | -                                              |       | - |   | - |   | - |   |
| Other  commercial commitments (1)         |       | -                      |       | -                                              |       | - |   | - |   | - |   |
|                                      |       |                   |       |                                           |       |   |   |   |   |   |   |
| **Total  commercial commitments**         |       | $                      | -          |                                           | $          | - |   | $ | - |   | $ | - |   | $ | - |   |

 

----

(1)        We do not, as a practice, enter into long-term purchase commitments forcommodities or services.  We may fromtime to time agree to “fee for service arrangements” which are for a term ofgreater than one year.

 

31

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**Item 4 – Controls and Procedures**

 

Our managing general partner has established disclosure controls andprocedures to ensure that our material information is made known to theofficers of our managing general partner who certify our financial reports, toour management and to the board of directors of our managing partner.

 

Our managing general partner’s Chief Executive Officer and ChiefFinancial Officer have evaluated the effectiveness of our disclosure controlsand procedures as of September 30, 2007. Based on that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that our disclosure controls and procedures wereeffective as of September 30, 2007. There were no changes in our internal control over financial reporting identifiedin connection with their evaluation that occurred during the quarter ended September30, 2007 that materially affected or are reasonably likely to materially affectthe internal control over financial reporting.

 

**Item 4T – Controls and Procedures**

 

There were no material changes in our internal control over financialreporting during the quarter ended September 30, 2007.

 

32

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**PART II – OTHER INFORMATION**

 

**Item 1 – Legal Proceedings**

 

None.

 

**Item 1A – Risk Factors**

 

There have not been material changes to our Risk Factors as disclosedin our most recent annual report on Form 10-K as filed with the Securities andExchange Commission on March 28, 2007.

 

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

 

On May 16, 2007, we announced that Mr. J.D.Nichols, Chairman of our managing general partner, adopted two pre-arrangedtrading plans to purchase our limited partnership units pursuant to Rule 10b5-1under the Securities Exchange Act of 1934, as amended.  The plans authorized their administrator,Wells Fargo Investments, to purchase up to $168,000 of our limited partnershipunits from time to time, through no later than December 31, 2007, on behalf oftwo entities controlled or established by Mr. Nichols.  Under the terms of the plans, Mr. Nichols hasno discretion or control over the timing, effectuation or the amount of eachpurchase.  During the three months ended September30, 2007, the two entities controlled or established by Mr. Nichols purchasedour limited partnership units as follows:

 
| **Period**      | ** ** | **Total Number of  Units Purchased** | ** ** | **Average Price Paid  Per Unit** | ** ** | **Total Number of  Units Purchased as  Part of Publicly  Announced Plans or  Programs** | ** ** | **Maximum Number  (or Approximate  Dollar Value) of Units  That May Yet Be  Purchased Under the  Plans or Programs** | ** ** |
|-----------------|------------|--------------------------------------|------------|----------------------------------|------------|-----------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------|------------|
| July 2007       |       | 3,060                                |       | $                                | 7.05       |                                                                                    | 53,671     |                                                                                                                 |       | (1) |
|            |       |                                 |       |                             |       |                                                                                    |       |                                                                                                                 |       |
| August 2007     |       | 2,975                                |       | $                                | 7.01       |                                                                                    | 56,646     |                                                                                                                 |       | (1) |
|            |       |                                 |       |                             |       |                                                                                    |       |                                                                                                                 |       |
| September  2007 |       | 2,900                                |       | $                                | 6.75       |                                                                                    | 59,546     |                                                                                                                 |       | (1) |
|            |       |                                 |       |                             |       |                                                                                    |       |                                                                                                                 |       |
| Total           |       | 8,935                                |       | $                                | 6.94       |                                                                                    | 59,546     |                                                                                                                 |       | (1) |

 

----

(1)               A description of the maximum amount that maybe used to purchase our units under the trading plans is included in thenarrative preceding this table.

 

**Item 3 – Defaults Upon Senior Securities**

 

None.

 

**Item 4 – Submission of Matters to a Vote ofSecurity Holders**

 

None.

 

**Item 5 – Other Information**

 

None.

 

33

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**Item 6 – Exhibits**

 
| **Exhibit No.** | ** ** | ** **                                                                                                                                                                                                                                                                             | ** ** | ** ** |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 2.01                 |       | Agreement and Plan of  Merger by and among NTS Realty Holdings Limited Partnership, NTS-Properties  III, NTS-Properties IV, NTS-Properties V, a Maryland limited partnership,  NTS-Properties VI, a Maryland limited partnership and NTS-Properties VII,  Ltd., dated February 3, 2004 |       | (3)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 2.02                 |       | Contribution Agreement by  and between NTS Realty Holdings Limited Partnership and ORIG, LLC, dated  February 3, 2004                                                                                                                                                                  |       | (3)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 3.01                 |       | Certificate of Limited  Partnership of NTS Realty Holdings Limited Partnership                                                                                                                                                                                                         |       | (1)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 3.02                 |       | Amended and Restated  Agreement of Limited Partnership of NTS Realty Holdings Limited Partnership,  dated as of December 29, 2005                                                                                                                                                      |       | (7)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 3.03                 |       | Certificate of  Incorporation of NTS Realty Capital, Inc.                                                                                                                                                                                                                              |       | (8)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 3.04                 |       | By-Laws of NTS Realty  Capital, Inc.                                                                                                                                                                                                                                                   |       | (2)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.01                |       | Amended and Restated  Management Agreement between NTS Realty Holdings Limited Partnership and NTS  Development Company, dated as of December 29, 2005                                                                                                                                 |       | (6)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.02                |       | Form of Lease Agreement  between NTS Realty Holdings Limited Partnership and SHPS, Inc.                                                                                                                                                                                                |       | (4)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.03                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership and Investors Capital  Mortgage Group, Inc., dated September 30, 2005 (Golf Brook Apartments)                                                                                                             |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.04                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership and Investors Capital  Mortgage Group, Inc., dated September 30, 2005 (Sabal Park Apartments)                                                                                                             |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.05                |       | Agreement for Purchase and  Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty  Holdings Limited Partnership, dated November 1, 2005 (The Grove at Richland  and The Grove at Whitworth)                                                                           |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.06                |       | Agreement for Purchase and  Sale between Schaedle Worthington Hyde Properties, L.P. and NTS Realty  Holdings Limited Partnership, dated November 1, 2005 (The Grove at Swift  Creek)                                                                                                   |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.07                |       | Purchase  and Sale Agreement  between AMLI at Castle Creek, L.P. and AMLI Residential Properties, L.P. and NTS Realty Holdings  Limited Partnership, dated February  7, 2006 (Castle Creek and Lake Clearwater)                                                                        |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.08                |       | Unconditional and  Continuing Guaranty by NTS Realty Holdings Limited Partnership in favor of  National City Bank, dated March 23, 2006                                                                                                                                                |       | (5)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.09                |       | Amended and Restated Master  Loan Agreements between NTS Realty Holdings Limited Partnership and The  Northwestern Mutual Life Insurance Company and between NTS Realty Holdings Limited  Partnership and National City Bank, dated October 4, 2006                                    |       | (9)        |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.10                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership and Meridian Realty  Investments, LLC, dated November 10, 2006 (Springs Medical Office Center)                                                                                                            |       | (10)       |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.11                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership and Meridian Realty  Investments, LLC, dated November 10, 2006 (Springs Office Center)                                                                                                                    |       | (10)       |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.12                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership together with Overlook  Associates, LLC and The Northwestern Mutual Life Insurance Company, dated  December 8, 2006 (The Overlook at St. Thomas)                                                          |       | (11)       |
|                 |       |                                                                                                                                                                                                                                                                                   |       |       |
| 10.13                |       | Purchase and Sale Agreement  between NTS Realty Holdings Limited Partnership together with Creek’s Edge  Investors, LLC and CG Stony Point, LLC, dated June 20, 2007 (Creek’s Edge at  Stony Point)                                                                          |       | (12)       |

 

34

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| **Exhibit No.** | ** ** | ** **                                                                                                                                           | ** ** | ** ** |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|
| 14.01                |       | Code of Conduct and Ethics  of NTS Realty Holdings Limited Partnership, adopted as of December 28, 2004                                              |       | (4)        |
|                 |       |                                                                                                                                                 |       |       |
| 31.1                 |       | Certification of Chief  Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended                  |       | (13)       |
|                 |       |                                                                                                                                                 |       |       |
| 31.2                 |       | Certification of Chief  Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the  Securities Exchange Act, as amended                  |       | (13)       |
|                 |       |                                                                                                                                                 |       |       |
| 32.1                 |       | Certification of Chief  Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002          |       | (13)       |
|                 |       |                                                                                                                                                 |       |       |
| 32.2                 |       | Certification of Chief  Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section  906 of the Sarbanes-Oxley Act of 2002          |       | (13)       |
|                 |       |                                                                                                                                                 |       |       |
| 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)    |   | Incorporated by reference to the Registrant’s Registration Statement  on Form S-4, as filed with the Securities and Exchange Commission on February  4, 2004                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                         |
| (2)    |   | Incorporated by reference to the Registrant’s Registration Statement  on Form S-4/A (Amendment No. 1), as filed with the Securities and Exchange  Commission on June 18, 2004           |
|   |   |                                                                                                                                                                                         |
| (3)    |   | Incorporated by reference to the Registrant’s Registration Statement  on Form S-4/A (Amendment No. 5), as filed with the Securities and Exchange  Commission on October 27, 2004        |
|   |   |                                                                                                                                                                                         |
| (4)    |   | Incorporated by reference to the Registrant’s Annual Report on Form  10-K for the year ended December 31, 2004, as filed with the Securities and  Exchange Commission on June 30, 2005  |
|   |   |                                                                                                                                                                                         |
| (5)    |   | Incorporated by reference to the Registrant’s Annual Report on Form  10-K for the year ended December 31, 2005, as filed with the Securities and  Exchange Commission on April 3, 2006  |
|   |   |                                                                                                                                                                                         |
| (6)    |   | Incorporated by reference to the Registrant’s Current Report on Form  8-K, as filed with the Securities and Exchange Commission on April 17, 2006                                       |
|   |   |                                                                                                                                                                                         |
| (7)    |   | Incorporated by reference to the Registrant’s Information Statement  on Form DEF 14C, as filed with the Securities and Exchange Commission on May  9, 2006                              |
|   |   |                                                                                                                                                                                         |
| (8)    |   | Incorporated by reference to the Registrant’s Quarterly Report on Form  10-Q for the quarter ended June 30, 2006, as filed with the Securities and  Exchange Commission on May 15, 2006 |
|   |   |                                                                                                                                                                                         |
| (9)    |   | Incorporated by reference to the Registrant’s Current Report on Form  8-K/A, as filed with the Securities and Exchange Commission on October 23,  2006                                  |
|   |   |                                                                                                                                                                                         |
| (10)   |   | Incorporated by reference to the Registrant’s Current Report on Form  8-K, as filed with the Securities and Exchange Commission on February 14,  2007                                   |
|   |   |                                                                                                                                                                                         |
| (11)   |   | Incorporated by reference to the Registrant’s Current Report on Form  8-K, as filed with the Securities and Exchange Commission on March 16, 2007                                       |
|   |   |                                                                                                                                                                                         |
| (12)   |   | Incorporated by reference to the Registrant’s Current Report on Form  8-K, as filed with the Securities and Exchange Commission on August 17, 2007                                      |
|   |   |                                                                                                                                                                                         |
| (13)   |   | Filed herewith                                                                                                                                                                               |

 

35

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 
| ** ** | **NTS REALTY HOLDINGS LIMITED PARTNERSHIP** |
|------------|---------------------------------------------|
|       |                                        |   |   |
|       | By:                                         | NTS REALTY CAPITAL, INC. |
|       |                                        | Its: | Managing General Partner |
|       |                                        |   |   |
|       |                                        | By: | */s/ Brian F. Lavin* |
|       |                                        |   | Brian F. Lavin |
|       |                                        |   | Its: | President and Chief Executive Officer |
|       |                                        |   | Date: | November 9, 2007 |
|       |                                        |   |   |
|       |                                        | By: | */s/ Gregory A. Wells* |
|       |                                        |   | Gregory A. Wells |
|       |                                        |   | Its: | Chief Financial Officer |
|       |                                        |   | Date: | November 9, 2007 |

 

36

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